ATCHISON, KANSAS, US — Losing about two weeks of production in February, caused by a curtailment in natural gas supply, cut into first-quarter sales for the Ingredients Solutions segment of MGP Ingredients. Company executives expect better results for the segment in the second quarter. The company, in the coming quarters, also will deal with headwinds in rising input costs and transportation availability.
Ingredient Solutions recorded sales of $19.13 million in the quarter ended March 31, which was up 0.3% from $19.08 million in the previous year’s first quarter. Sales in commodity wheat starches rose 22% to $2.3 million while sales in specialty wheat starches were flat at $10.2 million. Sales decreased in specialty wheat starches, down 22% to $2.3 million, and commodity wheat proteins, down 8% to $578,000.
Cold weather brought on the energy curtailment.
“As expected, this quarter's results do not properly reflect the solid demand we continue to experience in the Ingredient Solutions segment,” said David J. Colo, president and chief executive officer of MGP Ingredients, in a May 5 earnings call. “In addition to the temporary natural gas curtailments, which resulted in lost production in February of this year and reduced margins by more than 400 basis points in the quarter, we also experienced issues with backlogs at various ports as well as shortages for shipping containers needed to deliver our products abroad.
“Despite the impact these issues had on product mix, we finished the quarter with strong sales and margins in March and anticipate improved results in the second quarter as we have cycled past the weather-related events that occurred in the first quarter. We believe our diverse customer base and optimal product mix continue to be aligned with strong consumer trends.”
Companywide, Atchison-based MGP Ingredients posted net income of $15.4 million, or 90¢ per share on the common stock, which was up 57% from $9.8 million, or 57¢ per share, in the previous year’s first quarter. Sales rose 9% to $108.3 million from $99.1 million due to the Distillery Products business, which saw sales jump more than 11% to $89.2 million from $80 million. MGP Ingredients for the fiscal year gave guidance of sales growth in the range of 0% to 2% when compared to 2020 and adjusted earnings per share in the range of $2.05 to $2.15.
“Although we delivered strong results for the quarter, we continue to experience two primary headwinds for 2021,” Colo said. “The first headwind relates to increased commodity costs. As you may be aware, during the past several months, there have been significant increases in corn commodity exports from the US as well as downward revisions to 2020 corn crop yields and stocks resulting in higher corn and wheat costs.
“As a reminder, we employ an extensive risk management program that includes purchasing the corresponding grain. At the same time we contract volume and pricing for our products. However, for various reasons we do not contract 100% of our sales, and as a result, we cannot provide assurance that we will always be able to price through increases in commodity costs, to our customers in the open market.”
The second headwind involves disruptions in the supply chain.
“We continue to experience transportation availability issues both domestically and with backlogs at various ports, as well as shortages for shipping containers needed to deliver our products abroad,” Colo said. “While these logistical issues are likely the result of the global supply chain disruption caused by the COVID-19 pandemic, it is unclear how long these delays and issues will persist. However, demand for our products remains robust, and we believe our business continues to be well-positioned to mitigate these challenges through the balance of the year.”