Release Date: October 31, 2024

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

Positive Points

• Lancaster Colony Corp (NASDAQ:LANC) reported a record first-quarter consolidated sales increase of 1.1% to $467 million and a gross profit increase of 1.9% to $111 million.
• The company's licensing program, including new product launches like Subway sauces and Texas Roadhouse dinner rolls, continues to be a significant growth driver.
• The Marzetti brand saw a sales increase of 2.4% and gained market share, while the Chick-fil-A dressings contributed to a 2.6% sales increase in the produce dressing category.
• The foodservice segment experienced a 3.5% increase in net sales due to higher demand from national chain restaurant accounts.
• Lancaster Colony Corp (NASDAQ:LANC) maintains a strong financial position with a debt-free balance sheet and $135.1 million in cash, allowing for continued investment in growth and shareholder returns.

Negative Points

• Retail segment net sales declined by 1.1%, although this was partially offset by growth in other areas.
• Selling, general, and administrative expenses increased by 5.8%, reflecting higher investments in personnel, IT, and legal expenses.
• Consolidated operating income decreased by 1.6% due to higher SG&A expenses, despite improvements in gross profit.
• The foodservice segment's operating income declined slightly, impacted by higher labor and benefits costs, supply chain investments, and incremental outsourcing.
• The company anticipates continued consumer headwinds and potential moderation in foodservice industry demand due to external economic factors.

Q & A Highlights

• Warning! GuruFocus has detected 3 Warning Signs with LANC.

Q: Can you elaborate on the outperformance in the foodservice segment, especially given the softer backdrop across QSR? Is it due to seasonal factors like football season, or is it driven by national accounts? A: The outperformance is attributed to our mix of national chain customers and our focus on chicken and sauces. Additionally, our branded business, which includes operators in various sectors, performed well. Looking forward, we anticipate some consumer headwinds but believe we can continue to deliver low single-digit growth due to our business mix and innovation efforts. - CEO

Q: What are your thoughts on consumer trends as we enter calendar 2025? Are there any factors that could lead to positive consumption trends? A: Currently, there aren't many positive indicators in the consumer environment. The era of free money has ended, and consumers are making tough trade-offs due to rising rates. While wage growth has exceeded inflation recently, it will take time for equilibrium. We don't expect declines to compound further, but rather stabilize. - CEO

Q: Can you explain the profitability divergence between the foodservice and retail segments? What factors are affecting foodservice profitability? A: Foodservice operating income declined slightly due to higher labor and benefits costs, supply chain investments, and incremental outsourcing. We have plans to improve performance through efficiencies and network optimization. The cost savings initiatives favored the retail segment more this quarter. - CFO

Q: How is the Texas Roadhouse dinner rolls launch performing compared to expectations? What are the future plans for this product? A: The Texas Roadhouse dinner rolls have exceeded expectations, especially after expanding distribution to all Walmart stores. Early indications show repeat purchases, and we believe it could rival the success of our Buffalo Wild Wings products. We are adding capacity to meet demand and plan a phased rollout to other retailers, contributing significantly to fiscal year 26. - CEO

Q: With the downward pricing pressure in retail and cost savings initiatives, how do you see gross margins shaping up for fiscal 2025? A: We grew our gross margin by 20 basis points in the quarter and expect further improvement throughout the year. While we don't have a significant tailwind from pricing, our productivity pipeline and cost-saving initiatives will support margin growth. We anticipate trade spending to neutralize in the second half, reducing headwinds. - CFO

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