Lancaster Colony(US:LANC)2022-02-03 19:04Financial Data and Key Metrics Changes - Consolidated net sales grew 14.2% to a record $428 million, with retail net sales up 10.1% and Foodservice net sales up 20.3% [5][17] - Consolidated gross profit decreased by $10.2 million to $96.6 million, with gross margins declining by 600 basis points due to high commodity inflation and increased supply chain costs [18][26] - Diluted earnings per share decreased $0.37 to $1.25, primarily driven by the decline in operating income [27] Business Line Data and Key Metrics Changes - Retail net sales growth of 10% was driven by pricing and volume growth, particularly from the licensing program and Sister Schubert's frozen dinner rolls [6][11] - Foodservice segment net sales growth of 20% was driven by inflationary pricing and volume growth with quick-service restaurant (QSR) customers [12][22] Market Data and Key Metrics Changes - Strong share gains for frozen breads, with Sister Schubert's dinner rolls up 150 basis points to 54.1% and New York Bakery garlic bread up 230 basis points to 42.5% [8] - The licensed sauce platform grew from $22 million in sales to $78 million, an increase of 250% [10] Company Strategy and Development Direction - The company aims to accelerate core business growth, simplify the supply chain to reduce costs, and expand through focused M&A and strategic licensing [33] - Significant investments are being made in production capacity and infrastructure to support growth, including a major expansion at the Horse Cave facility [36][71] Management's Comments on Operating Environment and Future Outlook - Management acknowledged ongoing cost pressures from inflation, supply chain disruptions, and increased labor costs, but expressed confidence in the company's long-term positioning [34][38] - The company is implementing actions to improve margins and operational efficiency, including leveraging new warehouse locations and optimizing throughput [15][31] Other Important Information - The company plans to close its frozen garlic bread facility in Baldwin Park, California, due to low profitability, resulting in restructuring impairment charges [25] - The quarterly cash dividend was increased by 7% to $0.80 per share, maintaining a 59-year streak of annual dividend increases [29][30] Q&A Session Summary Question: Can you discuss the strength in Foodservice? - Management noted that the growth was driven by branded products and strong performance from QSR customers, particularly Chick-fil-A and Domino's [45] Question: How did Omicron impact margin pressures? - Management indicated that while Omicron did not significantly impact Q2 margins, there were increased costs related to labor and supply chain disruptions in January [46][53] Question: Can you elaborate on capacity expansion efforts? - The company is expanding its Horse Cave facility to increase production capacity, which is expected to be completed in the first half of fiscal 2023 [71] Question: What is the outlook for gross margins? - Management expects that pricing actions will help recover costs, and they anticipate that gross margins may stabilize as supply chain issues are addressed [75][76] Question: What are the implications of Project Ascent? - The implementation of Project Ascent is expected to enhance productivity and streamline operations, facilitating future acquisitions [78][80] Question: Can you provide details on the Chick-fil-A barbecue sauce? - The barbecue sauce is a significant category with a market size of approximately $500 million, and it is expected to contribute materially to the company's growth [85]