LANC

Lancaster Colony Corporation (LANC)

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Lancaster Colony Corporation (LANC)

F4Q 2013 Results Earnings Call

August 22, 2013 10:00 AM ET

Executives

Earle Brown - IR

Jay Gerlach - Chairman and CEO

John Boylan - VP, Treasurer and CFO

Analysts

Michael Halen - Sidoti & Company

Christof Fischer - Longbow Research

Greg Halter - Great Lakes Review

Presentation

Operator

Good morning. My name is [Sashanka] and I will be your conference operator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2013 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. I’ll now turn the call over to Mr. Earle Brown, Lancaster Colony, Investor Relations. Please go ahead.

Earle Brown

Thank you, good morning and let me also say thank you for joining us today for Lancaster Colony’s fourth quarter and fiscal year 2013 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 of 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 related to the economy, competitive challenges, changes in raw materials’ costs, the success of new product introductions, the effect of any restructuring 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 the 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 again thank you for joining us. While pleased with our overall results for fiscal 2013, our fourth quarter finish was not up to what we saw in the first three quarters. Overall sales for the quarter were off 2% from last year, with both segments being down. Operating income was off 7% all from our food segment as glassware and candles earnings improved slightly.

Our Specialty Food segment sales were off 1% from last year, impacted by the benefit of our some new program roll-out cost last year that did not repeat in ‘13 and higher promotional and marketing support this year. Pricing had no impact on the quarter and volume mix was off just fractionally.

We continue to see good performance from our Simply Dressed line of refrigerated salad dressings, which also benefited from the introduction of five new flavors of Vinaigrettes. Offsetting that positive was our repackaged Marzetti Veggie dip line that lagged last year’s sale and continued softness in frozen garlic breads.

Foodservice demand from both our national chain account customers and distributors was up modestly for the quarter; so we saw our sales mix move to 51% foodservice versus 49% last year. IRI data for the 12 week period ended July 14th shows the following from our key categories. Refrigerated salad dressings, the category was up 6.7%, our Marzetti brand was up 17.9%. Veggie Dips, the category was down 7.4%, our Marzetti brand was down 9.5%. Croutons; the category was up just barely 0.1%. Our collective Marzetti New York and Chatham Village brands were off 1.7%. Frozen garlic bread, the category was down 3.1%, our New York brand was up 1.1%; and then Frozen Dinner rolls the category was down 1.3%, our Sister Schubert brand was down 2%. We are the leader in all of our key categories.

Segment operating income for the quarter was off about 7%, as margins declined approximately 100 basis points from last year's quarter. The primary factors in the decline were lower sales, higher food service mix and higher consumer promotion and marketing cost. Material costs were favorable, but only in the low six figures. Our croutons capacity expansion was completed in the early part of the quarter and its startup probably had an unfavorable six figure cost. Lastly, the prior year benefited from the $1 million recall related vendor recovery.

For the full year, the segments had a record top line and reached just over $1 billion in sales, 2.5% increase from the prior year. Simply Dressed and our Sister Schubert’s line were the primary contributors in the retail channels growth, while the food service channel grew as well. Full year mix edged up slightly to retail by 0.2% at 51.7%. Full year segment operating income was up over 9% and operating margins grew about a 100 basis points to 16.3% helped by about $8 million in pricing and over $5 million in lower material cost, mostly happening in the first three quarters of the year.

We also benefited from lower slotting cost as we anniversaried some prior year new product introductions, offsetting these benefits were increased consumer marketing cost as we continue to invest in building our brands. Our Glassware and Candle segment for the quarter saw a 6% sales decline and low six figure earnings. Candle sales were off, the wax costs were fairly neutral, and sales mix showed some improvement. While not material in sales and contribution to the segments overall results, we did divest various product lines that were largely directed to the lodging industry during the quarter and a mid-six figure loss.

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