Lancaster sees larger role for flatbread business

by Eric Schroeder
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Lancaster expects even better returns in the fourth quarter thanks to the benefit of a full quarter from the recently acquired Flatout flatbread business.

COLUMBUS, OHIO — Third-quarter results were strong at Lancaster Colony Corp., and the maker of specialty food products expects even better returns in the fourth quarter thanks to the benefit of a full quarter from the recently acquired Flatout flatbread business. Net income at Lancaster Colony Corp. totaled $20,403,000, equal to 75c per share on the common stock, in the third quarter ended March 31, which compared with a loss of $10,376,000 in the same period a year ago.

Net sales increased nearly 9% to $263,400,000 in the third quarter, up from $241,849,000 in the same period a year ago. The Flatout flatbread business, which was acquired in mid-March, contributed $1.9 million in sales during the quarter.

“Near the end of the quarter, we completed the acquisition of Flatout, a Saline, Mich.-based producer of flatbreads founded 16 years ago by Stacey and Mike Marsh,” said Jay Gerlach, chairman, president and chief executive officer, during an April 30 conference call with analysts. “We are pleased they are continuing with the business. With annual sales in calendar 2014 of approximately $46 million, we feel there is continued opportunity for growth from expanded distribution, enhanced in-store merchandising and further product innovation.

“We expect modest cost synergies, mostly in the SG&A expense area, with growth from this on-trend, better-for-you product being the real benefit. We expect operating margins to be generally in line with our overall segment margin. Deal expenses of almost $1 million in the quarter resulted in no bottom-line benefit from Flatout. We expect additional acquisition-related costs in our fourth quarter in the upper six-figure range.”

Mr. Gerlach said Lancaster also benefitted in the quarter from strong Easter shipments, as well as sales of New York Brand croutons and salad toppings and frozen garlic bread, and Olive Garden shelf stable dressings. He said the company’s Sister Schubert frozen dinner rolls were the one category that showed negative quarter-over-quarter comparisons during the period.

He said Lancaster is benefiting from its recently completed dressing capacity project, but he acknowledged “it is not developing as fast or to the degree we anticipated.”

“We expect to see further progress as we move through the fourth quarter,” he said.

New products expected to help drive sales and income during the fourth quarter include New York Brand Salad Kickers, New York Brand Snack Sticks, Simply Dressed sriracha ranch and avocado ranch dressings, Marzetti brand sriracha vegetable dip, and Flatout gluten-free and Protein Up flatbreads.
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