MGP Ingredients Reports Fourth Quarter and Full Year 2018 Results

Strong 2018 Annual Operating Income Growth of 16.9%

ATCHISON, Kan., February 27, 2019 - MGP Ingredients, Inc. (Nasdaq:MGPI), a leading supplier of premium distilled spirits and specialty wheat proteins and starches, today reported results for the fourth quarter and full year ended December 31, 2018.

 

2018 fourth quarter results compared to 2017 fourth quarter results

  • Consolidated net sales increased 18.9% to $104.9 million, as a result of double-digit growth in both premium beverage alcohol and the Ingredient Solutions segment.
  • Consolidated gross profit increased 31.2% to $25.6 million, as gross profit improved in both the Distillery Products and Ingredient Solutions segments.
  • Consolidated operating income increased 57.7% to $16.6 million, reflecting net sales gains and gross profit growth in both segments.
  • Earnings per share decreased to $0.69 per share from $0.74 per share in the prior-year period, due to a deferred tax liability revaluation benefit recorded in the fourth quarter of 2017 resulting from the Tax Cuts and Jobs Act.

 

2018 full year results compared to 2017 full year results

  • Consolidated net sales increased 8.2% to $376.1 million, as a result of growth in both the Distillery Products and Ingredient Solutions segments.
  • Consolidated gross profit increased 10.0% to $83.6 million, reflecting improved results in the Distillery Products and Ingredient Solutions segments.
  • Consolidated operating income increased 16.9% to $50.1 million, as a result of strong sales growth and improved operating performance in both the Distillery Products and Ingredient Solutions segments.
  • Earnings per share were $2.17 per share compared to $2.44 per share in the prior-year period, primarily due to the 2017 net gain on the sale of ICP and the deferred tax liability revaluation benefit, which offset strong gains in operating performance in the current year.

 

“The improved momentum of our business and continued solid execution of our strategic plan allowed us to deliver on all elements of our guidance,” said Gus Griffin, president and CEO of MGP Ingredients.  “We saw increased demand for our premium beverage alcohol products in the fourth quarter, as well as a very strong performance in our Ingredient Solutions segment.”

 

Distillery Products Segment - Fourth Quarter Premium Beverage Alcohol Growth of 19.9% Drives Strong Segment Results for the Year

For the fourth quarter of 2018, net sales for the Distillery Products segment increased 19.8% to $88.7 million, driven by a 19.9% increase in net sales of premium beverage alcohol. Gross profit improved to $23.0 million, or 25.9% of net segment sales, compared to $17.7 million, or 24.0% of net segment sales in the fourth quarter 2017.

 

For the full year 2018, net sales for the Distillery Products segment increased 7.9% to $314.1 million, driven by strong growth in brown goods. Gross profit improved to $71.8 million, or 22.9% of net segment sales, compared to $66.8 million, or 23.0% of net segment sales in the prior-year period.

 

Griffin said, "We are very pleased with the continued strong demand for our premium beverage alcohol products, supported by our ability to cultivate solid partnerships with existing customers as well as attract new customers.  These results reflect the robust underlying growth of the American Whiskey category and our role in supporting that growth.  The increase in net sales of our American Whiskey offerings was across our portfolio, with new distillate net sales driving the vast majority of the increase for the quarter."

 

Premium Beverage Alcohol (in thousands)

Net Sales Quarter Ended December 31,

 

Quarter vs. Quarter        Net Sales Change Increase/(Decrease)

 

 

2018

 

2017

 

$ Change

 

% Change

 

Brown Goods

$

37,784

 

 

$

28,818

 

 

$

8,966

 

 

31.1

%

 

White Goods

17,512

 

 

17,312

 

 

200

 

 

1.2

 

 

Premium Beverage Alcohol

$

55,296

 

 

$

46,130

 

 

$

9,166

 

 

19.9

%

 

 

Premium Beverage Alcohol (in thousands)

Net Sales Year Ended December 31,

 

Year vs. Year                   Net Sales Change Increase/(Decrease)

 

 

2018

 

2017

 

$ Change

 

% Change

 

Brown Goods

$

125,857

 

 

$

113,413

 

 

$

12,444

 

 

11.0

%

 

White Goods

62,574

 

 

64,585

 

 

(2,011

)

 

(3.1

)

 

Premium Beverage Alcohol

$

188,431

 

 

$

177,998

 

 

$

10,433

 

 

5.9

%

 

 

Ingredient Solutions - Segment Sales Increased 9.9% for the Year

For the 2018 fourth quarter, net sales in the Ingredient Solutions segment increased 14.1% to $16.2 million.  Gross profit increased to $2.6 million, or 16.3% of net segment sales, compared to $1.8 million, or 12.5% of net segment sales in the fourth quarter 2017.

