Q4 2023 Lancaster Colony Corporation Earnings Call

August 23, 2023

Good morning. My name is Tanya and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation fiscal year 2020 three fourth quarter conference call. Conducting today's call will be Dave. President and CEO and Tom Piggott CFO .

All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star, then the number 11 on your telephone keypad, and questions will be taken in that order they are received. Thank you.

And now to begin the conference call, here is Dale Gnopsick, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.

You may begin.

Good morning everyone and thank you for joining us today for Lancaster Colony's Fiscal Year for the 2024-2023 4th Quarter Conference Call.

Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

A detailed discussion of these risks and uncertainties is contained in the company's filing of the SEC.

Also, note that the audio replay of this call will be archived and available at our company's website, LancasterColony.com, later this afternoon.

or 6% of the total which were attributed to advance orders ahead of our ERP go-live on July 1, 2022. These incremental sales added about $5 million to last year's Q4 gross profit. In our retail segment, net sales increased 1.3%, driven by the favorable impact of pricing actions to offset inflation and continued growth from our licensing program. Excluding the prior year advance ordering ahead of our ERP go-live, retail sales volumes measured in pound shift increased 1.7%. Given these period-on-period shifts, it's informative to look at retailer scanner data...

CERCANA data, formerly IRI, showed notable share gains in the quarter for our category-leading New York Bakery and Sister Schubert brands.

New York Bakery's leading share of the frozen garlic bread category grew 180 basis points to 42.3 percent. And Sister Schuber's leading share of the frozen dinner roll category increased 200 basis points to 56.1 percent.

Our licensed products also continue to perform very well during the quarter, as Chick-fil-A sauces were up 28% to 43.7 million. Olive Garden dressings were up 15.8% to 42.6 million. And Buffalo Wild Wings sauces were up 43.1%.

to $20.7 million. I'm also happy to report that Chick-fil-A sauces were recently recognized by Sirkana as a new product pay setter.

In calendar year 2022, Chick-fil-A sauces were the fastest growing retail food item in the food and mass channels, generating more than $140 million in retail sales.

In the food service segment, net sales were essentially flat at $218 million and compared to a significant increase of 28% in last year's fourth quarter.

In addition to the impact of last year's advanced ordering, which comprised about 8%, foodservice sales also reflect a modest slowdown in traffic for some of our national chain customers.

During Q4, we continue to experience high levels of inflation for raw materials and packaging.

although we did note a considerable decline in the rate of inflation compared to the first three quarters of fiscal year 2023.

Through the benefit of our pricing actions, our Q4 PNOC, or pricing net of commodities, was favorable versus the prior year.

This is a continuation of the trend that began in Q1 of fiscal year 2023, whereby we are recovering some of the prior year's negative PNOC.

Q4 gross profit fell short of our expectations as we incurred some temporary costs associated with our long-term strategic investments and production capacity and our ERP network.

These issues have since been resolved and we look forward to the many benefits these investments will provide our business in the years ahead.

Our focus on supply chain productivity, value engineering, and revenue management will also remain core elements to improve our financial performance during fiscal year 2024 and beyond.

I'll now turn the call over to Tom Pickett, our CFO , for his commentary on our fourth quarter results.

Next, Dave, the results for the quarter reflected continued top-line growth in favorable pricing net of commodities performance versus the prior year quarter.

These positive contributions were offset by three items.

Comping to the prior year quarters customer performative shipments in advance of our SAP Go Live.

short-term challenges we experienced in our gross profit performance that Dave mentioned.

and a non-cash impairment charge we recorded in our flat-out business.

Fourth quarter consolidated net sales increased by 50 basis points to $454.7 million.

Decomposing the revenue performance, revenue was unfavorably impacted by approximately 5.9 percentage points from the pull forward, while higher pricing

contributed 6.4 percentage points of growth.

Consolidated gross profit declined by $5.2 million, or 5.3%, to $93.2 million versus prior to your quarter.

