Lancaster tightens inventory in first quarter
WESTERVILLE, OHIO — While most of the company’s growth in the first quarter was driven by price actions, executives at Lancaster Colony Corp. said changes in its product lineup also supported performance.
Lancaster’s two business segments – retail and foodservice – have tightened inventory management, Chief Financial Officer Thomas Pigott said in a Nov. 3 conference call with analysts to discuss the results of the first trimester.
“Both segments eliminated low-profit business and SKUs (stock-keeping units),” Pigott said. “Days of inventory on hand are down from the prior year quarter, and our inventory mix is better aligned with demand trends. These, along with a more stable and predictable operating environment, have helped improve our gross margin and cash flow performance.”
In the retail segment, IRI data for the quarter showed market share gains for Sister Schubert’s buns, said David Ciesinski, president and chief executive.
“Sister Schubert’s share in the frozen rolls category increased 290 basis points to 53.9%,” he said.
In fiscal 2022, 36% of Lancaster’s retail sales mix was frozen baked goods.
In the first quarter ended Sept. 30, Lancaster’s net income totaled $37.5 million, or $1.36 per share on common stock, up 23% from $30.7 million, or $1.11 per share, same time a year ago. Net sales were $425 million, up 8.4% from $392 million a year ago.
“While our commodity inflation was around 25% this quarter, our pricing actions offset that increase in the majority of the prior year’s shortfall, resulting in improved performance,” Ms. Pigott.
First-quarter retail operating profit was $42.9 million, down 11% from $48.2 million in the prior year quarter . The retail unit’s net sales were essentially flat at $223 million. Sales increased 15.6% in the prior year quarter and also reflected the impact of anticipated orders during the fourth quarter of 2022.
Consolidated net sales were adversely impacted by an estimated $25 million attributable to anticipated orders during the fourth quarter prior to the Commissioning of the ERP on July 1said Lancaster. Of this amount, approximately $11 million was anticipated retail sales and the remaining $14 million was anticipated foodservice sales.
In addition to the gains made by the Sister Schubert brand, Lancaster said IRI data showed market share gains for Marzetti chilled salad dressings in the first quarter. Marzetti brand salad dressings added 190 basis points in the chilled salad dressing category at 23.8%. Top performing product lines in the first quarter also included Marzetti chilled caramel dips.
“Sales volumes measured in pounds shipped decreased 15%, impacted by three primary factors: first, our decision to exit certain less profitable product lines in fiscal year 2022; second, the advanced order before the commissioning of our ERP; and third, the elasticity of demand attributed to price inflation,” Ciesinski said.
Foodservice operating income totaled $31.9 million in the quarter, compared to $15.8 million in the first quarter of Fiscal 2022. The unit’s quarterly net sales increased 20% to $202.3 million from $168.2 million. Sales growth in the restaurant segment was driven by price inflation and volume gains from some quick-service restaurant customers among its national restaurant chain accounts, the company said.
“Going back in time, if you go back a few years, Foodservice was earning at a similar level to that $30 million,” said Thomas Pigott, chief financial officer. “I think if we go back to 2020, it was about $27 million in operating profit.”
Innovation during the quarter included Sister Schubert’s Filled Bites, a line of frozen baked snacks. The company also introduced a new larger size of Chick-fil-A sauce and launched Arby’s Sauce and Arby’s Horsey Sauce.