Lancaster Colony(LANC) - 2025 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents unaudited condensed consolidated financial statements, notes, and management's discussion and analysis of operations Item 1. Condensed Consolidated Financial Statements (unaudited) This section presents the unaudited condensed consolidated balance sheets, statements of income, comprehensive income, cash flows, and shareholders' equity for Lancaster Colony Corporation and its subsidiaries, providing a snapshot of the company's financial position and performance for the periods ended March 31, 2025, and June 30, 2024 (balance sheet), and March 31, 2025 and 2024 (income, comprehensive income, cash flows, equity) Condensed Consolidated Balance Sheets – March 31, 2025 and June 30, 2024 This section provides a snapshot of the company's financial position at March 31, 2025, and June 30, 2024 | Metric | March 31, 2025 (in thousands) | June 30, 2024 (in thousands) | | :-------------------------------- | :---------------------------- | :--------------------------- | | Total Assets | $1,276,612 | $1,206,931 | | Property, Plant and Equipment-net | $537,887 | $477,696 | | Goodwill | $223,472 | $208,371 | | Total Shareholders' Equity | $996,248 | $925,772 | Condensed Consolidated Statements of Income – Three and Nine Months Ended March 31, 2025 and 2024 This section presents the company's financial performance for the three and nine months ended March 31, 2025 and 2024 Three Months Ended March 31 | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Net Sales | $457,836 | $471,446 | (2.9)% | | Gross Profit | $105,962 | $104,494 | 1.4% | | Operating Income | $49,877 | $35,146 | 41.9% | | Net Income | $41,124 | $28,350 | 45.1% | | Diluted Net Income Per Common Share | $1.49 | $1.03 | 44.7% | Nine Months Ended March 31 | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (%) | | :-------------------------------- | :------------------ | :------------------ | :--------- | | Net Sales | $1,433,695 | $1,418,934 | 1.0% | | Gross Profit | $349,554 | $334,684 | 4.4% | | Operating Income | $181,402 | $157,675 | 15.0% | | Pension Settlement Charge | $(13,968) | $0 | N/M | | Net Income | $134,818 | $123,785 | 8.9% | | Diluted Net Income Per Common Share | $4.89 | $4.50 | 8.7% | Condensed Consolidated Statements of Comprehensive Income – Three and Nine Months Ended March 31, 2025 and 2024 This section details the company's comprehensive income for the three and nine months ended March 31, 2025 and 2024 Three Months Ended March 31 | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------------- | :------------------ | :------------------ | | Net Income | $41,124 | $28,350 | | Other Comprehensive (Loss) Income, Net of Tax | $(46) | $75 | | Comprehensive Income | $41,078 | $28,425 | Nine Months Ended March 31 | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------------- | :------------------ | :------------------ | | Net Income | $134,818 | $123,785 | | Other Comprehensive (Loss) Income, Net of Tax | $9,604 | $226 | | Comprehensive Income | $144,422 | $124,011 | Condensed Consolidated Statements of Cash Flows –Nine Months Ended March 31, 2025 and 2024 This section outlines the company's cash flow activities for the nine months ended March 31, 2025 and 2024 Nine Months Ended March 31 | Cash Flow Activity | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Net cash provided by operating activities | $173,317 | $217,454 | | Net cash used in investing activities | $(130,254) | $(57,358) | | Net cash used in financing activities | $(81,945) | $(83,813) | | Net change in cash and equivalents | $(38,882) | $76,283 | | Cash and equivalents at end of period | $124,561 | $164,756 | - Cash paid for acquisition: $78,819 thousand (2025)[17] Condensed Consolidated Statements of Shareholders' Equity – Nine Months Ended March 31, 2025 and 2024 This section details changes in the company's shareholders' equity for the nine months ended March 31, 2025 and 2024 Shareholders' Equity Changes (in thousands) | Metric | March 31, 2025 | June 30, 2024 | | :-------------------------------- | :------------- | :------------ | | Total Shareholders' Equity | $996,248 | $925,772 | | Retained Earnings | $1,622,155 | $1,564,642 | | Accumulated Other Comprehensive Income (Loss) | $964 | $(8,640) | - Cash dividends for common stock: $77,305 thousand for the nine months ended March 31, 2025, compared to $73,113 thousand for the prior-year period[17] Notes to Condensed Consolidated Financial Statements This section provides detailed disclosures and explanations for the condensed consolidated financial statements, covering significant accounting policies, recent acquisition details, long-term debt, commitments, goodwill, income taxes, business segment performance, stock-based compensation, and pension benefits Note 1 – Summary of Significant Accounting Policies This note outlines the key accounting principles and recent accounting pronouncements impacting the financial statements - Planned closure of Milpitas, California sauce and dressing production facility, expected to conclude production by September 30, 2025, with estimated restructuring and impairment charges of approximately $6 million