Lancaster Colony(US:LANC)2022-05-08 11:43Financial Data and Key Metrics Changes - Consolidated net sales grew 12.9% to a record $403 million, with Retail net sales up 7.4% and Foodservice net sales up 19.8% [5][21] - Consolidated gross profit decreased by $22.2 million to $68.3 million, with gross margins declining by 840 basis points due to significant inflationary impacts [22][34] - Third quarter diluted earnings per share decreased $1.22 to a loss of $0.17, driven by operating income decline and special charges related to Bantam Bagels [31][34] Business Line Data and Key Metrics Changes - Retail segment net sales growth was driven by pricing across the portfolio, with a 2% decline in retail sales volume compared to strong growth in the prior year [6][8] - Foodservice segment net sales growth of nearly 20% was influenced by inflationary pricing and increased demand, although total volume measured in pounds decreased by 2% [9][10] Market Data and Key Metrics Changes - Sister Schubert's dinner rolls gained 200 basis points in market share to 51.5%, while Marzetti brand refrigerated dressings increased by 90 basis points to 23.3% [7] - Licensed sauce platform sales at Retail more than tripled from $29 million to $89 million [8] Company Strategy and Development Direction - The company aims to accelerate core business growth, simplify the supply chain, reduce costs, and expand through focused M&A and strategic licensing [36][41] - Key initiatives include a sauce capacity expansion project and the opening of a new warehouse to improve operational efficiencies [12][13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing inflationary pressures and supply chain challenges, indicating that pricing actions will continue to be a primary tool for managing costs [10][37] - The company expects to see continued sales gains in both Retail and Foodservice segments, despite anticipated headwinds from higher commodity and labor costs [37][41] Other Important Information - The company recorded a noncash restructuring and impairment charge of $22.7 million related to the Bantam Bagels business, which was not allocated to reportable segments [29] - Capital expenditures for the fiscal year are forecasted at approximately $150 million, including $90 million for the Horse Cave expansion project [32][34] Q&A Session Summary Question: Inflation outlook and repricing for fiscal 2023 - Management discussed the significant margin pressure due to rapid increases in freight and commodity costs, indicating that pricing actions will be necessary to manage these challenges [48][49] Question: Consumer elasticity and private label competition - Management noted that pricing actions have been accepted better than expected, with private label products also increasing in price, but consumers are still supporting branded products [58][59] Question: Volume trends in Foodservice and COVID impacts - Management explained that while transaction trends in Foodservice were affected by staffing challenges during the Omicron surge, overall sales continued to grow driven by pricing [63][64] Question: Opportunities in Retail business and licensing partnerships - Management highlighted upcoming product launches and expansions in licensing partnerships, particularly with Chick-fil-A and Buffalo Wild Wings, as key growth opportunities [68][70] Question: Margin outlook for Q4 and fiscal 2023 - Management indicated expectations for sequential improvement in margins for Q4, despite ongoing inflationary pressures [71]