LANC

Lancaster Colony Corporation (LANC)

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Industry: Consumer Non-Durables
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Lancaster Colony Corporation (LANC)

F4Q09 (Qtr End 06/30/09) Earnings Call

August 20, 2009 10:00 am ET

Executives

Earle Brown - IR

Jay Gerlach - Chairman and CEO

John Boylan - Vice President, Treasurer and CFO

Analysts

Sarah Lester - Sidoti & Company

Mitchell Pinheiro - Janney Montgomery

Greg Halter - Great Lakes Review

Chris Brown - Aristides Capital

David Leibowitz - Horizon Asset Management

Presentation

Operator

Good morning. My name is Angelina and I will be your conference operator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year and Fourth 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 Earle Brown, Lancaster Colony Investor Relations.

Earle Brown

Good morning. Let me also say thank you for joining us today for the Lancaster Colony fiscal year and fourth quarter 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 risk 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?

Jay Gerlach

Good morning. We’re pleased to report today a strong fourth quarter finish to our 2009 fiscal year with sales up over 7% including increases from both segments of our business and good overall operating margins of 17%. We were able to report earnings per share of $1.01. For the year, sales growth was over 7% driven by 12% growth in specialty foods and offset by a decline in Glassware and Candles.

Operating margin for the year was over 12% and EPS reached $3.18 per share. Shares repurchased during the year totaled 496,000 for 16.9 million, and we paid $31.9 million in dividends. While approximately 500,000 shares remain authorized for repurchase, we are not presently buying and have not repurchased shares since October of 2008.

Capital expenditures for the year totaled 11.3 million, our lowest amount in years as fourth quarter expenditures were only $2.4 million. We have been cautious in our use of capital in these uncertain times feeling a strong balance sheet is appropriate.

The fourth quarter saw over 7% sales growth from our specialty food segment with about one-third from pricing and two-thirds from volume and mix, good performance from our New York brand and Sister Schubert’s frozen breads, our Texas Toast croutons and the Marzetti refrigerated salad dressings, all contributed to that growth.

Our food service channel was challenged by slower demand as restaurant sales have weakened in some lower prices as commodity costs have fallen. The consumer is definitely eating at home more.

Operating margin showed further impact of lower material costs, good operations, favorable sales mix, and lower freight costs.

Candle sales increased modestly in a non-seasonal quarter, and our reduced operating loss in the segment was less than $1 million reflecting the benefits of an improving mix in higher pricing, although results were hurt by reduced plant utilization and unfavorable wax cost.

Let me ask John to make a few comments at this point.

John Boylan

Thank you, Jay. I’ll briefly cover several matters this morning regarding our June 30 balance sheet and fiscal 2009 cash flows. Let’s begin by taking a look at several of our major year end balance sheet components.

Accounts receivable at June 30, totaled $61.2 million, which is an increase of about $2 million from a year ago. This growth primarily reflects the sales driven increase in candle related receivables.

All in all, despite the obvious increase in macroeconomic financial challenges this past year, our account receivable ageings remained in reasonably good shape and were fairly comparable to year ago levels.

Turning to the largest component of our working capital, inventories, we saw at June 30 total of $102.5 million that reflected a mark year-over-year decrease of over $17 million or 15%. Most of this decline was derived from lower candle inventories reflecting the particular focus we’ve had on these quantities over the last couple of years. As a result of this effort, we believe we have modified certain of our production processes to help keep these levels in better balance in the future.

Moving on, other current assets declined by roughly $14 million, reflecting a lower tax balance due us this year. Also, while on the subject of taxes, I’d note that our fourth quarter’s provision for taxes reflected a pre-tax credit of approximately $600,000 related to the settlement of the state and the local tax position.

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