LANC

Lancaster Colony Corporation (LANC)

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Exchange: NASDAQ
Industry: Consumer Non-Durables
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Lancaster Colony Corp. (LANC)

F2Q09(Qtr End 12/31/08) Earnings Call

January 29, 2009 10:00 AM ET

Executives

Earl Brown - Investor Relations

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

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

Analysts

Mitchell Pinheiro - Janney Montgomery Scott LLC

Jason A. Rodgers - Great Lakes Review

Jeff Matthews - Ram Partners LP

Sarah Lester - Sidoti & Company

Presentation

Operator

Good morning. My name is Arnica and I will be your conference operator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation's Second Fiscal Quarter 2009 Results Conference Call. Conducting today's call will be Jay Gerlach, Lancaster Colony 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 period. (Operator Instructions). Thank you.

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

Earl Brown

Thank you and thanks to all of you for joining us. Let me also say thank you today for joining us for the Lancaster Colony second 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 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?

John B. Gerlach, Jr.

Good morning and thank you for joining us this morning. We are pleased to report a much improved second quarter's pricing finally got ahead of rising input costs and margins moved to more historic levels. Good volume in our Specialty Food segment as well as a strong seasonal mix, new products and good operations were also contributors.

The quarter was helped by the previously announced proceed of a Continued Dumping and Subsidy Offset Act distribution which contributed $0.20 per share. Before some additional segment comments, let me update you on our capital uses. Due to the weak economy and difficult credit markets, we have been careful on both capital investment, which was $3.1 million in the quarter and share repurchases which totaled 200,000 shares or $6.8 million in the quarter. Share repurchases year-to-date are 496,000 shares for $16.9 million and we have 27,970,000shares outstanding and 509,000 shares available for repurchase.

We are continuing to invest in capital to invest capital in good return projects or where capacity or new capability as needed. New product innovation is also a priority. We do think it is appropriate to maintain a strong balance sheet in this difficult time, so that we are able to take advantage of growth opportunities, be the organic or acquisitions.

Turning to our Specially Food segment, the quarter saw a pricing at about 10% to sales which help offset input cost increases from materials of over $10 million quarter-over-quarter. The 14% sales increase reflected growth in both our retail and food service channels with new product and programs being a factor in each.

Our New York Brand Ciabatta Cheese Rolls, Pizzeria Dip'N Sticks and Texas Toast Croutons continue to show good growth. We're very pleased with our Sister Schubert's Brand growth in the important holiday season helped by having good capacity available due to our new production facility that came on screen the previous fall.

Our new Marzetti and Sister Schubert's plants are both performing well and contributing to lower cost operations. The quarter also benefited from the consolidation of our former Atlanta plant done in the first quarter, and we also saw about $500,000 pretax gain on the sale of that former plant in the second quarter. Also helping this quarter was the good job our sales and marketing team did in controlling promotional expenditures.

Looking at just candles sales in our Glassware and Candles segment, we saw sales off mid single digits in spite of a favorable pricing. A better than expected December was not enough to offset a soft October, November as consumer's sell through for the category it was off. Our trade customers were cautious on their inventory levels throughout the season. Wax costs were up over $3 million in the quarter versus last year and we continue to control production levels allowing us to take about $10 million out of inventory versus the same time last year. Our wax costs and less capacity utilization continues to unfavorably impact operating income for this segment.

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