ATCHISON, Kan., Nov 08, 2007 /PRNewswire-FirstCall via COMTEX/ -- MGP Ingredients, Inc. (MGPI) today reported a net loss of $318,000, or $0.02 in diluted earnings per share, for the first quarter of fiscal 2008, which ended September 30, 2007. This compares with net income of $7.0 million, or $0.41 in diluted earnings per share, for the first quarter of fiscal 2007. Total sales in the first quarter of fiscal 2008 were $88.0 million, an increase of 3.5 percent from first quarter sales a year ago.
The company continued to show a positive turnaround in the ingredient solutions segment, reporting pre-tax income of approximately $311,000 in the first quarter compared with a pre-tax loss of $2.5 million in the prior year's first quarter. Total ingredient solutions sales improved by 55 percent, led principally by higher sales of vital wheat gluten. Improved ingredient solutions segment operating margins also reflected a more optimal product mix of higher valued specialty ingredients. Further improvements were impeded by increased wheat prices, which averaged 20.2 percent higher versus the first quarter a year ago. Meanwhile, pre-tax income in the company's distillery products segment declined to $679,000 compared with $15.2 million in last year's first quarter. Distillery products sales declined by 6.7 percent compared with year-ago levels. This was due to a significant decline in selling prices for fuel grade alcohol (ethanol) as well as reduced unit sales compared with the year-ago period, as well as higher costs for corn, the principal raw material used in the alcohol production process. A negative earnings performance in the company's Other segment, consisting primarily of developing business lines for pet product and plant-based biopolymer applications, more than offset first quarter profitability in the ingredient solutions and distillery products segments. An increase in selling, general and administrative expenses, mainly related to financial reporting systems and outside professional fees and expenses, also contributed to the first quarter net loss.
"In light of the company's strategy, with an emphasis on a greater diversity of products, processes and customers, MGP Ingredients has increased the number of its financial reporting segments," stated Ladd Seaberg, chairman and chief executive officer. Beginning in fiscal 2008, the company's new segments are: Ingredient Solutions, Distillery Products, Other (Resin and Polymer Technologies), and Corporate.
"We began to feel the impact of lower ethanol pricing on distillery profits in our fiscal 2007 fourth quarter," Seaberg said. "Prices declined further in the first quarter of our current fiscal year compared to both the fourth and first quarters of fiscal 2007. The situation was compounded by higher prices for corn, one of our main cost components, compared to a year ago. Additionally, certain production issues related to our distillery processes yielded a production level below our maximum capacity. Although corn prices have remained at or near this higher level, we have recently experienced some strengthening in ethanol pricing since the end of the first quarter. These changing dynamics illustrate the sensitivity and operating leverage in our fuel grade alcohol business".
Seaberg added that "the adverse impact of lower fuel grade alcohol results on first quarter distillery profits was somewhat offset by continued strength in pricing for our food grade alcohol. We plan to seek out additional opportunities to expand our products and services to customers in the high quality food grade side, which includes both beverage and industrial applications. Our other main focus is on strengthening our commercialization capabilities for ingredients. The recent profit improvements in this segment are only the first phase of a plan to increase revenues and income."
First Quarter Sales Highlights
Total sales of distillery products in the first quarter of fiscal 2008 declined approximately 6.7 percent to $64.4 million compared to the same quarter of fiscal 2007. This decline was due to a $7 million, or 18.8 percent, decrease in sales of fuel grade alcohol. Sales of food grade alcohol improved by $1.6 million, or 6.7 percent, over the prior year with gains in both beverage and industrial applications. Sales of distillers feed, the principal by-product of the alcohol production process, increased by approximately $761,000, or 10.3 percent, over last year's first quarter.
Total ingredient solutions sales in the first quarter of fiscal 2008 increased by approximately $7.9 million, or 54.5 percent, compared to the prior year's first quarter. The principal reason was a $5.7 million increase in sales of vital wheat gluten, which resulted from higher unit volumes and substantially improved prices compared with year-ago levels. Other notable improvements included a $1.4 million, or 21.7 percent, increase in specialty starch sales, and a $910,000, or 24.3 percent, increase in sales of specialty proteins. The 15 percent decrease in the Other segment resulted from lower sales of Chewtex(R) resins for use in pet product applications. The decrease was partially offset by growing sales of plant-based polymers and composites.