The gross profit decline was driven by comping to the prior year's pull forward of customer orders, which we estimate to have been an approximate $5 million headwind.

startup costs at our recently expanded Horse Cave dressings and sauce facility.

interim inefficiencies at facilities we recently added to our SAP network, and costs related to a discontinued product line.

These unfavorable impacts were partially offset by favorable pricing net of commodity performance. Our commodity inflation was approximately 9% this quarter, reflecting some moderation in the level of year-over-year inflation we experienced.

Selling, general, and administrative expenses increased 4.7%, or $2.6 million.

The increase reflects investments to support the growth of the business, as well as higher IT and personnel costs.

The investments to support the growth of the business included higher consumer spending and increased brokerage costs.

consumer spending increased in the second half as our product supply position has improved.

Expenditures for project descent are ERP initiative. We're down partially offsetting these increases.

Costs related to the project totaled $5.6 million in the current year quarter versus $11 million in the prior year quarter.

During the quarter, we recorded a $25 million non-cash impairment charge to reduce the carrying value of our flat-out, flatbread businesses and tangible assets.

The impairment charge was reflected in our retail segment.

In the prior year quarter, restructuring impairment charges totaled $10.5 million.

Consolidated operating income decreased $22.2 million to $11.5 million due to the impact of the impairment charge as well as the lower gross profit and higher SG&A costs I mentioned.

Our tax rate for the quarter was 26.4%. The tax rate was impacted by lower pre-tax income due to the impairment charge.

We estimate our tax rate for fiscal 24 to be 23 percent.

Fourth quarter diluted earnings per share decreased 73 cents to 33 cents.

The year-over-year impact of the restructuring and impairment charges was unfavorable at $0.41 per share. The net impact of the reduction in project ascent expenses was favorable at $0.15.

With regard to capital expenditures, our full year payments for property additions totaled $90.2 million. For fiscal 24, we are forecasting total capital expenditures of $70 to $80 million. This forecast reflects a decline versus the prior two years spending with the Horse Cave expansion now substantial.

cash dividend of 85 cents per share paid on June 30th represented a 6% increase from the prior year's amount.

Our full year dividend payments were $92.4 million and our enduring streak of annual dividend increases stands at 60 years.

The company was able to fund the capital investments and dividend payments through its operating cash flow generating ability. Operating cash flow totaled $226 million on the year.

Our financial position remains strong with a debt-free balance sheet and $88.5 million in cash.

So, to wrap up my commentary, our fourth quarter results reflected continued investment in the company as well as some short-term challenges we incurred as we positioned the company for future growth.

I will now turn it back over to Dave for his closing remarks. Thank you.

Thanks Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy, and our balance sheet in support of the three simple pillars of our growth plan.

to one accelerate core business growth.

2. Simplify our supply chain to reduce our costs and grow our margins.

and three, to expand our core with focused M&A and strategic licensing.

In fiscal year 2024, we anticipate retail segment sales will continue to benefit from volume growth led by our licensing program.

including incremental growth from new products.

flavors and sizes we introduced in fiscal year 2023.

We're also very excited to share plans to add Texas Roadhouse Steak Sauces to our licensing program with a spring launch date.

Finally, we foresee continued positive momentum for our New York Bakery frozen garlic bread, which is a tasty complement to everyday meal occasions.

In food service, we expect sales volumes to be led by growth from select QSR restaurant customers in our mix of national accounts.

Suffice it to say, external factors including US economic performance and potential changes in consumer sentiment may impact foodservice segment demand.

Finally, consolidated net sales will also continue to benefit from pricing actions taken in fiscal year 2023.

We project the impact of inflationary costs to subside notably in the coming year. The pricing actions we have implemented along with our cost savings initiatives will help to offset remaining inflationary costs.

