ATCHISON, Kan., May 10, 2006 /PRNewswire-FirstCall via COMTEX/ -- MGP Ingredients, Inc. (MGPI) today reported net income of $2,083,000, or $0.13 in basic earnings per share, for the third quarter, which ended March 31, 2006. This compares with net income of $1,627,000, or $0.10 per share, for the third quarter of fiscal 2005. Net sales in the current year's third quarter totaled $79,422,000, an increase of 12 percent above net sales of $71,186,000 in the prior year period. The improvement in total revenue compared to a year ago resulted from increased sales in the distillery products segment. Distillery products sales rose by $10.2 million, or 22 percent, above distillery sales in the third quarter of fiscal 2005. Total ingredients sales declined by $1.9 million, or 8 percent, compared to last year's third quarter.
"As in the first two quarters of this fiscal year, our gains in the third quarter were driven by our distillery products segment, where the fundamentals remain strong," said Ladd Seaberg, president and chief executive officer. "Although we essentially are producing at our total maximum distillery capacity rate of approximately 110 million gallons annually, we anticipate an even greater profit contribution from this segment in our fourth quarter due to strengthened alcohol pricing and lower natural gas prices. As a result, we anticipate that our total fourth quarter operating income will be at least equal to our total operating income for the first nine months of the fiscal year. This forward-looking statement assumes that we can maintain current alcohol production levels, that wheat prices don't increase more than anticipated, that sales of specialty ingredients meet expectations for the quarter and that natural gas prices remain at or below current levels."
Seaberg noted that "a significant percentage of our fuel grade alcohol sales are made pursuant to contracts of from six to nine months duration. In line with this practice, at April 1, 2006 we had contracted a sizeable portion of our total current alcohol capacity to customers in the fuel alcohol area through the end of calendar 2006. Consistent with forward market activity, these contracts are at prices higher than previous contracts which were in effect during all or part of the third quarter."
Seaberg went on to say that "while we have experienced significant increases in fuel alcohol prices, we have also seen price improvements in the food grade alcohol area. We have been in the food grade alcohol business for over 60 years and intend to maintain a solid presence in the food grade area. We have longstanding relationships with our food grade customers, whose needs we remain committed to serving."
The company continued to feel the effects of higher energy costs in the third quarter, affecting operating income in the distillery segment and, to a lesser extent, contributing to a loss in the company's ingredients segment. The primary cause was a 62 percent increase in the average price of natural gas, contributing to a $7.6 million, or 66 percent, rise in the company's cost of natural gas over the third quarter of fiscal 2005.
Third quarter profitability in the ingredients segment was adversely affected by lower unit sales and reduced prices for certain higher valued specialty ingredients for both food and non-food applications compared to a year ago. Profitability in this segment was further affected by higher raw material prices for wheat, a major cost component. Wheat prices for the quarter averaged 13 percent higher than the prior-year period.
"We are taking a close look at our ingredients segment in an effort to produce a more profitable product mix, especially in light of higher wheat costs," Seaberg said. "Our goal in this area is to concentrate on growing specific high end, highly functional specialty ingredients. Simultaneously, we will strive to reduce the adverse impact that sales of lower valued commodity wheat gluten and starches have on our bottom line." While sales of commodity starches increased in the current year's third quarter compared to a year ago, sales of commodity wheat gluten declined.