LANCASTER COLONY CORP
For the period ended Sep 30, 2024. Filed Oct 31, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Oct 31, 2024
MZTI$104.93-3.3%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-02.
0000057515-24-000012
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-10-31.
0000057515-24-000029
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 119 previous paragraphs and 105 current paragraphs.
82 unchanged; 15 reworded; 8 added; 21 removed; 1 previous and 0 current paragraphs rearranged.
Tables are not compared: 5 previous and 4 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (8)
Current report
•demonstrated success with strategic licensing programs in Retail through both new and established relationships in the foodservice industry;
Current report
Consolidated gross profit for the three months ended September 30, 2024 increased $2.1 million to a first quarter record $110.8 million driven by volume growth and our cost savings programs. Our pricing net of commodity costs, or PNOC, was close to neutral.
Current report
For the three months ended September 30, 2024, Retail segment net sales decreased 1.1% to $239.6 million from the prior-year total of $242.2 million. The decrease in Retail segment net sales reflects the impact of sales attributed to the perimeter-of-the-store bakery product lines we exited in March 2024, in addition to a higher and more normalized level of trade spending as we invested more to support our brands and launch new items. Excluding the perimeter-of-the-store bakery product lines we exited, Retail net sales increased 1.4%. Retail segment net sales include volume gains for our licensing program led by our recently introduced Subway® sauces and expanding distribution for Texas Roadhouse® dinner rolls following a successful pilot test. Our Reames® frozen egg noodles also contributed to volume growth. Retail segment sales volumes, measured in pounds shipped, increased 0.3%. Excluding the impact of all sales attributed to our perimeter-of-the-store bakery product lines, Retail sales volumes increased 1.9%.
Current report
For the three months ended September 30, 2024, Retail segment operating income increased 5.7% to $56.2 million due to a more favorable sales mix and our cost savings programs.
Current report
For the three months ended September 30, 2024 and 2023, corporate expenses totaled $24.6 million and $23.0 million, respectively. This increase primarily reflects investments in personnel, as well as higher legal expenses.
Current report
Looking forward to our fiscal second quarter and the remainder of our fiscal year, we anticipate Retail segment sales will continue to benefit from our growing licensing program, driven by our new product introductions, including Subway sauces and Texas Roadhouse dinner rolls. Our newly launched New York BRAND® Bakery gluten-free garlic bread will also add to the Retail segment’s sales. In the Foodservice segment, we anticipate continued volume gains from select quick-service restaurant customers in our mix of national chain restaurant accounts, while external factors, including U.S. economic performance and consumer behavior, will likely impact demand. With respect to our input costs, in aggregate we do not foresee significant impacts from commodity cost inflation or deflation.
Current report
For the three months ended September 30, 2024, net cash provided by operating activities totaled $19.9 million, as compared to $35.6 million in the prior-year period. This decrease was primarily due to the year-over-year changes in net working capital, particularly accounts payable and other current assets. The current-year period reflected the unfavorable cash flow impacts of both lower accounts payable and higher prepaid federal income taxes while the prior-year period benefited from an increase in accounts payable. Changes in accounts payable were impacted by the timing of payments.
Current report
Cash used in investing activities for the three months ended September 30, 2024 of $19.9 million was comparable to $19.7 million in the prior year.
Removed paragraphs (21)
Previous report
•a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022;
Previous report
•a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that was completed in March 2022; and
Previous report
Consolidated net sales for the nine months ended March 31, 2024 increased 3.7% to $1,418.9 million versus $1,367.9 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven primarily by volume gains. Deflationary pricing was a headwind to Foodservice segment sales growth. Sales in the prior year were unfavorably impacted by an estimated $25 million in net sales attributed to advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1, 2022. Breaking down the 3.7% increase in consolidated net sales, approximately 1.8% is attributed to the ERP go-live sales shift, approximately 1.8% is attributed to volume/mix impacts and the remainder is net pricing. Consolidated sales volumes, measured in pounds shipped, increased 4.1% for the nine months ended March 31, 2024. Excluding the impact of last year’s shift in sales due to our ERP go-live, consolidated sales volumes increased 2.0%.