With respect to our ERP initiative project ascent, we are pleased to announce that as planned we completed the final wave of implementation and will devote our attention to leveraging the capabilities of the new system to strengthen our execution in fiscal year 2024.

Turning to our supply chain, we are very excited about the opportunities ahead under the leadership of Louise Vissot, our new Chief Supply Chain Officer.

Luis has built a long and successful career with nearly 40 years of experience in supply chain operations, innovation, and R&D. His extensive experience in the food and beverage industry at Kraft Foods, Coca-Cola, and Monster Beverage, as well as his strong people-oriented leadership, has been a part of his career.

will benefit our organization tremendously as we continue to execute our growth strategy into fiscal year 2024 and beyond.

In closing, I'd like to thank the entire Lancaster Colony team for all their hard work and ongoing commitment to our business during fiscal year 2023.

I look forward to working together with everyone in the coming year as we continue our journey to be the better food company.

This concludes our prepared remarks for the day, and we would be happy to answer any questions you might have.

At this time, I would like to remind everyone in order to ask a question, please press star 1, 1 on your telephone keypad. One moment for our first question.

And our first question is coming from Todd Brooks of the Benchmark Company. Your line is open.

Hey, thanks and good morning to you all.

Good morning, Todd.

Two quick questions, if I may, to start off. One. Do you have any advice for victims of sexual abuse

I think, Dave, at one point as we were thinking about Horse Cave and the incremental unlock that that facility may have been for the licensed branded product.

I think it had been sized in like the 100 million dollar range, but that was over a couple year period. Can we maybe. Either speak to what the incremental unlock was. In fiscal 23, so we can start to bake in thinking for what the incremental potential is from license branded products.

the capacity and the product line expansions in 24. And then maybe if we can lay over the top of it, the thinking about Texas Roadhouse and just talk more broadly about your thoughts for growth in the licensed branded products and PISCO 24.

And then maybe if we can lay over the top of it, the thinking about Texas Roadhouse and just talk more broadly about your thoughts for growth in the license branded products and fiscal 24.

So Todd, when we talked about what Horse Cave afforded us, we framed it in the context that we thought somewhere in the range of three to five and even upwards of seven years of growth for both retail and food service, with five years of growth being sort of the target that we thought that it would afford us.

So, you know, going back, so it would be definitely north of of 100 million dollars of capacity to grow in retail behind bottles. We won't go into exact numbers of that, but we'd love to take you down there to show you the facility to give you an appreciation for the scale and capabilities. But as you think about it, you know.

Based on what we see and the way it's running today, it's definitely going to give us five years of growth, maybe a little bit longer, maybe a little bit shorter, but it definitely gives us capacity on bottles to grow. Now, how do we think about this?

platform going forward. You've been following us long enough to remember, we saw it as literally billions of dollars of addressable opportunities. If you put in dipping sauces, marinades, barbecue sauces, things like ranch dressing and other categories, you could size it somewhere between

probably $6 billion and upwards of even $10 billion of addressable opportunity. You see us sort of sequentially working our way through that. First in the portable salad dressing category, which is north of several billion dollars.

in the center of the store and we're adding to that behind Olive Garden with our new addition in Caesar, which we couldn't be more excited about. Then you move on to other areas, building on to the platform with new sauces behind Chick-fil-A, the barbecue and the sweet and spicy sriracha, also in the period.

adding bigger sizes on Chick-fil-A, which we're thrilled to see how it's performing, and then finally expanding behind Buffalo Wild Wings. What Texas Roadhouse is going to give us is a solution for really the red meat occasion, where if you look at the majority of our sauces right now, they tend to play

around chicken and things like fish, but we really haven't had a red meat solution. And what Texas Roadhouse is going to give us is, first of all, just an iconic restaurant brand that's been one of the fastest-growing restaurant brands out there that's kind of under the radar because of the way that they advertise.

Texas Roadhouse has been a great partner to work with and we think this platform has nice big shoulders.