Moving Ahead with Plans to Improve Sales and Profits
"Coming off a record fiscal year we hit a strong headwind in our first quarter," said Tim Newkirk, president and chief operating officer. "Despite our success in restoring our ingredient solutions segment to profitability, we were severely impacted by lower ethanol pricing and higher corn costs on the distillery side."
Newkirk added: "We aren't anticipating a long-term decline in ethanol prices and therefore we have no plans to reduce our budgeted production. This area of our business is still generating good cash flow and if ethanol selling prices increase in the second half of our fiscal year, we are well positioned to benefit from such an improvement. On the other hand, should ethanol selling prices not experience a more robust improvement for the remainder of the current fiscal year, our distillery income would likely continue to show a decline compared to last year's profitability in this segment.
"We recognize over the near term that while we may be unable to reduce earnings volatility from the fuel grade alcohol side of our business, we are moving forward with plans to improve and sustain the profitability of our company. We have two strong business segments within our integrated manufacturing network. Our strong balance sheet and operating cash flows provide us with financial flexibility. Following several years of relatively high capital expenditures on new plant and equipment, we anticipate lower spending in the current fiscal year, nearly one-half the amount of recent years."
Newkirk continued, "We are beginning to see greater opportunities for growing our ingredient solutions business. The steps we took last year to improve profits in the base business were only the beginning. MGPI has a solid footprint in the food industry. Our product reach extends to most of the major food processors, where healthy food remains a long-term focus. Consumers recognize the need for higher fiber in their diets. Our unique Fibersym(R) and FiberRite(R) resistant starches, which perform like fiber while also providing additional nutritional and functional benefits, effectively address this need. With a renewed goal on commercialization and a much deeper R&D presence with our key customers, we can see growing prospects for our established specialty starches and proteins, as well as an expanding pipeline of exciting new programs."
Seaberg concluded, "Given the prospects for continued volatility in our key input commodities, our best action is to keep moving toward greater emphasis on value-added ingredients and high quality alcohol products, thereby lessening the impact of grain costs on our profitability."
Investor Conference Call
The company will host an investor conference call today (November 8) at 10 a.m. central time to review first quarter results. Stockholders and other interested parties may listen to the call live via telephone by dialing 888-603-6873 domestically or 973-582-2706 internationally by 9:50 a.m. central time, or access it on the Internet at MGP Ingredients, Inc. http://www.mgpingredients.com. The conference identification number for entering the call is 9403425.
About MGP Ingredients
In business since 1941, MGP Ingredients, Inc. is a recognized pioneer in the development and production of natural grain-based products. The Company has facilities in Atchison, Kan., Pekin, Ill., Kansas City, Kan., and Onaga, Kan. that utilize the latest technologies to assure high quality products and to maintain efficient production and service capabilities.
Cautionary Note Regarding Forward-Looking Statements
This news release contains forward-looking statements as well as historical information. Forward-looking statements are usually identified by or are associated with such words as "intend," "plan", "believe," "estimate," "expect," "anticipate," "hopeful," "should," "may," "will", "could" and or the negatives of these terms or variations of them or similar terminology. They reflect management's current beliefs and estimates of future economic circumstances, industry conditions, company performance and financial results and are not guarantees of future performance. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: (i) the availability and cost of grain, (ii) fluctuations in gasoline prices, (iii) fluctuations in energy costs, (iv) competitive environment and related market conditions, (v) our ability to realize operating efficiencies, (vi) the effectiveness of our hedging programs; (vii) access to capital and (viii) actions of governments. For further information on these and other risks and uncertainties that may affect the company's business, see Item 1A. Risk Factors in the company's Annual Report on Form 10-K for the fiscal year ended July 1, 2007.