Lancaster Colony(LANC) - 2023 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Condensed Consolidated Financial Statements These statements present the company's financial position, results of operations, and cash flows for the three months ended September 30, 2022, highlighting increased assets, sales, net income, and improved operating cash flow Condensed Consolidated Balance Sheets Total assets increased to $1.131 billion as of September 30, 2022, driven by higher inventories and property, plant, and equipment, with a corresponding rise in liabilities and shareholders' equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2022 | June 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $377,801 | $351,781 | | Total Inventories | $165,939 | $144,702 | | Property, plant and equipment-net | $468,086 | $451,368 | | Total Assets | $1,131,233 | $1,090,374 | | Total Current Liabilities | $190,915 | $165,585 | | Total Shareholders' Equity | $862,071 | $844,687 | | Total Liabilities and Shareholders' Equity | $1,131,233 | $1,090,374 | Condensed Consolidated Statements of Income Net sales increased 8.5% to $425.5 million for the quarter, driving a 21.7% rise in operating income and a 22.6% increase in net income to $37.6 million Consolidated Income Statement Highlights (in thousands, except per share data) | Metric | Q1 2023 (ended Sep 30, 2022) | Q1 2022 (ended Sep 30, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $425,537 | $392,056 | +8.5% | | Gross Profit | $99,055 | $92,367 | +7.2% | | Operating Income | $49,298 | $40,511 | +21.7% | | Net Income | $37,592 | $30,655 | +22.6% | | Diluted EPS | $1.36 | $1.11 | +22.5% | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to $50.9 million for Q1 fiscal 2023, driven by higher net income and favorable working capital changes, while investing and financing cash uses decreased Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $50,864 | $(1,172) | | Net cash used in investing activities | $(23,481) | $(30,093) | | Net cash used in financing activities | $(23,447) | $(26,701) | | Net change in cash and equivalents | $3,936 | $(57,966) | - The significant increase in operating cash flow was driven by higher net income and smaller negative impacts from changes in inventories and receivables compared to the prior year[17][79] Notes to Condensed Consolidated Financial Statements These notes detail financial statement presentation, segment performance, and accounting policies, highlighting Foodservice sales growth and a $15 million capital commitment for facility expansion - The company has a remaining commitment of approximately $15 million for a capacity expansion project at its dressing and sauce facility in Horse Cave, Kentucky[42] - Goodwill was stable at $157.4 million for the Retail segment and $51.0 million for the Foodservice segment as of September 30, 2022[43] Segment Net Sales (in thousands) | Segment | Q1 2023 (ended Sep 30, 2022) | Q1 2022 (ended Sep 30, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | Retail | $223,216 | $223,889 | -0.3% | | Foodservice | $202,321 | $168,167 | +20.3% | | Total | $425,537 | $392,056 | +8.5% | Segment Operating Income (in thousands) | Segment | Q1 2023 (ended Sep 30, 2022) | Q1 2022 (ended Sep 30, 2021) | Change (%) | | :--- | :--- | :--- | :--- | | Retail | $42,900 | $48,178 | -11.0% | | Foodservice | $31,929 | $15,825 | +101.8% | | Corporate Expenses | $(25,531) | $(23,492) | +8.7% | | Total | $49,298 | $40,511 | +21.7% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses record Q1 net sales driven by pricing actions offsetting cost inflation, strong Foodservice growth, improved operating income, and ongoing ERP and capacity expansion projects Business Trends The company continues to face significant inflationary cost pressures from commodities, packaging, freight, and labor, though demand volatility between Retail and Foodservice segments has subsided - The company experienced unprecedented inflationary costs for commodities (soybean oil, flour), packaging, freight, warehousing, and labor during fiscal 2022, which continued into Q1 2023[63] - Demand volatility between Retail and Foodservice segments has subsided, leading to a more predictable and stable operating environment compared to the prior two years[62] Results of Consolidated Operations Consolidated net sales increased 9% to $425.5 million, despite a 10% volume decline, with operating income surging 22% due to effective pricing, improved efficiencies, and reduced SG&A Consolidated Operations Summary (in thousands) | Metric | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Net Sales | $425,537 | $392,056 | 9% | | Gross Profit | $99,055 | $92,367 | 7% | | Operating Income | $49,298 | $40,511 | 22% | | Net Income | $37,592 | $30,655 | 23% | - Consolidated sales volumes, measured in pounds shipped, decreased 10% for the quarter[65] - SG&A expenses decreased 4% to $49.8 million, driven by lower consumer promotions, with Project Ascent (ERP initiative) expenses totaling $9.2 million[67] Results of Operations - Segments Foodservice segment sales grew 20% with operating income surging 102%, while Retail sales were flat and operating income declined 11% due to volume and ERP impacts - Retail segment net sales declined slightly, unfavorably impacted by an estimated $11 million in advance ordering ahead of the ERP go-live and the exit from certain product lines[72] - Retail operating income fell 11% to $42.9 million due to lower sales and production volumes, which reduced overhead recovery[72] - Foodservice net sales grew 20% to $202.3 million, driven by inflationary pricing and volume gains from select quick-service restaurant customers[73] - Foodservice operating income more than doubled to $31.9 million as pricing actions effectively offset inflationary costs and benefited from a more favorable sales mix[74] Looking Forward The company anticipates Q2 Retail sales to benefit from licensing but face demand elasticity, while Foodservice growth continues, with cost inflation offset by pricing and cost savings - In Q2, Retail sales volumes are expected to benefit from the licensing program but face offsets from consumer demand elasticity and product rationalization[76] - Cost inflation will remain a headwind in Q2, but pricing actions and cost savings initiatives are expected to help offset it[77] - The implementation of Project Ascent (ERP system) will continue throughout fiscal 2023, with full deployment expected in fiscal 2024[78] Financial Condition The company maintains a strong financial condition with $50.9 million in operating cash flow, an undrawn $150 million credit facility, and projected $90-110 million in fiscal 2023 capital expenditures - The company has an unsecured revolving credit facility of up to $150 million, with no borrowings outstanding at September 30, 2022[82] - Capital expenditures for fiscal 2023 are expected to be between $90 million and $110 million[85] - A significant portion of 2023 capital spending, approximately $50 million, is for the capacity expansion at the Horse Cave, Kentucky facility, expected to be completed in Q2 fiscal 2023[85][88] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risks compared to those disclosed in the 2022 Annual Report on Form 10-K - There have been no material changes to market risks from those disclosed in the 2022 Annual Report on Form 10-K[93] Controls and Procedures Management concluded that disclosure controls were effective as of September 30, 2022, with ERP system implementation ongoing and no material adverse effect on internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of September 30, 2022[94] - During the quarter, the company began implementing its new ERP system (Project Ascent) and updated internal controls as necessary, with no material effect on internal control over financial reporting[95] PART II – OTHER INFORMATION Legal Proceedings The company reports no material environmental legal proceedings requiring disclosure for the period - Applying a disclosure threshold of $1 million for potential monetary sanctions in environmental proceedings, the company reports no matters to disclose[98] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes to the risk factors disclosed in the 2022 Annual Report on Form 10-K have occurred[99] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 533 common shares at an average of $149.58 for tax withholding, with 1,225,012 shares remaining authorized for future repurchase - As of September 30, 2022, 1,225,012 common shares remained authorized for future repurchase under a plan approved in November 2010[100] Share Repurchases in Q1 Fiscal 2023 | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | July 2022 | 42 | $132.38 | | August 2022 | 412 | $147.46 | | September 2022 | 79 | $169.80 | | Total | 533 | $149.58 | Exhibits This section indexes exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - The report includes required CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act[103]