Thanks for that Dave and Tom. My second question. I'll jump back and Q. If we can look at and it may be an assumption on my part that there's not a lot of future pricing actions coming over the next.

12 months, can you walk through what the pricing waterfall looks like for each segment as prior increases lap just so we can get a sense of the dynamic between volume and pricing as we go across fiscal 24? Yeah, Todd, great question. So your assumption is correct. As we look into fiscal 24.

we really look at our top line primarily driven by volume. As you look at it by quarter, we do expect some pricing benefit to create in both businesses, but modest, and thereafter we're really driving it by volume.

Okay, great. Thanks, Tom. Thank you, Tom. Thanks, Tom.

One moment for our next question.

And our next question will be coming from Andrew Wolf of CL King your lines open

Thank you. Good morning.

I wanted to ask you about...

Good morning.

You know, your update on your retail sales consumption was pretty positive at 4.7%.

Obviously there's a gap there between what you shipped at one seven.

But the prior quarter you shipped 6-1.

So, you know, if.

It kind of seems in the commentary, you know, you had last quarter sounds like you know you

Put a lot of new products into the channel in the March quarter had really good sell through frankly this quarter So as we're kind of trying to model out You know volume into the next year

It would strike me, you know, obviously at some point it equates to you know, the retail sell-through so

Is that sort of how we should think about it? Is that how you're thinking about it? How would you sort of help us to sort of think about your volume trends, sort of looking forward in the next quarter or two? And through the four years. No, Andrew, first of all, good morning. And second, you're exactly right.

If you look at our consumption in pounds in the quarter, they were 4.7. They accelerated over the consumption in the prior period. And you're right, we overshipped consumption in the prior period as we were building the pipeline. So you're precisely right. As we think about where this goes forward, what we're anticipating is volume growth to continue in.

expect to see that even marginally stronger on the front end of that. And then as we begin to lapse some of this stuff later on, you might see that soften. But across the arc of the period, we're expecting to see volumetric growth for retail.

in the low to mid range and if you look at it versus our peers that are out there, we think it puts us in the best in class area. What you can expect in terms of the drivers of that.

As Tom pointed out, we don't have new pricing. We have some wraparound pricing that we're going to see in retail for the first half of the year and then no pricing planned thereafter. And this is really going to be an algorithm driven by volume through the year.

Thank you for that. I did want to follow up. I understand you didn't want to give a dollar amount.

When Todd asked you about what Horse Cave means for kind of...

sales power or what have you. But can you give us a sense maybe in terms of capacity utilization? You know, you built put a lot of capital into the business and

Now, sort of the payoff phase, where's the capacity at? It's always a nice time to own certain stocks when the capacity utilization is going up. Yeah. So, you know, as you might imagine, we took a building, a facility that was 225,000 square feet of water.

square feet essentially added on another 225,000 square feet. So we doubled the size of it. And the plan there was to build a facility that would allow us to run for, like I shared with Todd on the front end, five years, called a plus-minus. So the utilization...

Overall in the factories is definitely north of 50, approaching 60 percent. But bear in mind, when you build something that big, what you do is the boxes there, in some cases you have the kitchens that are there, but you don't necessarily have lines that are going to be started up and stuff like that.

So I don't know if I would necessarily say that's the right way to look at it, just because it's not like that capacity is available to run now, just because we haven't staffed it with labor. I think the more, maybe the way we're looking at this thing is we have something that's laid out that's going to allow us to incrementally step up, adding more labor to the line.

And that's both retail and food service, because as you think about it in food service, Chick-fil-A remains our biggest customer. When you guys get a chance to dig into the K, you're gonna see that they represent north of 40% of the business today in food service. And their business in terms of sales continues to grow in double digits.

Okay, thank you. And just, I guess my last question is just on the macro, which you alluded to, you know, more in reference to food service and obviously you just highlighted.

