ATCHISON, KANSAS, U.S. — MGP Ingredients, Inc. (MGPI) reported on Nov. 13 a net loss of $6.4 million, or 37¢ per diluted share, compared with net income of $418,000, or 2¢ per diluted share, in the prior year.
Operating profit in the third quarter was negatively impacted by, among other things, reduced industrial alcohol sales and increased fees related to the current proxy dispute. Year-ago net income included a $1.8 million unrealized hedging gain on open commodity derivatives. In the current quarter the company did not have any open commodity derivatives.
Lower sales of industrial alcohol continue to be offset by increasing sales of beverage alcohol. Sales of the company’s premium bourbons and whiskeys remain at higher capacity levels made possible by manufacturing efficiencies and other process changes at the Indiana distillery.
Net sales for the third quarter improved by approximately 5% from the year ago period.
Third quarter loss from operations was $6 million compared to income from operations of $900,000 in the third quarter of 2012. The company’s net sales increased by $4 million, while cost of sales increased $9.3 million, or 13%, over the prior year period. The reduction in third quarter gross profit from the prior year was attributable to the distillery segment related to: 1) the sales price decline of by-products; 2) significantly lower industrial sales; and 3) a year-ago quarter hedging gain, compared to no hedging impact in the current quarter.
For the first nine months of 2013, net sales declined by approximately 1% to $245.9 million. This was mainly due to a decrease in net sales of distillery products partially offset by increased net sales of ingredient solutions. For the year-to-date period the company generated a gross profit margin of 5.4% compared to 7.1% in the prior year period.
Beginning with the fourth quarter the company expects to experience its lowest corn costs in approximately three years, reflecting the strong U.S. corn harvest. With the majority of its fourth quarter distillery volume committed and priced, the company estimates that fourth quarter gross profit could approach or exceed a level last achieved in first quarter of 2013.
“With the market fundamentals in certain grades of industrial alcohol now showing signs of improvement, we believe that we’ve reached a major turning point for achieving higher profits in our bulk white goods, which still comprise the vast majority of our distillery volume,” said Tim Newkirk, president and chief executive officer. “MGP’s profitability has been pressured from the combination of tight U.S. corn supplies coupled with very competitive pricing. Today, however, we’re on the receiving end of one of the largest corn harvests in recent history. With greater liquidity returning to the corn markets, we expect a two-fold benefit: lower corn costs going forward and the ability to fully hedge our customer contract pricing. Sustained lower corn costs are the key to achieving the company’s long-term targets of double-digit gross margins in industrial alcohol. Regardless of improving fundamentals, we will not stop looking for ways to lower our per-gallon manufacturing costs."
Ingredient segment net sales for the third quarter were $14.1 million, a decrease of less than 1% from the prior year’s quarter. For the segment as a whole, the 6.5% decrease in volume was partially offset by a 6.4% increase in unit pricing.
The ingredients segment reported third-quarter income from continuing operations before income taxes of $1.2 million, or 9.1% of net sales, equal to the same quarter a year ago. Flour costs averaged 13.9% higher than the prior year period. This was offset by improved sales mix.