WESTERVILLE, OHIO — While most of the company’s growth in the first quarter was driven by pricing actions, Lancaster Colony Corp. executives said changes to its product mix also boosted performance.
Lancaster’s two business segments — retail and food service — have tightened their inventory management, Thomas Pigott, chief financial officer, said during a Nov. 3 conference call with analysts to discuss first-quarter results.
“Both segments have eliminated lower-profit businesses and SKUs (stock-keeping units),” Mr. Pigott said. “Days of inventory on hand are down compared to the prior year quarter, and our inventory mix is better aligned with demand trends. These elements, along with a more stable and predictable operating environment, helped improve our gross profit and cash flow performance.”
Within the retail segment, IRI data for the quarter showed share gains for the Schubert sister’s dinner rolls, said David Ciesinski, president and chief executive officer.
“Sister Schubert’s share of the frozen muffin category increased 290 basis points to 53.9%,” he said.
In fiscal year 2022, 36% of Lancaster’s retail sales mix were frozen bread products.
In the first quarter ended September 30, Lancaster’s net income totaled $37.5 million, or $1.36 per share in common stock, up 23% from $30.7 million, or $1.11 per share, in the same period of the previous year. Net sales were $425 million, 8.4% higher than $392 million a year ago.
“While our commodity inflation was approximately 25% this quarter, our pricing measures offset this increase in most of the prior year shortfall, resulting in better performance,” said Mr. Pigott. .
Retail business operating income in the first quarter was $42.9 million, down 11% from $48.2 million in the prior year quarter. Net sales in the retail unit were essentially flat at $223 million. Sales compared to a 15.6% increase in the prior year quarter and also reflected the impact of pre-orders during the fourth quarter of 2022.
Consolidated net sales were unfavorably affected by an estimated $25 million attributable to pre-orders during the fourth quarter before the company’s ERP went live on July 1, Lancaster said. Of this amount, approximately $11 million was anticipated retail sales and the remaining $14 million was anticipated foodservice sales.
In addition to the gains made by the Sister Schubert’s brand, Lancaster said IRI data showed share gains for Marzetti chilled dressings in the first quarter. Marzetti brand dressings added 190 basis points in the chilled dressings category at 23.8%. Top performing product lines in the first quarter also included Marzetti Chilled Caramel Sauces.
“Sales volumes measured in pounds shipped decreased 15% due to the impact of three main factors: first, our decision to exit some less profitable product lines during fiscal 2022; secondly, advanced orders before the start-up of our ERP; and third, the elasticity of demand attributed to inflationary prices,” Ciesinski said.
Foodservice segment operating income totaled $31.9 million in the quarter, compared to $15.8 million in the first quarter of fiscal 2022. Quarterly net sales in the unit increased 20% to $202.3 million from $168.2 million. Sales growth in the foodservice segment was fueled by inflationary pricing and volume gains from select quick-service restaurant customers among its national chain restaurant accounts, the company said.
“Going back in time, if you go back a few years, Foodservice was earning at a similar level to that $30 million,” said Thomas Pigott, chief financial officer. “I think if we go back to 2020, it was about $27 million of operating income.”
Innovation in the quarter included Sister Schubert’s Stuffed Bites, a line of delicious frozen baked snacks. The company also introduced a new larger size Chick-fil-A sauce and launched Arby’s Sauce and Arby’s Horsey Sauce.