Chick-fil-A, which is a great relationship.

in many ways, but certainly commercially. You know, it seems like the rest of the portfolio, therefore, you know, was the drag in the business.

We don't have to point to any one of them, but just as a group, and that's not surprising, as you mentioned.

given the traffic issues in restaurants. So would it be fair for us on the outside to think you know the the food service side as you look at the year may be a little more subdued compared to in the volume side compared to what you expect in retail given you know the innovation pipeline that's in retail.

I think you're exactly right. What we expect is, first of all, the retail business to grow faster than the food service business for the reasons that you described. I think if you look at the macros, take us out of the equation and look at the macros, I think you're going to see food service overall. This is quick service restaurant, full service restaurants, everything across the board.

probably to be somewhere between flat and down a couple of points in terms of traffic. I think you're going to see that the pricing benefit that's been floating these concepts begin to subside. I think you're going to see their sales begin to trail off again to that same sort of a.. guide.

a reason, same sort of area. The folks that are going to grow are going to be doing it behind traffic. Now if you bring it in, that's the macro, and you look at our mix of business, I think what you're going to see is given the size of Chick-fil-A, as long as Chick-fil-A continues to grow, and as long as some of our other QSR partners continue to grow,

we expect to be outperforming the rest of the broader food service group by probably several hundred, 300 basis points. So I think our business is probably, in terms of volume, closer to flat to maybe marginally up, just based on the strength of Chick-fil-A. So, and that's where we are now.

things change with the consumer, we'll see what happens. If the outlook gets stronger, we may see that improve. If there's more pressure on the consumer, we could see that soften. But again, relative to the peer group, we feel like from a volume perspective in food service, we're in a position to outperform. Now the other thing that I would share just on food service, maybe a couple of notables, we had the chance to get a better view of what's going on in the food service. And we're seeing that in the food service. And we're seeing that in the food service. And we're seeing that in the food service.

end to end in full operations. I think it was an important milestone for all of us. Parenthetically, when we were starting the project, Dan Cathy was the CEO and he had a chance to walk through the plans with us. Now Andrew Cathy has assumed the role as the CEO and he had a chance to see it up and running. That continues to be a very important milestone for all of us.

important partnership, obviously. We look forward to hosting other partners there in the weeks ahead. We have other similar visits that are planned. Maybe the one thing that you guys haven't asked yet and I want to get into in terms of...

How we think about HorseCave is if you look at that plant, it continues to be our most cost-advantaged plant to continue to operate. And what we haven't said outside of our commentaries, we had a rough quarter, particularly at HorseCave, behind that startup and behind SAP. And both of those conversions happen pretty closely to each other.

which drove cost issues that were enumerated during the course of the call. We don't expect those to continue as we press forward. So as you're thinking about the cost structure, one of the things that I wanted to steer you from is that those cost issues that we ran into associated with the SAP cutover and operating at full speed.

Okay, I didn't want to, you know, hog the call, but I want to ask a follow up since you brought it up. When you talk about cost advantage, I assume it's greater at horse pay for food service given the single item pack.

If you automate that at a greater scale, just a relative sense. Is that where you get margin wise? Is that where the margin improvement is on a relative basis greater than versus retail? Where even an older production facility can still scale up pretty fast. There's just more relative.

scale even on an older facility at retail. My understanding, would I be thinking about it right, is in other words is Horsegate going to give more relative margin improvement to the food service side than retail.

It's going to provide margin improvement on both facilities because if you look at it, take retail for example, most of the bottle lines that we have in other facilities are a little bit older. This facility operates at bottle speeds that are in some cases 2x.

or a little better than what we're running at other places. And it's more automated end to end in terms of reliance on labor. So in retail, it's gonna give us an advantage because of the speed and the scale and the automation and the same thing is gonna be true in food service. Great, thank you.

One moment for our next question. And our next question is coming from Alton Stump of Loop Capital. Your line is open.

play in your ability to take on new partners such as Texas White House.