in the quarter ending June 30, 2025[25] - In the three months ended March 31, 2024, recorded an impairment charge of $6.2 million for property, plant and equipment and $4.5 million for intangible assets related to the decision to exit perimeter-of-the-store bakery product lines (Angelic Bakehouse and Flatout)[26][27] - New FASB guidance on segment expenses (effective FY2025 annual, FY2026 interim), income taxes (effective FY2026 annual), and disaggregated income statement expenses (effective FY2028 annual, FY2029 interim) will impact disclosures but not financial position or results of operations[34][35][36] Note 2 – Acquisition This note details the recent acquisition of a sauce and dressing production facility in Atlanta, Georgia - Acquisition of a sauce and dressing production facility in Atlanta, Georgia, from Winland Foods, Inc. completed on February 18, 2025[39] - Purchase price of $78.8 million, funded with cash on hand[39] - Goodwill recognized from acquisition: $15.1 million, allocated to the Foodservice segment[41][42] Note 3 – Long-Term Debt This note describes the company's unsecured revolving credit facility and outstanding letters of credit - Unsecured revolving credit facility of up to $150 million, expiring March 6, 2029[44] - No borrowings outstanding under the Facility at March 31, 2025[47] - Standby letters of credit outstanding: $2.6 million at March 31, 2025[47] Note 4 – Commitments and Contingencies This note addresses various claims and litigation matters arising in the ordinary course of business - Various claims and litigation matters arising in the ordinary course of business are not expected to have a material effect on consolidated financial statements[48] Note 5 – Goodwill This note provides a breakdown of goodwill by segment and explains changes due to recent acquisition Goodwill by Segment (in thousands) | Segment | March 31, 2025 | June 30, 2024 | | :---------- | :------------- | :------------ | | Retail | $157,396 | $157,396 | | Foodservice | $66,076 | $50,975 | | Total | $223,472 | $208,371 | - Increase in goodwill is primarily due to the $15.1 million Atlanta plant acquisition in February 2025, allocated to the Foodservice segment[49] Note 6 – Income Taxes This note presents the company's prepaid federal and accrued state and local income tax balances Income Tax Balances (in thousands) | Metric | March 31, 2025 | June 30, 2024 | | :-------------------------- | :------------- | :------------ | | Prepaid federal income taxes | $2,600 | $800 | | Accrued state and local income taxes | $700 | $300 | Note 7 – Business Segment Information This note provides detailed net sales and operating income data for the Retail and Foodservice segments Net Sales by Segment (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Nine Months Ended March 31, 2025 | Nine Months Ended March 31, 2024 | | :---------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Retail | $241,532 | $248,054 | $761,855 | $754,230 | | Foodservice | $216,304 | $223,392 | $671,840 | $664,704 | | Total | $457,836 | $471,446 | $1,433,695 | $1,418,934 | Operating Income by Segment (in thousands) | Segment | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Nine Months Ended March 31, 2025 | Nine Months Ended March 31, 2024 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Retail | $45,578 | $47,313 | $170,790 | $159,958 | | Foodservice | $28,111 | $24,334 | $82,744 | $78,112 | | Nonallocated Restructuring and Impairment Charges | — | $(12,137) | — | $(12,137) | | Corporate Expenses | $(23,812) | $(24,364) | $(72,132) | $(68,258) | | Total | $49,877 | $35,146 | $181,402 | $157,675 | - Foodservice segment includes $2.063 million in net sales from a temporary supply agreement (TSA) for other dressings and sauces, commencing March 2025[56] Note 8 – Stock-Based Compensation This note details the company's stock-based compensation expense for various equity awards Stock-Based Compensation Expense (in thousands) | Type | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | Nine Months Ended March 31, 2025 | Nine Months Ended March 31, 2024 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------------------- | :------------------------------- | | Restricted Stock | $1,400 | $1,500 | $4,200 | $4,200 | | Performance Units | $200 | $1,600 | $2,300 | $3,700 | | Stock-Settled Stock Appreciation Rights (SSSARs) | $0 | $400 | $0 | $1,000 | - Unrecognized compensation expense for restricted stock: $8.1 million (weighted-average period of 2 years)[59] - Unrecognized compensation expense for performance units: $5.4 million (weighted-average period of 2 years)[60] Note 9 – Pension Benefits This note discusses the termination of defined benefit pension plans and related settlement charges - Defined benefit pension plans were terminated effective November 30, 2024, following the merger of five frozen plans[62] - Incurred a one-time noncash settlement charge of $14.0 million for the nine months ended March 31, 2025, due to pension termination[62][63] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a narrative analysis of the company's financial condition and results of operations, discussing net sales, gross profit, operating income, segment