MGP INGREDIENTS INC Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Branded Spirits: Focus on fewer but more attractive growth opportunities. Premium Plus portfolio, led by Penelope, El Mayor, and Rebel 100, showed growth. Penelope had strong growth with new product launches like Penelope Wheated and ready-to-serve cocktails. El Mayor launched updated packaging.
• Distilling Solutions: Strengthen partnerships with customers. Took proactive actions to derisk the brown goods business, working with customers on volume needs and pricing. Optimizing distillery cost structure is underway.
• Ingredient Solutions: Execution initiatives despite supply disruptions. Specialty ingredients demand remains strong. Fibersym branded specialty starch gains traction. Deep Well project operational, biofuel facility on track. Investments in ingredients facility to increase throughput.

Segment Performance

• Branded Spirits: Sales declined by 4%. The Premium Plus portfolio posted solid growth, with a 7% increase in sales. It is now the largest segment.
• Distilling Solutions: Sales declined by 45%, primarily driven by a 49% decline in brown goods sales. Warehouse service sales increased by 2%, while white goods sales declined by 51%.
• Ingredient Solutions: Sales decreased by 26% due to supply disruption from adverse weather, Atchison distillery closure complexities, and new customer commercialization issues. Sequential improvement is expected in the second quarter.

Guidance

• Reaffirmed 2025 outlook: Net sales in the range of $520 million to $540 million; adjusted EBITDA in the range of $105 million to $115 million; adjusted basic EPS in the range of $2.45 to $2.75 with average shares outstanding of approximately 21.3 million; full year effective tax rate of approximately 25%.

Risks

• Industry-wide barrel whiskey inventories remain elevated, and consumers are more cautious.
• Supply disruption due to adverse weather and Atchison distillery closure impacted Ingredient Solutions.
• Tariffs could potentially impact results, though not expected to have material impact currently.

Question and Answer

• Q: Please go ahead. Marc Torrente from Wells Fargo asked about visibility into Distilling Solutions outlook, customer adjustments, and margins.

A: Reached out to 100% of contracted customers, discussions led to modifications contemplated in forward guide. Margins affected by cost savings actions and business performance within expectations.

• Q: Bill Chappell from Truist Securities asked about new distillate negotiations, Branded Spirits mid and value stabilization, and Ingredient Solutions improvement.

A: Still making progress on new distillate negotiations, putting in price support for mid and value brands, and Ingredient Solutions expected to improve with operational projects and CapEx.

• Q: Seamus Cassidy from TD Cowen asked about Premium Plus performance and margin profile.

A: Premium Plus had encouraging quarter, Penelope performed above expectations, but full year outlook not revised yet. Price actions on mid and value brands impact margin profile through competitive dynamics.