It's a great question. It's certainly a consideration. What I would tell you is it didn't really factor into the discussions that we had with them. This is another one where, as we've developed a reputation in the industry for a competency around licensing.

It's just developed into conversations. This is one that came to us inbound. It was actually recommended, the way it went was, Texas Roadhouse talked to a customer expressing an interest in an idea. That customer referred them to us. That sort of germinated into a conversation that went into a conversation that went into a conversation that went into a

It went on for a while as we explored how we thought we could go about this. The capacity availability was a consideration, but not a very big one in this case. For us, it just allows us to do it far more profitably than it would have been otherwise.

And then just as a follow up to the end, you mentioned the word inbound, which I'm certainly not surprised. Everybody in the Russian industry, as of course you well know, is watching what Shikfuli is doing. And I'm sure they've all taken notes of the huge growth that they've seen with you guys with the licensed business. I mean, how much of an impact has that had on the number of inbound interests?

calls you're getting from other major operators in the QSR and or casual sector.

Well, I think a fair amount. I would ladder back to Olive Garden where we started this. If you looked at it in the period, their retail sales in the quarter, so scanner sales, were 42 million. I think they were the original one that people started to look at. It's a reflection of several things going on, the blurring of lines between retail and food service.

and food that's being consumed off-prem, right? And all of a sudden, these restaurant operators, I think, were less fixed on restaurant versus out of the restaurant. And then just the size of the opportunity and how these brands play in retail, particularly after COVID, I think, presented an opportunity to diversify their revenue stream and connect with their consumers in different ways. So I think...

which means one of their top 10 fastest growing items in all the food and beverage during the calendar year 2022, and it's the fastest growing food item in 2022. So I think that starts to get other restaurants' attention. So, you know, as we're looking at this...

We continue to see this platform behind licensing and principally restaurant licensing is an opportunity where we can take this great capability that we have around innovation of sauces, dressings, condiments, flavor systems and take those to the marketplace. And we're not necessarily encumbered by just having a brand.

and it allows us to overcome the barrier of awareness and trial and repeat more rapidly and get returns instead of betting on the come on marketing spending.

Thanks so much for the call. That's great. Hop back in the queue.

Okay. Thanks, Phil. And one moment for our next question.

Our next question will be coming from Connor Radegan of Consumer Edge. Your line is open. Okay. Thank you.

Hey guys, good morning. I just want to make sure if you're on the road.

Okay, perfect. I'll take that as a yes. And I guess it's worth mentioning, given the news, I'm taking this call from a Texas Roadhouse parking lot, so definitely very timely. But... I'm taking this call from a Texas Roadhouse parking lot.

I'm not sure if I might have missed it, but just circling back to the top line, so obviously results came in quite a bit below, I guess, our end consensus expectations. I guess, you know,

Can you sort of just kind of maybe walk us through sort of how we got here and maybe what the drag was? And I guess, how did results come in versus your internal expectations? I know you had the $25 million ERP pull forward headwind, but I guess what exactly was the real top line headwind in the quarter?

Sure. I think we are all aware of the pull forward that we had in the prior period that made planning a little bit more challenging. The second biggest item beyond that, and this is targeted at retail, would have been that pipeline build that we had in Q3. That really elevated Q3 that we saw scan through.

we do believe there was a bit of an Easter effect that was in Q3. Now, it only shifted about a week this year, but it seemed to have been enough to create a little bit different order pattern between Q3 and Q4.

on both our dressings and also on Sister Schubert. So I think those really were the items that created the gap between what you guys were calling for and what we were calling for. I think it's also part of the reason why that is we want to think about what the outlook is.

Some of this period on period noise because of SAP finally is going to be behind us. We implemented our last wave so we're done. It's really focusing now on consumption.

Some of this period on period noise because of SAP finally is going to be behind us. We implemented our last wave, so we're done. It's really focusing now on consumption and then shipping to consumption.

