MGP Ingredients(US:MGPI)2024-11-01 02:37Financial Data and Key Metrics Changes - Consolidated sales decreased by 24% year-over-year to $161.5 million, and on a pro forma basis, sales decreased by 14% when factoring in the Atchison distillery closure [8][22] - Third quarter consolidated gross profit decreased by 10% to $65.8 million, representing 40.8% of sales [28] - Net income increased by 82% to $23.9 million, while adjusted net income decreased by 5% to $28.8 million [33] Business Line Data and Key Metrics Changes - Distilling Solutions segment sales declined by 36%, and excluding the Atchison distillery impact, sales declined by 18% [23] - Branded Spirits segment sales decreased by 6%, primarily due to planned optimization of mid and value tier brands [24] - Ingredient Solutions sales declined by 18%, driven by decreased sales volumes of specialty protein and lower commodity and specialty starch sales [26] Market Data and Key Metrics Changes - The American whiskey category is still growing, but slower growth and higher inventories are leading to lower demand and prices [13] - Premium plus sales increased by 1%, accounting for approximately half of Branded Spirits segment sales, up from 30% in 2021 [20] Company Strategy and Development Direction - The company is focusing on reducing exposure to aged sales by increasing new distillate business, with aged whiskey accounting for less than 20% of consolidated gross profit in Q3 [10] - The company plans to enhance efforts to expand into international markets, particularly Europe and Asia [16] - The strategy includes reducing whiskey production and aging put-aways in 2025 to align with lower category demand [16] Management's Comments on Operating Environment and Future Outlook - Management expressed disappointment over the faster-than-expected deterioration in the brown goods business and anticipates continued pressure in 2025 [18] - The company expects Ingredient Solutions to stabilize and return to profitable growth in 2025, while Branded Spirits is projected to deliver top-line growth and margin expansion [43] Other Important Information - The company has a healthy balance sheet with debt totaling $290 million and a cash position of $20.8 million [35] - A quarterly dividend of $0.12 per share was authorized, payable on November 29 [39] - The company expects full-year 2024 sales in the range of $695 million to $705 million and adjusted EBITDA between $196 million and $200 million [40] Q&A Session Summary Question: What drove the miss in Q3 results? - The miss was primarily driven by the Distilling Solutions segment, particularly aged whiskey sales, while Ingredient performance was slightly below expectations [49][51] Question: What is the visibility into next year's contracts? - The company has engaged with all customers and has strong confidence in the visibility for 2025, focusing on larger multinational customers [66][68] Question: How does the company plan to achieve growth in the branded business in 2025? - The strategy includes diversifying the product portfolio beyond whiskey to include higher-end tequilas and responding quickly to customer demand [70][71] Question: What is the outlook for advertising expenses in 2025? - The expectation is to maintain advertising expenses between 14% and 16% of net sales, focusing on the premium plus portfolio [92] Question: How is the company managing inventory and production? - The company is actively analyzing inventory levels and has reduced put-away on a net basis by over 30% in 2024, with plans to continue this trend [86][100]