Sharp gain in ingredients unit spurs MGPI earnings
ATCHISON, KAS. — Better profits in the company’s ingredients business contributed to higher earnings at MGP Ingredients, Inc. in the first quarter ended March 31. Net income in the quarter rose 168% to $1,876,000, equal to 10c per share on the common stock, up from $701,000, or 4c per share, in the same period of fiscal 2011.
Sales were $86,344,000, up 35% from $64,188,000.
Tim Newkirk, president and chief executive officer, said that while MGPI is making good progress in terms of a higher value sales mix, the company is not satisfied with its ability to generate consistently higher profit margins.
“During the quarter, we entered a grain supply contract for the Indiana distillery and amended the grain supply agreement for our Atchison facility that now permits us to secure corn for delivery up to 12 months in the future at fixed prices,” Mr. Newkirk said. “This marks a significant change from past purchase and hedging practices for corn, our most important largest ingredient. We implemented strategic sourcing for wheat flour several years ago. By partnering with world-class corn suppliers, we have taken a major step toward better managing our corn volatility. This will be especially important as we grow our businesses in an environment of stubbornly high commodity prices.”
In its Ingredient Solutions segment, MGPI posted pre-tax income of $1.6 million, up from $100,000 in the first quarter of fiscal 2011. MGPI attributed the gains to improved average selling prices, a higher value product mix and lower natural gas prices. Flour costs averaged about 5% higher compared with the year-ago period, the company said.
Net sales in the Ingredient Solutions segment were $13.5 million, about even with the same period a year ago. MGPI said sales of commodity starches increased sharply during the quarter, but the company remains focused on sales of its specialty starches and proteins.
Distillery Products posted pre-tax income of $2.6 million, down from $5.4 million in the same period a year ago. Despite higher unit volumes and per unit pricing of food grade alcohol, MGPI said pre-tax margins were hurt by accounting for open commodity contracts. The per-bushel cost of corn for the three months averaged 6% higher than the same period a year ago, the company said.
Net sales in the Distillery Products segment were $72.4 million, up 44% from a year ago. MGPI attributed the majority of the increase to a 44% gain in food grade alcohol, driven by per unit pricing gains of 27% and unit volume increases of approximately 13%.