Okay, that makes total sense. And then also too, just on food service as well, right? So I guess you guys noted a bit of a slowdown in food service traffic, but it sounds like Chick-fil-A traffic is doing quite well. So I guess the general slowdown in traffic kind of...

somewhat runs in contrast to what we've heard from peers. I mean, I guess was this maybe more of a recent phenomenon or was it a pretty steady slowdown throughout the corridor and I mean I guess maybe could you comment, you know, sort of was this more indexed to certain QSRs or maybe other channels.

It's a great question and it's interesting. If you look at the 52-week traffic, the 12-week traffic, and the 4-weeks over June , June was a slowdown for several of our customers that were in there. Chick-fil-A it was not. Chick-fil-A was kind of flat through the period. We had other customers that seemed from a traffic perspective to slow down a little bit in June . Ironically, we're looking at weekly data thereafter and into July .

Got it, okay, that was helpful. And then I guess just one more as well, right? So on the cost front, it sounds like you guys are seeing quite a bit of relief. I guess from what we've heard from other folks too is soybean oil and whatnot still tends to remain quite high. I mean, I guess is your optimism on the cost environment just centered around maybe egg prices coming down? And if it's not

Also, as we sort of think about that as it relates to gross margins in 2024, with the carryover pricing you guys have and productivity in the mix as well, I mean, I guess would it be fair to assume the expectation is a return to historical gross margin levels? Well, I think that's a good question.

Maybe I'll kind of walk through that range of questions and start first with just an inflation outlook, and then I'll turn it over to Tom and he'll take you to more depth.

Part of our frame of reference here is the last two years, fiscal year 22 and 23, we saw 20 percent inflation. So on a relative basis, we're looking at a year this year where we're seeing inflation on a gross basis in the low single digits. Really eggs being most certainly a contributor to that and then we're seeing an easing on some of our other commodity classes as well.

Yes, so great question, Connor. So as we look at our commodity basket for next year, we still are slightly inflationary. I think our comments are more that the level of inflation has started to go down. Sweeteners, obviously a key item for us that's up considerably year over year.

that's mitigating or offsetting some of the favorability we're seeing elsewhere. You know, as you look at the broader margin profile as we enter fiscal year 24, from a PNOC standpoint, given that we're still looking at some level of inflation, we're not assuming that we're going to be get back in 2022, when our

some of that margin that you alluded to. We really need to get into more of a deflationary environment to assume that. And then the second thing is, you know, obviously this consumer environment is something we're monitoring closely. And like other companies, you know, we're concerned about.

the need to spend back and to reinvest in our retail business to continue to drive the outsized volume growth that we do. But last I would end with, we feel, in terms of a tailwind, we feel like we do have a robust productivity plan put into place for next year that will help us to offset some of these potential headwinds.

Okay, got it. As always guys, thank you so much.

Thank you.

Thank you. One moment for our next question.

And our next question will be coming from Todd Brooks of the Benchmark Company. Todd, your line is open.

Thanks for taking my follow-up. I'm going to bring down kind of the qualitative.

It sounds like...

Maybe load them at single digit volume growth.

In the combined business.

pricing waning over the course of the year. Tom, I just wanted to follow up on Connor's question.

You talked about needing to be back to a deflationary environment to return to historical margins, but. I guess there's an intermediate place where if we are seeing less inflation, you still have a little bit of effective pricing in the 1st, half of next year.

Do we expect to start that path back that this is a year where we're not just kind of operating to protect gross profit dollars, but we can actually see the margin rate start to work its way back towards historical levels. At least get that process going.

Yes, certainly, Todd, that is a goal of what we're trying to achieve in terms of both driving the productivity and the PNOC. Just in this environment, we're not necessarily seeing enough to really commit that to you in terms of a significant level of margin.

accretion as the year progresses. But certainly, that is our key focus in terms of driving for improved margin percentages.

