Release Date: February 26, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• MGP Ingredients Inc (NASDAQ:MGPI) reported that their branded spirits and ingredient solutions businesses accounted for the majority of sales and gross profit in 2024, indicating strong performance in these segments.
• The company is well-positioned in the attractive North American market for American whiskey and tequila, with premium brands like Penelope and El Mayor showing strong double-digit sales growth.
• MGP Ingredients Inc (NASDAQ:MGPI) is taking proactive measures to optimize their distillery cost structure and strengthen customer relationships, which could enhance their competitive position.
• The ingredient solutions segment showed sequential improvement in sales and gross margin, with strong interest from both existing and new customers, particularly in plant-based foods and healthy snack categories.
• The company has significantly reduced capital expenditures for 2025, which is expected to result in strong free cash flow despite earnings pressure.

Negative Points

• Consolidated sales for the fourth quarter of 2024 decreased by 16% compared to the prior year, with a notable decline in the distilling solutions and branded spirits segments.
• The brown goods business faced a faster and larger than expected decline due to elevated industry-wide barrel whiskey inventories, impacting overall performance.
• Adjusted EBITDA decreased by 9% due to lower gross profits, and basic earnings per share declined to a loss of $1.91 per share due to a one-time non-cash adjustment to goodwill.
• The distilling solutions segment is expected to see a 50% decline in sales and a 65% decline in gross profit in 2025, indicating ongoing challenges in this area.
• The company anticipates a challenging environment for the distilling solutions business to persist through 2025 and into 2026, with a slow recovery expected.

Q & A Highlights

• Warning! GuruFocus has detected 5 Warning Signs with MGPI.

Q: Can you elaborate on your strategy for aged whiskey going forward, especially after some customers walked away from their commitments last year? A: (Brandon Gaul, Interim CEO and CFO) We are not giving up on the aged whiskey business despite current lower demand. We remain the only contract distiller offering both new distillate and aged whiskey at our scale. We are proactively reaching out to customers to align pricing and volume with market needs, which may result in reduced sales and gross profit. However, we are confident in monetizing our aged inventory over time.

Q: How confident are you that distilling solutions can return to growth, considering the current supply-demand imbalance in the market? A: (Brandon Gaul, Interim CEO and CFO) We expect the challenging environment to persist through 2025 and into 2026. However, we anticipate more rational behavior from industry players over time. We are reducing production and focusing on cost control and customer relationships. While the aged whiskey business will be a smaller part of our overall business, we remain committed to it.

Q: With Chairman Don Lux listing his shares for sale, is there any plan for the company to repurchase some of these shares? A: (Brandon Gaul, Interim CEO and CFO) The S3 filing is a housekeeping item related to the Luxco acquisition agreement. We had planned to file it last year but were delayed due to board considerations. There is no immediate plan for the company to repurchase these shares.

Q: Can you provide more context on the guidance for 2025, particularly for the distilling segment? A: (Brandon Gaul, Interim CEO and CFO) A large percentage of our projections are contracted, with less reliance on spot and aged sales. We anticipate a 50% decline in sales and a 65% decline in gross profit for the distilling solutions segment. We are proactively renegotiating contracts to align with market prices and customer needs.

Q: How are you managing cash flow given the pressure on earnings and potential Penelope earn-out? A: (Brandon Gaul, Interim CEO and CFO) Despite earnings pressure, we expect strong free cash flow due to reduced CapEx and lower net whiskey put away. We plan to use this cash to pay down debt or for other market opportunities. The Penelope earn-out is not due until Q1 2026.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.