WESTERVILLE, OHIO. — Despite strong sales from the company’s baked foods brands, including Sister Schubert’s “strongest holiday performance ever,” elevated costs pressured profitability at Lancaster Colony Corp. in the company’s most recent fiscal quarter.
Net income at Lancaster Colony in the second quarter ended Dec. 31, 2021, was $34.37 million, equal to $1.25 per share on the common stock, down 23% from $44.63 million, or $1.62 per share, during the second quarter of fiscal 2021. Net sales were $428.43 million, up 14% from $375.02 million.
David A. Ciesinski, president and chief executive officer, said strong sales of Sister Schubert’s dinner rolls and sauces sold under the Chick-fil-A and Buffalo Wild Wings brands under license agreements, together with higher prices were not enough to offset higher costs emanating from multiple directions.
“While pricing actions served to offset significant commodity cost inflation and higher freight rates, we were not able to fully recover the other industry-wide cost pressures such as elevated wage rates in the periods,” Mr. Ciesinski said.
He said the company’s margins also were squeezed by a decision to significantly increase utilization of co-manufacturers to help meet growing demand for the company’s bottled sauces.
The company’s grain-based foods lines performed well, Mr. Ciesinski said.
“On a two-year stack basis for the quarter, IRI retail scanner data shows strong sales growth and share gains for several of our branded products, including Marzetti produce dressings, Sister Schubert’s frozen dinner rolls, New York Bakery garlic bread and Reams frozen noodles,” he said.
During the quarter, net sales were up 10% because of higher prices and volume gains associated with an expansion of the company’s licensing program in its sauces business and the strong performance of its Sister Schubert’s frozen dinner rolls. The 10% gain followed Retail sales growth of 19.5% during the same period last year. Measured in pounds, sales growth was 4% in the second quarter, 12% in last year’s second quarter.
“For the quarter versus prior year, IRI data showed strong share gains for our frozen breads with Sister Schubert’s dinner rolls up 150 basis points to 54.1% and New York Bakery garlic bread up 230 basis points to 42.5%,” Mr. Ciesinski said. “With sales of $61.6 million, Q2 was Sister Schubert’s strongest holiday performance ever, thanks to great retail execution in a difficult environment.”
During the quarter Lancaster Colony recorded two special items related to the Bantam Bagels business. The company revalued the contingent consideration liability to the sellers using fair value accounting. The revaluation translated into a positive adjustment of $2.2 million, including $0.9 recorded to the company’s Retail business and $1.3 million to the Foodservice business. At the same time, Lancaster Colony revalued its intangible assets line on its balance sheet for the Bantam Bagels business, recorded as a $0.9 million impairment for the Retail segment.
Looking forward, Mr. Ciesinski said challenges from higher costs will continue to adversely impact results.
“We anticipate the unfavorable impacts of higher input costs, increased freight and warehousing costs, elevated expenditures attributed to the enduring supply chain challenges, and higher labor costs will remain a headwind to our financial results in the coming quarter,” he said. “The inflationary pricing along with our ongoing cost savings programs and net price realization efforts will help to partially offset these higher costs.”
The company also said it closed a frozen garlic bread production plant in Baldwin Park, Calif. The company is discontinuing its Mamma Bella line of frozen garlic bread. The company took a $1 million restructuring/impairment charge in connection with the decision to close the California plant.In the six months ended Dec. 31, Lancaster Colony’s net income was $65.03 million, or $2.36 per share, down 20% from $81.71 million, or $2.97. Net sales were $820.48 million, up 13% from $724.25 million.