Lancaster Colony on the lookout for another acquisition

by Monica Watrous
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Lancaster Colony Corp. products
Lancaster Colony Corp. is on the hunt for acquisition opportunities in the branded better-for-you space.

COLUMBUS, OHIO — Specialty food maker Lancaster Colony Corp. is on the hunt for acquisition opportunities, particularly in the branded better-for-you space, said John B. Gerlach Jr., chairman and chief executive officer.

John B. Gerlach Jr., Lancaster Colony
John B. Gerlach Jr., chairman and c.e.o. of Lancaster Colony

“We're seeing maybe a little bit of uptick in potential divestiture activity from some of the bigger guys, so maybe there's a few more things to consider from that angle,” Mr. Gerlach said during an April 27 earnings call with financial analysts. “But we do continue our search, looking for those branded better-for-you kind of opportunities.”

This past November, the company acquired Angelic Bakehouse, Inc., a Cudahy, Wis.-based maker of sprouted baked foods, for $35 million in cash. Integration of the business is going “exceptionally well,” said David A. Ciesinski, president and chief operating officer.

Lancaster Colony Angelic Bakehouse
Lancaster Colony acquired Angelic Bakehouse in November.

The team in Milwaukee and our team here in Columbus have fused seamlessly,” he said. “…all of our focus has been placed on… driving the top line in the business.”

The addition of Angelic Bakehouse expands Lancaster Colony’s presence in the specialty deli section of the grocery store, where its Flatout flatbread products are sold. Lancaster Colony acquired Flatout Holdings in March 2015.

“…we feel like our learnings in Flatout, and the fact that we're already there in that part of the store, have given us sort of a solid working appreciation for where to go and how to attract the business, which is helping,” Mr. Ciesinski said.

Lancaster Colony Flatout flatbread
Lancaster Colony acquired Flatout Holdings in March 2015.

In the third quarter ended March 31, Lancaster Colony net income was $14,471,000, equal to 53c per share on the common stock, down from $29,011,000, or $1.06 per share, in the year-ago period. Net sales for the quarter totaled $293,834,000, up 2.1% from $287,765,000.

Retail sales in the quarter, excluding contributions from the Angelic Bakehouse business, rose 0.8%, as growth of New York Brand Bakery frozen garlic bread, Sister Schubert’s dinner rolls and Reames frozen noodles partially was offset by the impact of the timing of Easter and continued heightened competition in the refrigerated dressings category.

“Our branch had growth in three categories and market share gains in four of six,” Mr. Gerlach said. “We underperformed the category in refrigerated dressings, which saw continued competitive activity. Croutons also underperformed, with some of our sales in this category shifting to private label.”

Lancaster Colony frozen products: Sister Schubert's, New York Bakery, Reames
Growth of New York Brand Bakery frozen garlic bread, Sister Schubert’s dinner rolls and Reames frozen noodles partially was offset.

In the food service channel, net sales climbed 1.3%, overcoming the impact of deflationary pricing from lower egg costs and targeted business rationalization efforts. Results benefited from improved sales volumes to certain national chain restaurant customers.

During the quarter, the company recorded a pre-tax charge of $17.6 million related to the company’s withdrawal from an underfunded multi-employer pension plan.

Looking ahead to the fourth quarter, Lancaster Colony expects retail channel sales to benefit from the Easter shift and addition of Angelic Bakehouse. The company also is making tactical adjustments to its refrigerated dressings strategy with a goal of returning to growth, Mr. Gerlach said.

Lancaster Colony Marzetti dressings and croutons
Lancaster Colony' croutons and refrigerated dressings underperformed.

“We've expanded our team in retail sales, marketing and innovation to better drive growth for new products, more effective consumer promotion and marketing, and stronger category management,” Mr. Gerlach said.

Meanwhile, food service channel sales in the coming quarter will be challenged by the impact of customer rationalization efforts and overall industry softness, he said.

“We are fortunate to have a national chain customer mix that generally outperforms the industry,” Mr. Gerlach said. “On the food service innovation front, our branded distributor business is introducing a line of clean label Marzetti dressings that we think should be well received with certain customer segments.”

Net income in the nine-month period was $86,827,000, equal to $3.17 per share, down from $91,150,000, or $3.33 per share, in the comparable period. Net sales for the nine months reached $911,968,000, up from $906,619,000. 
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