LANC

Lancaster Colony Corporation (LANC)

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Lancaster Colony Corp. (LANC)

Q2 2013 Earnings Call

January 31, 2013, 10:00 am ET

Executives

Jay Gerlach - Chairman, President & CEO

John Boylan - VP, CFO & Treasurer

Analysts

Presentation

Operator

Good morning. My name Kathy and I will be your conference operator. At this time, I would like to welcome everyone to the Lancaster Colony Second Quarter Fiscal 2013 Results Conference Call. Conducting today's call will be Jay Gerlach, Lancaster Colony’s Chairman and CEO, and John Boylan, Vice President, Treasurer, and CFO. All lines have been placed on-mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I will now turn today's conference over to [Earle Brown], Lancaster Colony’s Investor Relations. Mr. Brown, please go ahead.

Unidentified Company Representative

Good morning. Let me also say thank you for joining us today for the Lancaster Colony’s second quarter fiscal 2013conference 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 note 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?

Jay Gerlach

Good morning and thank you for joining us. We are pleased to report our second quarter fiscal 2013 results with total sales up almost 5% and EPS of $1.28. We did receive a modest CDSOA distribution in the quarter of about $0.01 per share versus approximately $0.06 per share last year. John will comment later on roughly $0.02 per share tax benefit from the $5 special dividend paid in December.

Capital expenditures for the quarter totaled $5 million with our primary project being the expansion of our crouton production capacity. We expect this project to be complete in March with a total investment of approximately $11 million. Full-year capital expenditures will total about $25 million. We did not repurchase any shares during the quarter nor did we make any business acquisitions.

Turning to our food segment performance for the quarter, we saw sales increase of about 2.5% and operating income improve over 12%. Operating margins reached 18.5% versus 16.8% last year. Sales grew primarily due to pricing of about $3 million and a bit less promotional spend as volume mix was relatively flat in the quarter. While we did sales growth from both our retail and foodservice channels and continued to benefit from new product sales, we also experienced declines in our New York Texas Toast product sales.

Our Simply Dressed line of refrigerated salad dressing continued to perform well and we saw contribution from Sister Schubert's Mini Loaves, Sweet Hawaiian and Pretzel Rolls and our New York Brand Garlic Knots Our foodservice channel benefited from good demand from our top chain account customers.

Looking at IRI sell-through data for our key categories for the 12 weeks ending December 30th, chose the following. In the Refrigerated Dressing, the category was up about 6.5%, our growth was 9.7% and we did in that 12 week period, moved to number one position in the category. The Veggie Dips category was down 1%, we were flat and we maintained our number one, strong number one position in that category.

Crouton, the category showed growth of about 1.3%, our growth 2.8% and again maintained our number one position in the category. Frozen garlic bread, the category was down 4.4%; we were down 10% yet still maintained our number one market share. And in the frozen dinner roll category up 4.1%, we were up 10.6% and again maintained a strong number one position in that category.

Our operating margin improvement was helped by a bit of mix shift in net sales toward retail versus last year, improved pricing and input cost decline of about $2 million and lower promotional spending.

Moving to our glassware and candle segment, we saw that second quarter sales rise over 17% on greater seasonal business and everyday demand with some favorable impact from Hurricane Sandy.

Operating margins reached 10.5% on the benefit of greater volume a bit lower wax cost and improved product mix. Both segments are consistently good planned operations throughout the quarter.

Let me ask John now to make a few comments.

John Boylan

Thanks Jay and good morning. I will start my comments this morning by addressing some of the more noteworthy changes in our consolidated balance sheet. First, our net accounts receivable as of December 31 hold approximately $91 million which compared to $73 million at June 30. Somewhat similar to what we have seen in prior years, the seasonality of our candle sales was largely responsible for this increase. Compared to the year ago December, our receivables increased about $7 million which also reflects the current year’s higher sales of candles.

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