performance, cash flows, liquidity, and future outlook for the three and nine months ended March 31, 2025, compared to the prior year Overview This section introduces Lancaster Colony Corporation's business, growth strategies, and recent strategic investments - Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels, with over 95% of products sold in the United States[67][69] - Growth goals include introducing new products, expanding distribution, leveraging Retail brands, expanding Retail through strategic licensing, relying on Foodservice product development, and acquiring complementary businesses[70] - Recent investments include the acquisition of an Atlanta sauce and dressing facility (Feb 2025), a significant capacity expansion for the Marzetti dressing and sauce facility (completed March 2023), and the completion of the ERP system ('Project Ascent') implementation phase (August 2023)[70] Results of Consolidated Operations This section analyzes the company's consolidated net sales, gross profit, operating income, and diluted net income per share Breakdown of % Change in Consolidated Net Sales (Three Months Ended March 31, 2025) | Category | Change (%) | | :------------------------------------------ | :--------- | | Change in Core Sales Volume / Mix | (2.5)% | | Net Pricing Impact | 0.2 | | Perimeter-of-the-Store Bakery Product Lines Exited March 2024 | (1.0) | | Incremental Sales for Temporary Supply Agreement (TSA) | 0.4 | | Total Change in Net Sales | (2.9)% | Breakdown of % Change in Consolidated Net Sales (Nine Months Ended March 31, 2025) | Category | Change (%) | | :------------------------------------------ | :--------- | | Change in Core Sales Volume / Mix | 2.3 % | | Net Pricing Impact | (0.3) | | Perimeter-of-the-Store Bakery Product Lines Exited March 2024 | (1.1) | | Incremental Sales for Temporary Supply Agreement (TSA) | 0.1 | | Total Change in Net Sales | 1.0 % | - Consolidated gross profit for the three months ended March 31, 2025, increased $1.5 million to a record $106.0 million, benefiting from cost savings and modest cost deflation, offsetting lower sales volume and Atlanta plant startup costs[77] - Operating income for the three months ended March 31, 2025, grew $14.7 million to a record $49.9 million, reflecting higher gross profit, reduced SG&A expenses, and the absence of prior-year $12.1 million restructuring and impairment charges[84] - A one-time noncash pension settlement charge of $14.0 million was incurred for the nine months ended March 31, 2025[88] Effective Tax Rate (Nine Months Ended March 31) | Metric | 2025 | 2024 | | :------------- | :--- | :--- | | Effective rate | 22.0 % | 23.5 % | - Diluted net income per share for the three months ended March 31, 2025, was $1.49, up from $1.03 in the prior year[91] - For the nine months, it was $4.89, up from $4.50[92] Results of Operations - Segments This section provides a detailed analysis of net sales and operating income performance for the Retail and Foodservice segments - Retail segment net sales decreased 2.6% for the three months ended March 31, 2025, due to the exit of perimeter-of-the-store bakery product lines (1.9% impact) and a challenging consumer environment[94] - For the nine months, Retail net sales increased 1.0%, or 3.2% excluding exited product lines, driven by licensing programs (Texas Roadhouse, Chick-fil-A, Subway sauces) and new gluten-free garlic bread[94] - Foodservice segment net sales decreased 3.2% for the three months ended March 31, 2025, due to an industry-wide slowdown in restaurant traffic and menu changes[96] - For the nine months, Foodservice net sales increased 1.1% due to increased demand from national chain restaurant accounts and Marzetti branded products[97] - Retail segment operating income decreased 3.7% for the three months but increased 6.8% for the nine months, benefiting from higher sales volume, favorable sales mix, cost savings, and modest cost deflation[94][95] - Foodservice segment operating income increased 15.5% for the three months and 5.9% for the nine months, driven by cost savings, modest cost deflation, and higher sales volumes, partially offset by Atlanta plant startup costs and higher supply chain costs[97][98] - Corporate expenses decreased for the three months but increased for the nine months, influenced by IT investments and incremental expenditures related to the Atlanta plant acquisition ($1.7 million for 3 months, $3.3 million for 9 months), partially offset by reduced compensation/benefits and prior-year Project Ascent expenses[99][100] Looking Forward This section outlines the company's expectations for future performance, market conditions, and strategic initiatives - Anticipates ongoing challenges in the consumer environment, with plans to respond through innovation and incremental distribution in Retail and continued partnership with Foodservice customers[101] - Retail segment sales are expected to benefit from licensing programs, including expanded distribution for Texas Roadhouse dinner rolls and Chick-fil-A sauce in the club channel[101] - Foodservice segment anticipates continued growth from select national chain restaurant accounts[101] - No significant impacts from