Previous report
Consolidated gross profit for the three months ended March 31, 2024 increased $10.3 million to a third quarter record $104.5 million driven by continued favorability in pricing net of commodity costs, our cost savings programs and volume growth. In aggregate, the input costs for our commodity basket were below last year’s level. Consolidated gross profit was unfavorably impacted by a $2.6 million inventory write-down resulting from our decision to exit our perimeter-of-the-store bakery product lines, specifically our Flatout® and Angelic Bakehouse® brands.
Previous report
Consolidated gross profit for the nine months ended March 31, 2024 increased $39.3 million to $334.7 million as influenced by favorability in pricing net of commodity costs, the higher sales volumes and our cost savings programs. In the prior year, gross profit was unfavorably impacted by an estimated $5 million due to the aforementioned shift of net sales into the quarter ended June 30, 2022 ahead of our ERP go-live.
Previous report
Selling, general and administrative (“SG&A”) expenses for the three months ended March 31, 2024 decreased 11.8% to $57.2 million compared to $64.8 million in the prior-year period. This decline reflects lower expenditures for Project Ascent, our ERP initiative, and the impact of nonrecurring legal charges for closed operations in the prior-year quarter. Project Ascent expenses totaled $1.9 million in the current-year quarter versus $7.6 million last year.
Previous report
Restructuring and Impairment Charges
Previous report
In the quarter ended March 31, 2024, we committed to a plan to exit our perimeter-of-the-store bakery product lines and close our Flatout flatbread facility in Saline, Michigan and our Angelic Bakehouse sprouted grain bakery facility in Cudahy, Wisconsin. Due to a lack of scale and direct-to-store distribution capabilities for these products, we were not able to achieve the desired operational or financial performance. Production at these facilities ceased in March 2024, and we are now working to divest the real estate and manufacturing equipment at these locations. Certain facility clean-up and closure activities are continuing into the quarter ending June 30, 2024. The operations of these facilities have not been classified as discontinued operations as the closures do not represent a strategic shift that would have a major effect on our operations or financial results. For the three and nine months ended March 31, 2024, we recorded restructuring and impairment charges of $12.1 million related to these closures, as well as $2.6 million recorded in Cost of Sales for the write-down of inventories. The restructuring and impairment charges, which consisted of impairment charges for fixed assets and intangible assets, one-time termination benefits and other closing costs, were not allocated to our two reportable segments due to their unusual nature whereas the $2.6 million write-down of inventories was recorded in our Retail segment.
Previous report
Operating income increased $27.6 million to $157.7 million for the nine months ended March 31, 2024 driven by the increase in gross profit, as partially offset by the restructuring and impairment charges.
Previous report
For the nine months ended March 31, 2024, diluted net income per share totaled $4.50, as compared to $3.71 per diluted share in the prior year. For the nine months ended March 31, 2024, costs related to our decision to exit our perimeter-of-the-store bakery product lines reduced diluted earnings per share by a total of $0.41. These exit costs included restructuring and impairment charges, which reduced diluted earnings per share by $0.34, and the inventory write-down, which reduced diluted earnings per share by $0.07. Expenditures for Project Ascent reduced diluted earnings per share by $0.22 and $0.68 for the nine months ended March 31, 2024 and 2023, respectively.
Previous report
For the three months ended March 31, 2024, Retail segment net sales increased 0.3% to $248.1 million from the prior-year total of $247.2 million. The increase in Retail segment net sales was driven by volume gains for our licensing program, led by Chick-fil-A® sauces and dressings; our newly introduced Subway® sandwich sauces and Texas Roadhouse® steak sauces; and Olive Garden® dressings. Retail segment sales volumes, measured in pounds shipped, increased 1.5%, outpacing the sales dollar growth as we invested in trade spending that supported household penetration growth and new items. Excluding the impacts of a recent value engineering initiative and all sales attributed to our perimeter-of-the-store bakery product lines that we exited during the quarter ended March 31, 2024, Retail sales volumes increased 2.8%.
