• Consolidated Sales: Decreased 24% from the prior year period to $161.5 million.
• Distilling Solutions Sales: Declined by 36%; excluding certain impacts, declined by 18%.
• Branded Spirits Segment Sales: Decreased by 6%.
• Ingredient Solutions Sales: Declined by 18%.
• Consolidated Gross Profit: Decreased by 10% to $65.8 million, representing 40.8% of sales.
• Net Income: Increased 82% to $23.9 million.
• Adjusted Net Income: Decreased 5% to $28.8 million.
• Basic Earnings Per Share: Increased to $1.07 from $0.59 in the prior year period.
• Adjusted Basic Earnings Per Share: Decreased to $1.29 from $1.36 in the prior year period.
• Cash Flow from Operations: $73.5 million year-to-date, up from $48.6 million in the prior year period.
• Debt: Totaling $290 million with a cash position of $20.8 million.
• Capital Expenditures: $20.9 million during the quarter and $43.5 million year-to-date.
• Full Year 2024 Guidance: Sales in the range of $695 million to $705 million; adjusted EBITDA in the range of $196 million to $200 million.

• Warning! GuruFocus has detected 3 Warning Sign with MGPI.

Release Date: October 31, 2024

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

Positive Points

• MGP Ingredients Inc (NASDAQ:MGPI) reported a 13% increase in premium plus sales year-to-date, indicating strong growth in their high-margin segment.
• The company is actively reducing its exposure to aged whiskey sales, which accounted for less than 20% of consolidated gross profit in Q3, down from nearly half in Q1 2021.
• MGP Ingredients Inc (NASDAQ:MGPI) is enhancing efforts to expand into international markets, particularly Europe and Asia, to leverage growth potential outside the United States.
• The company has a healthy balance sheet with a net debt leverage ratio of approximately 1.3 times at the end of the quarter.
• MGP Ingredients Inc (NASDAQ:MGPI) continues to focus on becoming a premier branded spirits company, with premium plus brands now accounting for approximately half of branded spirits segment sales.

Negative Points

• Consolidated sales decreased by 24% from the prior year period, reflecting challenges in the distilling solutions segment.
• The American whiskey category is experiencing slower growth and higher inventories, leading to lower demand and reduced visibility on contract distilling sales.
• The company expects further inventory tightening at the distributor level to be a headwind in the near term.
• Distilling solutions segment sales are expected to decline by nearly 35% in 2025, with a 50% decline in gross profits anticipated.
• Ingredient solutions segment sales declined by 18% due to decreased sales volumes of specialty protein and lower commodity and specialty starch sales.

Q & A Highlights

Q: Can you clarify if the miss in this quarter's expectations was primarily due to the Distilling Solutions segment, particularly aged whiskey sales? A: Yes, the miss and reduction in expectations for the year are primarily driven by the brown goods in the Distilling Solutions segment. However, the Ingredients segment also came in under expectations due to some large sales being pushed to the fourth quarter. We expect a rebound in Q4.

Q: Given the slowdown in American whiskey consumption, why not completely halt aged whiskey production for next year? A: We are significantly reducing our putaway for next year, focusing only on our brands. We've built a nice inventory for future sales over the past two years, and we are taking actions to stabilize the business by cutting costs and generating cash.

Q: With the expected decline in distillery profits next year, is this mainly due to aged whiskey sales? A: Yes, the majority of the reduction next year is driven by aged whiskey sales. While we are not seeing price compression today, we do expect pricing pressure over time due to excess inventories and capacity.

Q: How confident are you in the security of your commitments for 2025, given some contract non-performance? A: We have strong confidence in our 2025 visibility. We've analyzed our business, contacted customers, and focused on core business with multinational contract customers. We are confident in the commitments we've secured for 2025.

Q: What is the path to growth for the branded business in 2025, given the current distributor cutbacks? A: We are focusing on expanding our premium plus portfolio beyond whiskey, adding products like high-end tequila. We aim to diversify our brand portfolio to respond to customer demand and leverage our nimbleness to adapt quickly to market changes.

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