ATCHISON, KANSAS, U.S. — MGP Ingredients, Inc. (MGPI) reported on May 9 net income of $1.8 million or 10¢ per diluted share for the first quarter ended March 31, compared to $700,000 or 4¢ per share in the prior-year period.
Gross profit in the first quarter was $5.5 million on net sales of $86.3 million compared with gross profit of $6.5 million in the prior-year period on net sales of $64.1 million. Gross profit margin was adversely impacted from the production shutdown in December 2011, but operations showed sequential monthly improvement in this year’s first quarter. The company did not gain the full benefit of its new corn sourcing agreement during the quarter because it was finalized in the last month of the period. First quarter 2012 operating income was also impacted by one-time costs related to the commencement of production at LDI, as well as reorganization expenses.
Net income for the period includes a $4 million gain on the previously announced sale of 20% of the company’s interest in the Illinois Corn Processing joint venture. The company’s ingredient solutions segment showed greatly improved profitability from both the prior-year period and the linked quarter.
This was partially offset by lower pre-tax income in distillery products, in which the company experienced a swing in earnings with a $800,000 unfavorable impact on earnings related to the accounting for open commodity contracts compared to a $1.5 million favorable impact for the prior-year period. Also in the current quarter, the company recorded initial sales, including premium bourbon and whiskeys, from its recently-acquired distillery in Lawrenceburg, Indiana, U.S. Operational improvements are underway at the facility under new leadership, complemented by a stronger sales and marketing team.
“We’re making great progress in terms of a higher value sales mix, thanks in part to the addition of premium bourbons and whiskeys to our product portfolio,” said Tim Newkirk, president and chief executive officer. “However, we aren’t satisfied with our ability to generate consistently higher profit margins. During the quarter, we entered a grain supply contract for the Indiana distillery and amended the grain supply agreement for our Atchison facility that now permits us to secure corn for delivery up to 12 months in the future at fixed prices. This marks a significant change from past purchase and hedging practices for corn, our most important largest ingredient. We implemented strategic sourcing for wheat flour several years ago. By partnering with world-class corn suppliers, we have taken a major step toward better managing our corn volatility. This will be especially important as we grow our businesses in an environment of stubbornly high commodity prices.”