Lancaster Colony Reports Fiscal Year And Fourth Quarter Results

COLUMBUS, Ohio, Aug. 21, 2014

• Net sales increased nearly three percent to $1,041 million versus $1,014 million last year.
• Operating income of $153.8 million was level with the prior year's $153.9 million as the benefits of stronger sales and lower material costs were offset by the impact of increased marketing and promotional costs, including those associated with the introduction of several new retail products, and lower pricing in the foodservice channel.
• Income from continuing operations totaled $101.0 million compared to $103.9 million a year ago, as this year's effective tax rate was 34.1% versus last year's 32.5%.  The fiscal 2013 tax rate was favorably influenced by an increased deduction for dividends paid to the company's frozen ESOP due to the $5.00 per share special dividend paid in December 2012 and the release of reserves associated with uncertain tax positions.
• Net income for the year totaled $75.0 million or $2.74 per diluted share after accounting for the loss from discontinued operations of $26.0 million, or $.95 per share, which included a pre-tax loss of approximately $44 million on the sale of the company's candle operations.  The year-ago net income totaled $109.2 million, or $3.99 per diluted share, inclusive of income from discontinued operations of $5.4 million, or $.20 per share.
• The quarterly cash dividend was increased for the 51st consecutive year. 
• The balance sheet remained strong, with no debt outstanding and nearly $212 million in cash and equivalents.

Fourth Quarter Results

Highlights of the fourth quarter ended June 30, 2014 include the following:

• Net sales increased six percent to $259 million, a fourth-quarter record for Specialty Foods, versus $245 million in the year-ago quarter.  Retail sales volumes improved solidly as further growth in the sales of dressings and croutons was bolstered by the sales of certain frozen products that benefited from the Easter holiday's shift into the fourth quarter.  Retail net sales growth was tempered by significantly increased promotional and coupon redemption costs, including investments associated with several new product introductions.  Foodservice net sales were modestly above prior-year levels as the contribution from higher volumes was largely offset by lower pricing.
• Operating income declined 11 percent to $32.3 million from $36.2 million a year ago due to increased marketing and promotional costs, higher freight costs, lower foodservice pricing and some operating inefficiencies that have occurred as we transition towards expanding our dressing production capacity.  Higher sales volumes, lower commodity costs and an improved sales mix helped to partially offset these unfavorable factors.
• Income from continuing operations was $20.9 million compared with $25.4 million last year.  Earnings per share from continuing operations were $.76 compared to $.93 a year ago.  Income taxes for the prior-year fourth quarter included an after-tax benefit of approximately $0.7 million, or $.03 per share, from the release of reserves associated with uncertain tax positions.
• Fourth quarter net income totaled $21.3 million or $.78 per share, including $0.4 million, or $.02 per share, from discontinued operations due to favorable tax adjustments.  In the prior-year quarter, net income was $25.5 million or $.93 per share with income from discontinued operations having contributed less than $0.1 million.

Fiscal 2014 Commentary

Chairman and CEO John B. Gerlach, Jr. said, "Specialty Foods net sales reached a record high in fiscal 2014 while operating income was unchanged as the benefits from higher sales volumes and lower commodity costs were offset by reduced pricing in the foodservice channel and greater investment in trade and consumer promotional spend.  In the second half of the year, we also experienced higher freight costs and some operating inefficiencies associated with tighter capacity for dressings and sauces.  In the fourth quarter, our investment in new products was significant, while the sales contribution for these items was minimal as their placement and distribution gets underway. We were pleased to complete the mid-year divestiture of our candle operations and strategically position ourselves as a food-only business going forward."

Fiscal 2015 Commentary

Mr. Gerlach added, "We begin the year with a sustained leadership position in our key retail categories, strong and expanding relationships with our foodservice customers, balance sheet flexibility and future growth potential from innovative new products.  Recent product introductions expected to support sales growth in the coming year include the Reames^® Presto Pasta™ line of microwavable frozen pasta along with New York BRAND^® Soft Pull Aparts™ garlic bread, Whole Grain Texas Toast garlic toast and Crispy Onions salad toppings.  We believe that fiscal 2015 earnings will be influenced by consumer sentiment in this slow-growth economy, our continuing investment in and success with new products, higher-trending freight costs and the completion of our dressing capacity expansion project that should also provide efficiency gains.  We anticipate our investment in new product support to remain significantly above the prior-year levels in the first half of the fiscal year.  Commodity costs are expected to be modestly favorable in the first half of the fiscal year with lower pricing in the foodservice channel serving as a partial offset."