MGP Ingredients sustains $69 million loss in fiscal '09

by Bakingbusiness Staff
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ATCHISON, KAS. — MGP Ingredients, Inc., in the year ended June 30 sustained a loss of $69,123,000, versus a loss of $11,742,000 in fiscal 2008. Fiscal 2009 results included $26.4 million in charges related to the restructuring program comprised of asset impairments, the settlement of natural gas contract and the termination of rail car leases, as well as severance and early retirement costs associated with a workforce reduction of approximately 55%.

Sales were $275,976,000, down sharply from $392,893,000 in fiscal 2008.

"We completed a significant transformation in fiscal 2009 in order to strengthen our position as a producer of value-added ingredients sold into a wide range of branded packaged goods," said Tim Newkirk, president and chief executive officer. "A key milestone was our planned reductions in commodity-type market categories, primarily fuel grade alcohol and vital wheat gluten. The benefit of our new product mix and cost structure is reflected by our fourth-quarter fiscal 2009 ingredients segment pre-tax income of $1.4 million compared to a pre-tax loss of $7.9 million in the fourth quarter of fiscal 2008 and the distillery segment’s pre-tax income of $3.9 million in the fiscal 2009 fourth quarter versus a pre-tax loss of $510,000 in that segment for the same period the prior year."

In an effort to build scale in its target markets, Mr. Newkirk said MGPI first has had to narrow its focus, and under difficult economic conditions.

He said a new banking relationship with Wells Fargo and a $25 million revolving line of credit, subject to borrowing base limitations, is in place to supply MGPI with much needed operating cash for fiscal 2010.

"We are in a prime position to grow our market share by concentrating our efforts on serving targeted customer accounts in the branded packed goods industry," Mr. Newkirk said. "The plan is to strengthen our relationships and deepen our presence among key customer partners. With a more focused portfolio of value-added products today, we can do a better job of effectively utilizing our core capabilities and resources. MGPI has also transformed its business model to one that is better suited to the company’s new strategy."

That transformation, he said, consists of shortening the company’s pricing horizon with customers and changing its approach to using commodity futures. The move is expected to translate into improved margin management as MGPI better aligns costs with price, he added.

In its Ingredient Solutions segment, MGPI suffered a pre-tax loss of $6,720,000 in fiscal 2009, which compared with a loss of $7,554,000 during the same period last year. Net sales were $80,133,000, down 21% from $100,994,000.

MGPI said the majority of the sales decline was from lower sales of commodity wheat gluten. Total specialty ingredients revenues for the 2009 fiscal year were $60,800,000, an increase of 2.4% over the prior year.

Distillery Products suffered a pre-tax loss of $24,367,000 in fiscal 2009, which compared with pre-tax income of $10,501,000 in the same period a year ago.

"For the fiscal year, operating margins were adversely impacted by increased corn prices along with carrying costs associated with the temporary idling of the Pekin (Ill.) distillery during the second half of the year," MGPI said. "This, combined with lower average selling prices for fuel alcohol, contributed to the distillery segment’s pre-tax loss of approximately $24.4 million in fiscal 2009 compared to pre-tax income of approximately $10.5 million in fiscal 2008. In addition, the company had a $7.7 million loss related to natural gas contract at the Pekin facility and which is not included in distillery segment costs. Margins in the distillery segment have since improved due to the effects of a more profitable product sales mix, as well as from recent decreases in corn prices."

Net sales in the Distillery Products segment were $190,862,000 in fiscal 2009, down 33% from $285,738,000. Revenues from fuel grade alcohol declined by 64%, while sales of food grade alcohol rose by 2%. Revenues from distillers feed, a co-product of the alcohol distillation process, declined by 29% as the result of decreased alcohol production.

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