ATCHISON, Kan., Feb 07, 2008 /PRNewswire-FirstCall via COMTEX/ -- MGP Ingredients, Inc. (MGPI) today reported net income of $5.3 million, or $0.31 in diluted earnings per share, for the second quarter of fiscal 2008, which ended December 30, 2007. These results include a $7 million gain on settlement of litigation, net of related expenses, without which the company would have reported a loss before taxes of $2 million. This compares with net income of $6.8 million, or $0.40 in diluted earnings per share, for the second quarter of fiscal 2007. Total sales in the second quarter of fiscal 2008 were $93.9 million, an increase of 7.2 percent from sales a year ago.
Total ingredient solutions sales increased over 70 percent led principally by higher sales of vital wheat gluten. Sales of specialty ingredients improved by 35 percent compared with the previous year's quarter, while also showing a strong gain over the first quarter of the current fiscal year. The growing contribution from specialty ingredients helped to offset higher wheat costs, which increased 51.3 percent over a year ago. A pre-tax loss of $124,000 in the ingredient solutions segment included inventory write-downs of approximately $938,000. This compares with a loss of $ 2.8 million in last year's second quarter. Distillery products sales declined by 5.8 percent compared with fiscal 2007 second quarter levels. This was due to a significant decline in selling prices for fuel grade alcohol (ethanol) and reduced sales units compared with the year-ago period. The company's earnings performance in the distillery products segment was also adversely affected by higher costs for corn, the principal raw material used in the alcohol production process. The per-bushel cost of corn averaged nearly 37.8 percent higher than the prior year's second quarter. Pre-tax income in the distillery products segment declined to $1.3 million compared with $15.7 million in last year's second quarter. Pre-tax losses of $3.1 million, including inventory write-downs of approximately $356,000, were reported in the company's other segment, consisting primarily of products in development for pet and plant-based biopolymer applications.
On December 27, 2007, the company settled its two year patent infringement and contract litigation and was paid $8 million. Professional fees related to this litigation in the first and second quarters of fiscal 2008 have been netted against the gross proceeds for a net amount of $7,046,000 and recorded as a separate line item below income from operations. The company used the proceeds to reduce its line of credit. As a result of a February 6 amendment to its line of credit agreement increasing the maximum borrowing capacity to $30 million, at that date the company had $18 million available for borrowings under its line of credit.
"We have been feeling the impact of lower ethanol pricing on distillery profits since the fourth quarter of last fiscal year," said Ladd Seaberg, chairman and chief executive officer. "This situation in the current year's second quarter was further aggravated by near record corn prices, a major component of our cost of goods sold. We also fell short of achieving full planned distillery capacity due to some temporary fermentation issues which have since been resolved. Although corn prices have remained at or near this higher level and, based upon Chicago Board of Trade Futures, are expected to increase this summer, we are encouraged by the prospect of strengthened ethanol pricing for the balance of the fiscal year.
Seaberg added, "The progress we are making with our ingredient solutions segment is more apparent on the top line than the bottom line. Granted we did benefit from gluten sales but we are also achieving better sales and margin improvements in our core specialty ingredients. As we continue to migrate to a higher mix of value-added products, the impact of rising wheat costs should lessen over time."