Previous report
For the nine months ended March 31, 2024, Retail segment net sales increased 3.4% to $754.2 million compared to the prior-year total of $729.2 million, including the favorable impact of last year’s pricing actions and higher sales volumes. Sales in the prior year were unfavorably impacted by advance orders accounting for an estimated $11 million in Retail net sales near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1, 2022. Retail segment sales volumes for the nine months ended March 31, 2024, measured in pounds shipped, increased 1.8%. Retail sales volume growth was driven by the continued success of our program for licensed dressings and sauces. Our New York BRAND® Bakery frozen garlic bread products also contributed to the increase in the Retail sales volumes. Excluding the impact of last year’s shift in sales due to our ERP go-live, in addition to the impacts of a recent value engineering initiative, our reduced commitment to private label bread and all sales attributed to our perimeter-of-the-store bakery product lines, Retail segment sales volumes increased 2.2%.
Previous report
For the three months ended March 31, 2024, Retail segment operating income increased 28.1% to $47.3 million due to favorability in our pricing net of commodity costs, including pricing impacts from investments in trade spending; our cost savings programs; and the beneficial impact of higher sales volumes. These favorable factors were partially offset by the $2.6 million inventory write-down resulting from our decision to exit our perimeter-of-the-store bakery product lines.
Previous report
For the nine months ended March 31, 2024, Retail segment operating income increased 23.8% to $160.0 million due to the same factors noted for the three months ended March 31, 2024.
Previous report
For the nine months ended March 31, 2024, Foodservice segment net sales increased 4.1% to $664.7 million from the prior-year total of $638.7 million driven by increased demand from several of our national chain restaurant account customers and growth for our branded Foodservice products. Deflationary pricing was a headwind to Foodservice segment sales growth. Sales in the prior year were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the prior-year period by an estimated $14 million. Foodservice segment sales volumes, measured in pounds shipped, increased 5.7%. Excluding the impact of last year’s shift in sales due to our ERP go-live, Foodservice segment sales volumes increased 3.3%.
Previous report
For the three months ended March 31, 2024, Foodservice segment operating income increased 8.6% to $24.3 million driven by favorability in our pricing net of commodity costs and the beneficial impact of higher sales volumes.
Previous report
For the three months ended March 31, 2024 and 2023, corporate expenses totaled $24.4 million and $29.9 million, respectively. This decrease primarily reflects a decline in Project Ascent expenses, as well as the impact of nonrecurring legal charges for closed operations in the prior-year quarter. Expenditures for Project Ascent totaled $1.9 million and $7.6 million for the three months ended March 31, 2024 and 2023, respectively.
Previous report
For the nine months ended March 31, 2024 and 2023, corporate expenses totaled $68.3 million and $80.2 million, respectively. This decrease reflects lower expenditures for Project Ascent, as partially offset by higher expenditures to support the continued growth of our business, including investments in personnel. Expenditures for Project Ascent totaled $7.7 million and $24.3 million for the nine months ended March 31, 2024 and 2023, respectively.
Previous report
Looking forward to our fiscal fourth quarter, we project Retail sales will continue to benefit from our expanding licensing program, including incremental growth from the recent additions of Subway and Texas Roadhouse sauces. In the Foodservice segment, we expect continued volume growth from select quick-service restaurant customers and our branded Foodservice products, while deflationary pricing is projected to remain a headwind to Foodservice segment net sales. We anticipate reduced favorability in our pricing net of commodity costs when compared sequentially to our fiscal third quarter.
Previous report
For the nine months ended March 31, 2024, net cash provided by operating activities totaled $217.5 million, as compared to $184.2 million in the prior-year period. This increase was primarily due to higher net income, as well as noncash restructuring and impairment charges in the current year.
Previous report
Cash used in investing activities for the nine months ended March 31, 2024 was $57.4 million, as compared to $78.9 million in the prior year. This decrease primarily reflects a lower level of payments for property additions in the current year as the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky reached substantial completion in March 2023.