commodity cost inflation or deflation are foreseen[101] - Further incorporation of the newly acquired Atlanta-based sauce and dressing plant into the manufacturing network is expected in the fiscal fourth quarter[101] Financial Condition This section discusses the company's cash flow activities, liquidity, and capital expenditure plans - Net cash provided by operating activities for the nine months ended March 31, 2025, decreased to $173.3 million from $217.5 million in the prior year, primarily due to year-over-year changes in net working capital[103] - Cash used in investing activities for the nine months ended March 31, 2025, increased to $130.3 million from $57.4 million in the prior year, primarily reflecting the $78.8 million Atlanta plant acquisition[104] - Cash used in financing activities for the nine months ended March 31, 2025, decreased to $81.9 million from $83.8 million in the prior year, reflecting lower share repurchases partially offset by higher dividend payments[105] - The company has an unsecured revolving credit facility of up to $150 million with no outstanding borrowings at March 31, 2025, and believes its liquidity sources are adequate for the next 12 months and beyond[106][109][110] - Estimated capital expenditures for fiscal 2025 are $65 million[109] Critical Accounting Policies This section confirms no changes to the critical accounting policies from the prior annual report - No changes in critical accounting policies from those disclosed in the 2024 Annual Report on Form 10-K[112] Recent Accounting Pronouncements This section refers to Note 1 for disclosures regarding recent accounting pronouncements - Recent accounting pronouncements and their impact are disclosed in Note 1 to the condensed consolidated financial statements[113] Forward-Looking Statements This section highlights the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements subject to various important risks, uncertainties, and other factors that could cause actual results to differ materially[114] - Risk factors include plant efficiencies, successful business acquisitions, price and product competition, changes in demand, regulatory matters, labor supply, cost fluctuations (freight, energy, ingredients), tariffs, geopolitical events, dependence on contract manufacturers/distributors, key personnel, cyber-security incidents, loss of key customer relationships, capacity constraints, failure to maintain license agreements, product recalls, new product development success, customer consolidation, and litigation[115] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section confirms that there have been no material changes to the company's market risks since the disclosures in its 2024 Annual Report on Form 10-K - Market risks have not changed materially from those disclosed in the 2024 Annual Report on Form 10-K[116] Item 4. Controls and Procedures This section reports on the effectiveness of the company's disclosure controls and procedures as of March 31, 2025, and confirms no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2025[117] - No material changes were made to internal control over financial reporting during the most recent fiscal quarter[118] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity security sales, and a list of exhibits Item 1. Legal Proceedings This section states that there are no material legal proceedings, specifically environmental matters exceeding a $1 million threshold, to disclose in this quarterly report - No environmental matters to disclose in this Form 10-Q, using a $1 million materiality threshold[120] Item 1A. Risk Factors This section confirms that there have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - No material changes to the risk factors disclosed under Item 1A in the 2024 Annual Report on Form 10-K[121] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase program, including the remaining authorization and shares repurchased during the quarter, primarily for tax withholding obligations - Board of Directors approved a share repurchase authorization of 2,000,000 common shares in November 2010[122] - 1,123,842 common shares remained authorized for future repurchases at March 31, 2025[122] Common Stock Repurchases (Q3 FY2025) | Period | Total Number of Shares Purchased | Average Price Paid Per Share | | :----------------- | :----------------------------- | :--------------------------- | | January 1-31, 2025 | 48 | $173.14 | | February 1-28, 2025 | 49 | $191.40 | | March 1-31, 2025 | 336 | $175.00 | | Total | 433 | $176.65 | - Repurchases primarily represent shares acquired in satisfaction of tax withholding obligations from vesting restricted stock[122] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - Includes certifications of CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[125] - Includes XBRL Instance Document and Taxonomy Extension Documents[125] SIGNATURES This section provides the official signatures of the company's President, CEO, and CFO, certifying the report - Report signed by David A. Ciesinski (President, Chief Executive Officer and Director) and Thomas K. Pigott (Vice President, Chief Financial Officer and Assistant Secretary) on April 30, 2025[128]