February 10/Atchison, Kan./News Bites U.S. Markets -- MGP Ingredients Inc. reported net income of $3,242,000, or $0.18 in diluted earnings per share, for the second quarter of fiscal 2011, which ended December 31, 2010. This compares with net income of $4,778,000, or $0.29 in diluted earnings per share, for the second quarter of the prior fiscal year. Income from operations for the second quarter of fiscal 2011 increased to $4,344,000, compared with $504,000 a year ago. Net income for the second quarter of fiscal 2010 included several one-time items, the most significant of which was an income tax benefit of $4,659,000. The year-ago results also included a loss of $3,047,000 related to the formation of the company's distillery joint venture, Illinois Corn Processing LLC (ICP). Total sales in the second quarter of fiscal 2011 were $57,951,000, a 21% increase from sales of $48,094,000 for the same period one year ago. The increase was principally due to higher sales of food grade alcohol.
For the first six months of fiscal 2011, net income was $8,244,000, or $0.46 in diluted earnings per share. This compares with net income of $8,516,000, or $0.51 in diluted earnings per share, for the prior year period. Income from operations for the first half of fiscal 2011 rose to $7,909,000 from $5,148,000 for the first half of fiscal 2010. Total sales for the first six months of fiscal 2011 were $114,929,000, a 17 percent increase from sales of $98,343,000 for the same period one year ago.
"The key to our improved performance lies in our operating profits," said Tim Newkirk, president and chief executive officer. "We are pleased to report significant increases in sales and operating profits from a year ago. We also realize that we have further to go before we are executing at our highest level. On the distillery side, our growth continues to be driven by demand for high-quality, food-grade alcohol. Further improvements to our performance in this segment were affected by higher corn and energy costs. We also experienced longer than anticipated production slowdowns at our Atchison distillery during the quarter. These slowdowns were related to a water supply disruption, along with distillery equipment repairs and upgrades, which have recently been completed. Going forward we see stronger production rates. Our ICP joint venture is approaching peak capacity in food grade alcohol. Start-up issues at ICP are largely behind us, but our contribution from the joint venture was impacted from higher costs during the quarter as the facility has continued to step up its total capacity utilization levels. We are squarely focused on maintaining our gross margins in this segment, where the general trend is positive."
Newkirk continued, "Our ingredients business is still a work in progress. We're consistently profitable at the current level of business, and there are a number of key customer projects in the pipeline. We are seeing increased demand for our unique specialty value-added ingredients and continue to concentrate much focus and resources on growing this area of our business. This includes methods to continually enhance our operational efficiencies, which experienced a decrease in the second quarter and contributed to higher production costs and affected segment profits."
Ingredient Solutions Segment
* Ingredient solutions pre-tax income declined to $443,000 compared with $2.8 million in the prior year's second quarter. Earnings decreased from the same period in fiscal 2010 primarily due to higher raw material costs, which were partially offset primarily by higher average selling prices for starches. Second quarter results in this segment were also affected by reduced operational efficiencies combined with increases in wheat flour and natural gas costs. As a result, overall production costs in the ingredients segment rose above the same period a year ago.
* Total ingredient segment sales revenue for the second quarter was $14.5 million, a decrease of 6% compared to the prior year's second quarter. The majority of the decrease in revenue was attributable to the planned reduction of commodity starches and proteins. Revenues for specialty proteins and specialty starches increased by 5% and 12%, respectively, over the same quarter a year ago.
* Consistent with the second quarter of fiscal 2011, total ingredient solutions sales revenue for the year to date period ended December 31, 2010 decreased by $2,172,000, or 7%, compared to the year to date period ended December 31, 2009. Revenues for specialty proteins for the first six months of fiscal 2011 increased 6% over the first six months of the prior fiscal year, while sales of specialty starches were approximately even with the same period a year ago. With the company's focus on the production and commercialization of specialty ingredients, revenues for commodity starch and commodity proteins decreased by 29% and 97%t, respectively, in the first six months of fiscal 2011 versus a year ago. In addition to the overall decline in revenues for the ingredient solutions segment, the company's margins saw a decline during the year to date period ended December 31, 2010 compared to the year to date period ended December 31, 2009. This was principally due to higher productions costs caused by lower volume output and increased energy costs related to higher natural gas prices. Natural gas prices averaged approximately 32% higher compared to the same period a year ago. Flour costs, on the other hand, averaged approximately 6% lower per bushel compared to the prior year's first six months.
Newkirk said, "As we continue our progress in transforming MGPI to a higher value revenue base I see many things moving in the right direction. Our product mix today reflects more of our applied science and our focus on adding more value to our customers' products while also reducing the impact of commodity volatility and pricing than was the case in past years. Food grade alcohol output is now running at near optimum levels. We are in the midst of upgrading our facilities and service levels to better meet the needs of our key customers. In fact, our total capital budget for improvements is the highest it's been in several years. Meanwhile, our balance sheet has very little debt and our financial flexibility continues to improve.
"For the remainder of the fiscal year, we are focused on improvements in our production volumes and supply chain efficiencies, a higher value product sales mix, key commodity inputs and consistently better performance from our ICP joint venture. I'm very encouraged to see MGPI progressing in this challenging economic environment. All of this is occurring even before we realize the opportunities from our product development pipeline involving several large projects with major consumer packaged goods customers."
From the February 11, 2011, Prepared Foods' Daily News
For more of the latest news from the food and beverage industry, visit Prepared Foods' Daily News