Reworded paragraphs (15)
Previous wording
•a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023;
Current wording
•a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023; and
Previous wording
Consolidated net sales for the three months ended March 31, 2024 increased 1.4% to a third quarter record $471.4 million versus $464.9 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven primarily by volume gains. Deflationary pricing was a headwind to Foodservice segment sales growth. Breaking down the 1.4% increase in consolidated net sales, approximately 2.9% is attributed to volume/mix impacts offset by a combination of deflationary pricing in Foodservice and increased trade spending in Retail. Consolidated sales volumes, measured in pounds shipped, increased 2.9% for the three months ended March 31, 2024.
Current wording
Consolidated net sales for the three months ended September 30, 2024 increased 1.1% to a first quarter record $466.6 million versus $461.6 million last year, reflecting higher net sales for the Foodservice segment as partially offset by lower net sales for the Retail segment. The increase in Foodservice segment net sales was driven primarily by volume gains. The decline in Retail segment net sales reflects the impact of prior-year sales attributed to the perimeter-of-the-store bakery product lines we exited in March 2024. Breaking down the 1.1% increase in consolidated net sales, approximately 2.4% is attributed to volume/mix impacts partially offset by net pricing, including a higher level of trade spending in Retail. Consolidated sales volumes, measured in pounds shipped, increased 2.1% for the three months ended September 30, 2024. Excluding the impact of all sales attributed to the perimeter-of-the-store bakery product lines, consolidated sales volumes increased 2.7%.
Previous wording
SG&A expenses for the nine months ended March 31, 2024 decreased 0.3% to $164.9 million compared to $165.4 million in the prior year. This decline reflects lower expenditures for Project Ascent, largely offset by higher expenditures to support the continued growth of our business, including a more normalized level of consumer promotions, higher brokerage costs and investments in personnel. Project Ascent expenses totaled $7.7 million for the nine months ended March 31, 2024 compared to $24.3 million in the prior-year period.
Current wording
Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2024 increased 5.8% to $55.0 million compared to $51.9 million in the prior-year period. This increase reflects higher expenditures to support the continued growth of our business, including investments in personnel and IT, in addition to higher legal costs, as partially offset by prior-year expenses for Project Ascent.
Previous wording
Project Ascent expenses are included within Corporate Expenses. A portion of the costs classified as Project Ascent expenses represent ongoing costs that have continued subsequent to the completion of our ERP implementation.
Current wording
Expenses attributed to Project Ascent, our ERP initiative, were included within Corporate Expenses and classified separately through 2024. A portion of the costs classified as Project Ascent expenses represent ongoing costs that have continued subsequent to the completion of our ERP implementation in 2024. Beginning in 2025, these ongoing costs are no longer classified separately as Project Ascent expenses.
Previous wording
Operating income increased $5.7 million to $35.1 million for the three months ended March 31, 2024 driven by the increase in gross profit and lower SG&A expenses, as partially offset by the restructuring and impairment charges.
Current wording
Operating income decreased $0.9 million to $55.9 million for the three months ended September 30, 2024 due to the higher SG&A expenses, as partially offset by the increase in gross profit.
Previous wording
Our effective tax rate was 23.5% and 22.0% for the nine months ended March 31, 2024 and 2023, respectively. For the nine months ended March 31, 2024 and 2023, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:
Current wording
Our effective tax rate was 22.8% and 23.7% for the three months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024 and 2023, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:
Previous wording
We include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards. For the nine months ended March 31, 2024 and 2023, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by less than 0.1% and 0.4%, respectively.
Current wording
We include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights, vesting of restricted stock awards and vesting of performance units. For the three months ended September 30, 2024 and 2023, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by 0.1% and less than 0.1%, respectively.
