Lancaster Colony Reports Third Quarter Sales and Earnings
COLUMBUS, Ohio, April 28 -- Lancaster Colony Corporation today reported net income of $11,774,000 or 35 cents per diluted share for the company's third fiscal quarter ended March 31, 2006. For the corresponding quarter a year ago, net income totaled $16,112,000 or 46 cents per diluted share. Third quarter net sales increased two percent to $282 million versus $277 million in the third quarter last year.
Current year third quarter results included a non-cash asset impairment charge related to the company's automotive operations totaling approximately $0.6 million before taxes (one cent per share after taxes). Prior year third quarter results included non-cash asset impairment charges affecting non-food operations that totaled $1.6 million before taxes (three cents per share after taxes).
For the nine months ended March 31, 2006, net income was $60,050,000 compared to $72,609,000 earned in the first nine months a year ago. Diluted earnings per share were $1.78 compared to $2.07 a year ago. Nine-month net sales were $881 million compared to $856 million last year.
Current year-to-date results included pretax income of $11.4 million (22 cents per share after taxes) associated with a second quarter distribution under the Continued Dumping and Subsidy Offset Act (CDSOA). In the prior year, the pretax CDSOA distribution was $26.2 million (47 cents per share after taxes), and pretax LIFO-related income associated with the liquidation of inventories carried at lower prior years' costs totaled $0.9 million (two cents per share after taxes).
John B. Gerlach, Jr., chairman and CEO, said, "We were pleased with improved sales in our Specialty Foods and Automotive segments, but are disappointed in our overall results. Our earnings reflect competitive market pressures on pricing and promotions, as well as higher costs for freight, many raw materials and energy. Also significantly impacting third quarter earnings was the planned, temporary idling of most manufacturing activities at our Oklahoma glassware facility that resulted in recognizing over $3 million in unabsorbed pretax costs. As anticipated, this action helped better balance our inventories and improve cash flows."
Third quarter Specialty Foods sales increased three percent to $168.2 million, reflecting growth in refrigerated dressings and frozen breads and rolls, despite Easter falling in the fourth quarter this year versus the third quarter last year. Operating income declined nine percent to $22.1 million. The benefit from the quarter's higher sales volumes and relatively steady ingredient costs was more than offset by several factors, including higher freight, energy and trade promotion costs.
Sales of the Automotive segment improved 15 percent to $65.8 million in the third quarter. The quarter's operating loss of $0.1 million compares to operating income of $0.2 million a year ago. Improved sales of aluminum accessories continued to drive the segment's overall growth. Widespread increases in raw material costs, along with a less favorable floor mat sales mix and program start-up costs, reduced the segment's operating results. Third quarter Automotive results also included a non-cash impairment charge of approximately $0.6 million related to idle floor mat manufacturing equipment. A similar charge of approximately $0.7 million was recognized in the segment's prior year quarter.
Third quarter Glassware and Candles sales declined 13 percent to $48.5 million. The segment's quarterly operating loss totaled $2.6 million compared to operating income of $1.6 million in the year-ago quarter. The temporary idling of the segment's Oklahoma glass-manufacturing operations, lower candle volumes and substantially higher wax costs led to the lower results. Results for the prior year's comparable quarter included a non-cash impairment charge of approximately $0.9 million related to glassware manufacturing equipment.
Looking ahead, Mr. Gerlach said, "Our food group is in the process of introducing T. Marzetti's recently repackaged line of pourable dressings as well as a new, upscale pourable line under the Teresa's Select Recipes brand. The Automotive segment should benefit from increased aluminum accessory sales although higher raw material costs are expected to continue into the fourth quarter. While our Oklahoma glassware manufacturing operations are now back in full production, the Glassware and Candles segment will likely experience seasonally low fourth quarter sales along with persistently higher wax and energy costs. Our balance sheet remains strong and debt-free, with cash, cash equivalents and short-term investments at March 31, 2006 in excess of $52 million."
The company also announced today that it is exploring a number of strategic alternatives, including potential divestitures, among its non-food operations. These efforts are already ongoing with the assistance of outside financial advisors. There is no assurance that any specific transaction will result. The company does not expect to provide updates on this process except as necessary to meet regulatory disclosure requirements. Mr. Gerlach said, "After careful review, we felt there may be actions we could undertake aimed at solidifying our focus on the company's best growth opportunities, reducing our capital expenditure needs and lessening our operating volatility."
LANCASTER COLONY CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands except per-share amounts)
Three Months Ended Nine Months Ended
March 31, March 31,
2006 2005 2006 2005
Net sales $282,453 $276,822 $880,945 $855,655
Cost of sales 240,406 225,522 725,703 690,979
Gross margin 42,047 51,300 155,242 164,676
Selling, general &
administrative
expenses 23,932 25,080 75,808 75,387
Restructuring and
impairment charge 575 1,621 618 2,108
Operating income 17,540 24,599 78,816 87,181
Interest income
and other - net 779 1,105 14,804 28,791
Income before
income taxes 18,319 25,704 93,620 115,972
Taxes based on income 6,545 9,592 33,570 43,363
Net income $11,774 $16,112 $60,050 $72,609
Net income per
common share:(a)
Basic and diluted $.35 $.46 $1.78 $2.07
Cash dividends per
common share $.26 $.25 $2.77 $.73
Weighted average
common shares
outstanding:
Basic 33,214 34,742 33,757 35,060
Diluted 33,236 34,799 33,795 35,117
(a) Based on the weighted average number of shares outstanding during
each period.
LANCASTER COLONY CORPORATION
BUSINESS SEGMENT INFORMATION (Unaudited)
(In thousands)
Three Months Ended Nine Months Ended
March 31, March 31,
2006 2005 2006 2005
NET SALES
Specialty Foods $168,233 $163,709 $527,272 $501,393
Glassware and Candles 48,457 55,774 174,001 187,348
Automotive 65,763 57,339 179,672 166,914
$282,453 $276,822 $880,945 $855,655
OPERATING INCOME
Specialty Foods $22,102 $24,371 $79,520 $82,786
Glassware and Candles (2,586) 1,555 3,034 6,318
Automotive (89) 232 1,744 3,586
Corporate expenses (1,887) (1,559) (5,482) (5,509)
$17,540 $24,599 $78,816 $87,181
LANCASTER COLONY CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31, June 30,
2006 2005
(Unaudited)
ASSETS
Current assets:
Cash, cash equivalents and
short-term investments $52,525 $184,580
Receivables - net of allowance for
doubtful accounts 107,023 100,351
Total inventories 156,373 164,365
Deferred income taxes and other
current assets 35,481 25,109
Total current assets 351,402 474,405
Net property, plant and equipment 183,771 154,147
Other assets 102,584 102,726
Total assets $637,757 $731,278
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $48,134 $51,014
Accrued liabilities 53,141 52,832
Total current liabilities 101,275 103,846
Other noncurrent liabilities and
deferred income taxes 37,838 39,706
Shareholders' equity 498,644 587,726
Total liabilities and
shareholders' equity $637,757 $731,278
SUBJECT TO YEAR-END AUDIT.