Okay, great. A secondary question. If we go to core SG&A spend and.

Backing out project and the changes year over year. How much do you think chorus G. Needs to grow if any in fiscal 24 for what you're trying to accomplish and then can we walk through what the next step down and project descent?

Expenses should be fiscal 24 versus fiscal 23. Thanks.

Yeah, Todd, so as we're looking at SG&A and Fiscal 24, we're excluding ascent. We're really just looking at inflationary impacts in terms of core SG&A. And then with ascent, we're projecting that to be an approximate $20 million tailwind.

In the next fiscal year as that project winds down. Okay, so 10 versus the 30 this year.

Yes, roughly. That's correct. Absolute spend, about 10.

as we wind things up and optimize. Yep.

Thank you.

One moment for our next question.

And our next question will be coming from Andrew Wolf of CL King. Your line is open, Andrew.

Thank you. I don't know if you mentioned anything regarding quantification of the three.

somewhat transitory or maybe fully transitory impacts to gross profit.

In terms of HorseCave, both start up in I guess ERP there.

And.

the discontinuation of a retail brand. Could you just comment on them as a group and or separately how much it was if you quantify it and what this data play is?

Absolutely. So, as we look at all three together, they combine to be about a $6 million item for us, or 130 basis points of margin impact on the quarter. I think the overall state of play is, as you look at each one of them, certainly the Horse Cape team has done a wonderful job and we've seen that production.

output increase considerably in the most recent period. So we feel very good about that. In terms of the SAP inefficiencies, listen, we've been working through many waves of go-lives and we're very happy to say.

we're now complete and we don't expect that to be a driver going forward. And the product discontinuation certainly, we've taken the necessary charge and we're ready to move on from that one as well. And on the S.A.P. or the ascent cost, the positive swing,

Is that inclusive of the increased amortization charge? Is it net 20 or is it a little less than that when you throw in the amortization charge?

When we look at it, it's 20 as would be reported on the ascent line in our P&L. We will incur a bit of a headwind on the amortization call charge in the next fiscal year in the core SCNA, but that's...

built into my comments of just inflationary. So we're partially offsetting that with other items to get to that profile.

Got it. Great. Thank you. Okay. Again, ladies and gentlemen, if you do have a question, please press star 11 on your touch-tone telephone. Again, for any questions, please press star 11.

And I'm showing no further questions. I'll now turn the call back to Dave Sosinski for closing remarks.

Thank you everyone for your participation this morning and your questions. We look forward to being back together with you in November as we take you through our Q1 results. Have a great rest of the morning.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect. Thank you for your participation.

And now to begin the conference call, here is Dale Gnopsick, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.

conference call. Here is Dale Gnopsick, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation. May begin.

Good morning everyone and thank you for joining us today for Lancaster Colony's Fiscal Year 2023 4th Quarter Conference Call.

Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's file of the IEC.

Also, note that the audio replay of this call will be archived and available at our company's website, wankestercolony.com, later this afternoon.

For today's call, Dave Ciesi?ski, our President and CEO , will begin with a business update and highlights for the quarter. Tom Piggott, our CFO , will then provide an overview of the financial results.

Dave will then share some comments regarding our current strategy and outlook for fiscal 2024.

At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions.

Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO , Dave Zinske. Dave? Thanks for having me.

Thanks, Dale. And good morning, everyone. It's a pleasure to be here with you today as we review our fourth quarter results for fiscal year 2023.

In our fiscal fourth quarter, which ended June 30, consolidated net sales increased 50 basis points to a fourth quarter record $455 million, while gross profit declined 5.2 to 93.2 million.

As a reminder, last year's fourth quarter included an estimated $25 million in incremental net sales, or 6% of the total which were attributed to advance orders ahead of our ERP go-live on July 1, 2022.

Q4 2023 Lancaster Colony Corporation Earnings Call

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