MGP Ingredients, Inc. has reported results for the fourth quarter ended December 31, 2013. Net loss for the fourth quarter was $0.4 million, or ($0.02) per diluted share, compared to net income of $180,000, or $0.01 per diluted share, in the prior year. Net loss from continuing operations for 2013 was $5.8 million, or ($0.34) per diluted share.
Income from discontinued operations was $0.8 million, or $0.05 per diluted share, resulting in a total net loss of $5 million, or ($0.29) per diluted share. This compares with net income of $1.6 million, or $0.09 per diluted share, in 2012. Annual results for 2013 were impacted by the record high corn basis during the third quarter, increased severance costs, and approximately $5.5 million in costs related to the proxy contest.
Net sales for the fourth quarter declined by approximately 10.5 percent from the year-ago period. Beverage alcohol sales were down slightly, while sales of industrial alcohol saw greater volume decreases compared to the same period a year ago. Ingredient sales in the fourth quarter declined approximately 5 percent from a year ago.
Fourth quarter loss from operations was $1.1 million compared to an operating profit of $970,000 in the fourth quarter of 2012. The Company's gross profit during the fourth quarter was $7.9 million, or 10.2 percent of net sales, compared to $7.4 million, or 8.6 percent of net sales in the prior year. The improvement in gross margins, especially when compared to gross profit of $815,000 in the previous quarter, was due mainly to increased profitability from the Company's white goods distillery products. Fourth quarter corporate expenses of $8.8 million include the previously mentioned $3.4 million in costs related to the proxy contest and increased severance costs.
For the twelve months of 2013, net sales declined by 3.3 percent to $323.2 million. The Company generated a gross profit margin of 6.6 percent compared to 7.5 percent in the prior year period. Loss from operations for the twelve months of 2013 was $5.2 million compared to a loss of $944,000 in the prior year.
Premium Spirits and Industrial Alcohol
• Distillery products sales for the fourth quarter were $63.3 million, a decrease of 11.4 percent compared to the prior year quarter. The Company experienced sales declines in both distillers feed and lower-grade industrial alcohol products.The distillery products segment reported fourth quarter pre-tax operating income of $6.1 million compared to pre-tax operating income of $4.9 million during the same quarter a year ago.
• For the twelve months of 2013, distillery segment sales were $264 million, a decrease of 4.6 percent compared to the prior year period. The decrease was mainly driven by an 82 percent reduction in industrial alcohol supplied from the Company's joint venture partner. Pre-tax operating income for the year was $11.9 million compared to $14.8 million in the previous year. Overall distillery segment pricing decreased 5.0 percent from the previous year. The per-bushel cost of corn decreased 1.9 percent while the per-million cubic foot cost of natural gas averaged 3.0 percent higher year-over-year.
During January 2014, the Company experienced a small fire at its Indiana plant causing a temporary loss of production. The Indiana plant is back in operation and by the end of February the Company was at pre-fire production capacity. The Company is currently working with its insurance carrier to determine the coverage for equipment damage and business interruption losses.
Food Ingredients
• Ingredient segment sales for the fourth quarter were $13.9 million, a decrease of 4.6 percent from the prior year's quarter. Some of the Company's specialty products experienced lower volumes during the period. The ingredients segment reported fourth quarter pre-tax operating income of $559,000, or approximately 4 percent of sales, compared to income of $1.2 million, or approximately 9 percent of sales, for the same quarter a year ago.
• For the twelve months of 2013, ingredient segment sales were $58.9 million, a year-over-year increase of 4.4 percent. In addition to higher sales of specialty starches, tight market conditions created a temporary selling opportunity for sales of commodity protein. Pre-tax operating income for the year was $4.5 million compared to $5.2 million in the prior period. This was mainly due to higher raw material cost for flour that outpaced pricing increases. Flour costs averaged 14.7 percent higher per pound over the prior year.
Co-CEOs Don Tracy and Randy Schrick commented that while the 25 percent growth in distillery pre-tax margin in Q4 vs a year ago was satisfactory, the trend in Ingredients was not. "For the coming year we look for sales growth to be driven by products from our Indiana distillery, including new grain mixtures known as mash bills, and from increased sourcing of alcohol from our joint venture."
MGP is following a plan that involves reducing costs, selling higher value products, and increasing volume. Our cost structure needs to be more competitive, especially for products in the commodity categories. Areas of focus include sourcing, plant efficiency, and administrative overhead. One goal for 2014 is to reduce SG&A compared to 2013, after adjusting for proxy costs. The savings generated will be redeployed to support marketing and new product innovation.