 

For the full year 2018, net sales for the Ingredient Solutions segment increased 9.9% to $62.0 million.  Gross profit improved to $11.8 million, or 19.0% of net segment sales, compared to $9.2 million, or 16.3% of net segment sales in the prior-year period.

 

Griffin said, "This was a very good quarter and year for Ingredient Solutions.  We are particularly pleased with the gains we experienced in both our specialty wheat proteins and starches businesses for the full year.  We continue to be well positioned against the increasing consumer demand for healthy eating alternatives.”

 

Other

Corporate selling, general and administrative expenses were $9.0 million for the fourth quarter 2018, flat compared to the fourth quarter 2017.  For the full year 2018, corporate selling, general and administrative expenses increased $0.3 million to $33.5 million, primarily due to investments in the MGP brands platform (personnel costs and advertising and promotion).

 

The corporate effective tax rate (benefit) for the quarter was 27.4% compared with (22.9)% a year ago. The corporate effective tax rate for the year was 23.9% compared with 20.7% in the prior year.

 

Earnings per share decreased to $0.69 for the fourth quarter 2018, compared to $0.74 for the fourth quarter 2017.  For the full year 2018, earnings per share decreased to $2.17, compared to $2.44 for the full year 2017.

 

2019 and Long-Term Guidance

MGP is offering the following guidance for fiscal 2019:

  • 2019 net sales growth is projected in the mid-single-digit percentage range versus 2018, subject to some volatility due to the current conditions in the industrial alcohol market.
  • 2019 gross margins are expected to increase modestly as compared to 2018.
  • The Company’s estimate of growth in operating income in 2019 is 15% to 20% off of the higher than expected 2018 results.
  • 2019 effective tax rate is forecasted to be approximately 21%, and shares outstanding are expected to be approximately 17 million at year end.
  • Earnings per share are forecasted to be in the $2.55 to $2.65 range.

 

Conclusion

“Both of our business segments continue to benefit from favorable consumer trends, and our strategic plan has us well positioned to fully capture the potential these trends offer.  Our 2018 results reflect both the strength of that positioning and the momentum we are building as we continue to execute against that plan,” Griffin added.  “2018 saw strong gross profit growth in both our business segments and significant progress against our key strategic initiatives.  We increased our aging whiskey inventory to $76.4 million, at cost, reflecting a 16.2% increase as compared to the prior year.  We continued to expand our warehouse capacity to make sure we are well positioned to support the growth of the American Whiskey category and we continued to take a disciplined approach to our MGP brands initiative, adding both new brands and additional markets.  We are confident that our strategy and investments have us well positioned, and will provide us the resources we need, to deliver strong growth in 2019 and beyond,” concluded Griffin.

 

About MGP Ingredients, Inc.

Founded in 1941, MGP is a leading supplier of premium distilled spirits and specialty wheat proteins and starches. Distilled spirits include bourbon and rye whiskeys, gins and vodkas, which are expertly crafted through a combination of art and science and backed by a long history of experience. The company's proteins and starches are created in the same manner and provide a host of functional, nutritional and sensory benefits for a wide range of food products. MGP additionally is a top producer of high quality industrial alcohol for use in both food and non-food applications. The company is headquartered in Atchison, Kansas, where distilled alcohol products and food ingredients are produced. Premium spirits are also distilled and matured at the company's facility in Lawrenceburg, Indiana. For more information, visit mgpingredients.com.

 

Cautionary Note Regarding Forward-Looking Statements

This news release contains forward-looking statements as well as historical information. All statements, other than statements of historical facts, included in this news release regarding the prospects of our industry and our prospects, plans, financial position, business strategy, guidance on growth in operating income, net sales, gross margin, and future effective tax rate may constitute forward-looking statements. In addition, forward-looking statements are usually identified by or are associated with such words as "intend," "plan," "believe," "estimate," "expect," "anticipate," "hopeful," "should," "may," "will," "could," "encouraged," "opportunities," "potential" and/or the negatives or variations of these terms or similar terminology. They reflect management's current beliefs and estimates of future economic circumstances, industry conditions, Company performance, and Company financial results and are not guarantees of future performance. All such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our expectations include, among others: (i) disruptions in operations at our Atchison facility or our Indiana facility, (ii) the availability and cost of grain and flour, and fluctuations in energy costs, (iii) the effectiveness of our grain purchasing program to mitigate our exposure to commodity price fluctuations, (iv) the effectiveness or execution of our strategic plan, (v) potential adverse effects to operations and our system of internal controls related to the loss of key management personnel, (vi) the competitive environment and related market conditions, (vii) the ability to effectively pass raw material price increases on to customers, (viii) our ability to maintain compliance with all applicable loan agreement covenants, (ix) our ability to realize operating efficiencies, (x) actions of governments, and (xi) consumer tastes and preferences. For further information on these and other risks and uncertainties that may affect our business, including risks specific to our Distillery Products and Ingredient Solutions segments, see Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2018.