Lancaster Colony Corporation (LANC)

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Lancaster Colony Corporation (LANC)

F1Q09 Earnings Call

October 29, 2008 10:00 amĀ ET


Earl Brown - Investor Relations

John B. Gerlach, Jr. - Chairman, President and Chief Executive Officer

John L. Boylan - Chief Financial Officer, Vice President and Treasurer


Mitchell Pinheiro - Janney Montgomery Scott LLC

Sarah Lester - Sidoti & Company

David Liebowitz - Burnham Securities



Good morning. My name is [An Lee] and I will be your conference facilitator today. At this time I would like to welcome everyone to the Lancaster Colony Corporation first quarter fiscal year 2009 conference call. Conducting today's call will be Jay Gerlach, Lancaster Colony Chairman and CEO, and John Boylan, Vice President, Treasurer and CFO. (Operator Instructions)

And now to begin your conference, here's Earl Brown, Lancaster Colony Investor Relations.

Earl Brown

Good morning. Let me also say thank you for joining us today for the Lancaster Colony first quarter fiscal year 2009 conference call. Now please bear with me while we take care of a few details.

As with other presentations of this type, today's discussion by Jay Gerlach, Chairman and CEO, and John Boylan, Vice President, Treasurer and CFO, will contain forward-looking statements of what may happen in the future, including statements relating to Lancaster Colony's sales prospects, growth rates, expected future levels of profitability as well as the extent of share repurchases and business acquisitions to be made by the company.

These forward-looking statements are based on numerous assumptions and are subject to uncertainties and risks. Accordingly, investors are cautioned not to place undue reliance on such statements.

Factors that might cause Lancaster's results to differ materially from forward-looking statements include but are not limited to risks relating to the economy, competitive challenges, changes in raw materials costs, the success of new product introductions, the effect of any restructurings and other factors as are discussed from time to time in more detail in the company's filings with the SEC, including Lancaster Colony's report on Form 10-K.

Please know that the cautionary statements contained in the safe harbor paragraph of today's news release also apply to this conference call.

Now here is Jay Gerlach. Jay?

John B. Gerlach, Jr.

Good morning and thank you for joining us.

Given the volatile and challenging period we're in today, we view our first quarter results as acceptable. Excellent sales growth of almost 20% in our Specialty Foods business, including pricing that almost equaled the material cost increases, yielded operating income close to the prior year.

Candle and Glass sales were off primarily due to the Glass divestiture in last year's second quarter as Candle sales were basically flat.

Candle margin pressure was significant due to high wax costs, lower production levels and limited price relief.

Before more specific segment comments, here are a few updates:

Share repurchases during the quarter totaled 296,000 shares for $10.1 million. Fiscal year to date we have repurchased 496,000 shares for $16.9 million and have 509,000 shares remaining on our authorization.

Capital expenditures for the quarter totaled $3.7 million, virtually all in the Specialty Foods segment, supporting primarily maintenance and efficiency driven projects.

Our total employment at quarter end was approximately 3,400 versus 4,800 one year ago, reflecting our divestitures in the past 12 months.

Turning to our Specialty Foods segment, we saw good growth in both our retail and food service channels. Our more recent product introductions - New York Brand Texas Toast Croutons, Pizzeria Dip'N Sticks and Ciabatta Cheese Rolls - all contributed to our growth. Sister Schubert's Brand Frozen Dinner Rolls and Marzetti Refrigerated Dressings also showed good sales growth.

Food Service growth was helped by frozen dinner rolls, frozen pasta and salad dressings and sauces.

Year-over-year material cost increases for the quarter reached approximately $20 million and we recovered roughly $18 million in pricing. Good operations, increased volume and some operating expense leverage let us get Specialty Foods operating income almost to last year's level. Included in the segment's performance was about $800,000 of plant closing costs related to our Atlanta salad dressing operation that is now consolidated into our other plans. We expect to see annual savings of $1.5 to $2 million on this consolidation.

The Candle and Glassware segment sales decline was primarily due to our Glass business divestiture last November. And again, Candle sales were close to flat in the quarter. Wax cost increases had about a $2 million impact, with our aggressive pricing action of high single to double-digit not getting implemented as early in the quarter as we had planned. Lower production levels as we've pushed to reduce our inventories in the segment also unfavorably impacted our costs.

We did have approximately $800,000 of added corporate expense related to the demolition cost of a closed plant site we now have for sale.

With those comments, let me ask John to review our balance sheet.

John L. Boylan

Thanks, Jay. Let's first review some of the more notable line items within our SeptemberĀ 30th balance sheet.

Our consolidated accounts receivable at September 30th totaled $81,773,000, which was approximately $22 million higher than at June 30th but actually $2 million less than the receivables from continuing operations as of last September. As typically occurs in the first quarter, our receivable levels are strongly influenced by seasonal sales experienced within the Glassware and Candle segment. Additionally, our Food segment balances reflected the strong year-over-year sales increases of the current year's quarter.

With respect to our inventories, the September 30th total of over $125 million compared to roughly $120 million at June and, for continuing operations, $127 million last September. Our Food segment has experienced comparative increases, in part reflecting the higher sales volumes and, with respect to the year ago balances, higher costs.

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