Lancaster Colony(US:LANC)2022-08-25 19:48Financial Data and Key Metrics Changes - Consolidated net sales increased by 17.3% to $452 million, while consolidated gross profit improved by 1.8% to $98.4 million [6][9] - Gross profit margin declined by 330 basis points due to unprecedented inflation and increased supply chain costs [10][14] - Fourth quarter diluted earnings per share decreased by $0.09 to $1.06, impacted by restructuring and impairment charges [14] Business Line Data and Key Metrics Changes - Retail segment net sales grew by 8.8%, driven by pricing actions and advanced ordering by customers [6] - Food Service segment net sales grew over 28%, with pricing accounting for over 24% of the sales increase [7] - Retail sales volumes measured in pounds declined by 2%, compared to a solid volume growth of 9% in the previous year's Q4 [6] Market Data and Key Metrics Changes - Sister Schubert's dinner rolls gained 300 basis points in market share, reaching 54.2% in frozen rolls [6] - Marzetti refrigerated dressings posted a share gain of 140 basis points, growing to a category-leading 24.8% [6] Company Strategy and Development Direction - The company is focused on leveraging its new SAP S/4 HANA ERP system and the Horse Cave expansion as part of its strategic transition to Lancaster Colony 3.0 [20][22] - The strategy includes accelerating core business growth, simplifying the supply chain, and expanding through focused M&A and strategic licensing [22] - The company plans to continue addressing inflationary cost increases through revenue growth management and productivity initiatives [16][19] Management's Comments on Operating Environment and Future Outlook - Management expects continued industry-leading sales growth in fiscal year 2023, driven by pricing and new product launches [18] - The company anticipates another year of significant inflation and plans to implement further price increases to offset rising costs [19] - Management acknowledges potential headwinds from consumer demand elasticity and a slowing economy [18] Other Important Information - The company completed a successful ERP system cutover with no unplanned disruptions in operations [5] - Capital expenditures for fiscal year 2022 totaled $132 million, with a forecast of approximately $100 million for fiscal year 2023 [15] - The company remains debt-free with $60 million in cash on the balance sheet [15] Q&A Session Summary Question: Expectations for gross margin improvement in fiscal '23 - Management feels confident about topline growth but expects some margin dilution due to pricing adjustments [26][29] Question: Contribution of licensed sauces in the quarter - Chick-fil-A Sauce contributed approximately $34 million in retail scanner sales, while Olive Garden contributed about $36 million [34] Question: Pricing discussions with retailers - Recent price increases were fact-based and constructive discussions were held with retailers regarding input costs [44] Question: SKU rationalization plans - The company does not expect significant further SKU rationalization, having already reduced SKUs by about 25% [46] Question: Outlook on commodity inflation and hedging - Despite some moderation in soybean oil prices, the company expects overall commodity costs to increase due to basis costs and other factors [60][63] Question: Inorganic growth opportunities - Management sees potential for both organic growth through licensing and inorganic growth through acquisitions enabled by the new ERP system [66]