Previous wording
As influenced by the factors discussed above, diluted net income per share for the third quarter of 2024 totaled $1.03, as compared to $0.89 per diluted share in the prior year. For the three months ended March 31, 2024, costs related to our decision to exit our perimeter-of-the-store bakery product lines reduced diluted earnings per share by a total of $0.41. These exit costs included restructuring and impairment charges, which reduced diluted earnings per share by $0.34, and the inventory write-down, which reduced diluted earnings per share by $0.07. Expenditures for Project Ascent reduced diluted earnings per share by $0.05 and $0.21 for the three months ended March 31, 2024 and 2023, respectively. Diluted earnings per share in the prior-year quarter benefited from final adjustments related to the filing of tax returns for fiscal 2022, including a favorable adjustment related to closed operations.
Current wording
As influenced by the factors discussed above, diluted net income per share for the first quarter of 2025 totaled $1.62, as compared to $1.59 per diluted share in the prior year.
Previous wording
For the three months ended March 31, 2024, Foodservice segment net sales grew 2.6% to $223.4 million compared to $217.7 million in the prior-year period driven by increased demand from several of our national chain restaurant account customers and growth for our Marzetti® branded Foodservice products. Deflationary pricing was a headwind to Foodservice segment sales growth. Foodservice segment sales volumes, measured in pounds shipped, increased 3.9%.
Current wording
For the three months ended September 30, 2024, Foodservice segment net sales grew 3.5% to $227.0 million compared to $219.4 million in the prior-year period driven by increased demand from several of our national chain restaurant account customers and growth for our Marzetti® branded Foodservice products. Foodservice segment sales volumes, measured in pounds shipped, increased 3.1%.
Previous wording
For the nine months ended March 31, 2024, Foodservice segment operating income decreased 3.6% to $78.1 million driven by higher supply chain costs, as partially offset by favorability in our pricing net of commodity costs and the beneficial impact of higher sales volumes.
Current wording
For the three months ended September 30, 2024, Foodservice segment operating income decreased 8.7% to $24.3 million driven by higher supply chain costs, investments in customer programs, and increased brokerage expenses, as partially offset by the beneficial impact of the higher sales volumes.
Previous wording
Cash used in financing activities for the nine months ended March 31, 2024 of $83.8 million increased from the prior-year total of $82.7 million. This increase reflects higher dividend payments, as partially offset by lower levels of share repurchases and tax withholdings for stock-based compensation.
Current wording
Cash used in financing activities for the three months ended September 30, 2024 of $28.4 million decreased from the prior-year total of $30.6 million. This decrease reflects lower levels of share repurchases, as partially offset by higher tax withholdings for stock-based compensation and higher dividend payments.
Previous wording
Under our unsecured revolving credit facility (“Facility”), which we renewed in March 2024, we may borrow up to a maximum of $150 million at any one time. We had no borrowings outstanding under the Facility at March 31, 2024. At March 31, 2024, we had $2.2 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2029, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.
Current wording
Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one time. We had no borrowings outstanding under the Facility at September 30, 2024. At September 30, 2024, we had $2.6 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2029, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.
Previous wording
We believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that available under the Facility, should be adequate to meet our liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments. If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2024 will total an estimated $65 million.
Current wording
We believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that available under the Facility, should be adequate to meet our liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments. If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2025 could total between $70 and $80 million.
Previous wording
We have various contractual and other obligations that are appropriately recorded as liabilities in our condensed consolidated financial statements. Certain other contractual obligations are not recognized as liabilities in our condensed consolidated financial statements. Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of March 31, 2024, lease commitments that have not yet commenced as of March 31, 2024, and purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations, other than lease commitments, is expected to be due within one year.
Current wording
We have various contractual and other obligations that are appropriately recorded as liabilities in our condensed consolidated financial statements. Certain other contractual obligations are not recognized as liabilities in our condensed consolidated financial statements. Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of September 30, 2024 and purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations is expected to be due within one year.
Previous wording
•geopolitical events, such as Russia’s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;
Current wording
•geopolitical events that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
With respect to Project Ascent, we completed the final wave of the implementation phase in August 2023 as planned and have shifted towards leveraging the capabilities of our new ERP system to improve execution.