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LANCASTER COLONY CORP (LANC)·Q1 2025 Earnings Summary

Executive Summary

  • Record first-quarter performance: net sales $466.6M (+1.1% YoY), gross profit $110.8M (+1.9% YoY), and diluted EPS $1.62 (+1.9% YoY). Gross margin improved sequentially by 220 bps and was up 20 bps YoY as PNOC was “close to neutral.”
  • Foodservice net sales rose 3.5% to $227.0M on increased demand from national chains and branded products; Retail fell 1.1% to $239.6M, but grew 1.4% excluding perimeter-of-the-store bakery lines exited in March. Licensing momentum (Subway sauces, Texas Roadhouse dinner rolls) supported Retail.
  • Operating income declined 1.6% to $55.9M as higher SG&A (personnel, IT, legal) offset gross profit gains; tax rate was 22.8% (management estimates 23% for remainder of the year). Cash remained strong at $135.1M; balance sheet is debt-free.
  • Capital investment and shareholder returns: FY2025 capex guidance $70–$80M; quarterly dividend raised to $0.95 (indicated annual $3.75); announced $75M acquisition of an Atlanta sauce/dressing facility to expand capacity and efficiency. These are medium-term catalysts.
  • Street context: S&P Global consensus estimates were unavailable in our data for LANC, so we cannot assess beat/miss vs Wall Street expectations this quarter.

What Went Well and What Went Wrong

What Went Well

  • Licensing-driven Retail growth: “continued growth from our licensing program driven by the Subway sauces… and expanding distribution for Texas Roadhouse dinner rolls.” Excluding exited bakery lines, Retail net sales +1.4% and Retail volume +1.9%.
  • Gross margin trajectory: “sequential improvement of 220 basis points… and an increase of 20 basis points compared to last year’s fiscal first quarter” on higher volumes and cost savings.
  • Brand/category share gains: Circana data showed Marzetti produce dressing sales +2.4% with ≈+25 bps share; produce dips +1.7% with ≈+150 bps share; Sister Schubert’s +5.3%, and combined with Texas Roadhouse dinner rolls, sales +17.9% and market share to 60%; Olive Garden dressings +3.3%; Chick-fil-A sauces +3.4%; Buffalo Wild Wings sauces +5%.

What Went Wrong

  • Retail headline sales down 1.1% YoY due to a “more normalized” level of trade spending and the exit of perimeter bakery lines; SG&A +$3.0M (personnel, IT, legal), pressuring operating income despite gross profit growth.
  • Foodservice operating income contracted YoY on higher labor/benefits, supply chain investments, incremental outsourcing, new trade systems, and customer programming costs; cost savings skewed more to Retail this quarter.
  • Macro headwinds: industry QSR traffic modestly negative; management expects continued consumer pressure with potential incremental trade support if trends soften further.

Financial Results

Consolidated P&L and Key Metrics

MetricQ1 FY2024 (Sep 2023)Q3 FY2024 (Mar 2024)Q4 FY2024 (Jun 2024)Q1 FY2025 (Sep 2024)
Revenue ($USD Millions)$461.6 $471.4 $452.8 $466.6
Gross Profit ($USD Millions)$108.7 $104.5 $97.6 $110.8
Gross Margin (%)23.6% (calc from )22.2% 21.6% 23.8% (seq +220 bps; calc from )
SG&A ($USD Millions)$51.9 $57.2 $53.2 $55.0
Operating Income ($USD Millions)$56.8 $35.1 $41.7 $55.9
Net Income ($USD Millions)$44.0 $28.4 $34.8 $44.7
Diluted EPS ($)$1.59 $1.03 $1.26 $1.62
Cash Dividends per Share ($)$0.85 $0.90 $0.90 $0.90

Notes: Gross margin for Q1 FY2025 and Q1 FY2024 are calculated using reported gross profit and net sales from Exhibit 99.1; management cited +220 bps seq and +20 bps YoY.

Segment Net Sales

Segment Net Sales ($USD Millions)Q1 FY2024Q3 FY2024Q4 FY2024Q1 FY2025
Retail$242.2 $248.1 $234.2 $239.6
Foodservice$219.4 $223.4 $218.6 $227.0
Total$461.6 $471.4 $452.8 $466.6

Segment Operating Income

Segment Operating Income ($USD Millions)Q1 FY2024Q3 FY2024Q4 FY2024Q1 FY2025
Retail$53.1 $47.3 $47.7 $56.2
Foodservice$26.6 $24.3 $19.0 $24.3
Corporate/Other$(23.0) $(24.4) $(22.3) $(24.6)
Nonallocated Restructuring/Impairment—$(12.1) $(2.7) —
Total Operating Income$56.8 $35.1 $41.7 $55.9

KPIs and Operating Drivers

KPI/DriverQ1 FY2024Q3 FY2024Q4 FY2024Q1 FY2025
Retail Sales Volume (YoY %)—+1.5% Flat +0.3%
Foodservice Sales Volume (YoY %)—+3.9% +4.2% +3.1%
PNOC Impact—Favorable Not a driver Neutral
Tax Rate (%)———22.8% (quarter); est. 23% remainder FY2025

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Capital Expenditures ($)FY2025—$70–$80M New
Input Costs (Commodities/Inflation)FY2025No significant inflation/deflation expected Neutral expected remainder of year Maintained
Foodservice Volume GrowthFY2025Continued volume growth (select QSR, branded) Low single-digit volume growth expected Clarified
Retail DriversFY2025Licensing program momentum (Subway sauces, TXRH steak sauces), gluten-free garlic bread upcoming Licensing growth continues (Subway sauces, TXRH dinner rolls), gluten-free garlic bread launch Maintained/Expanded
Tax RateFY2025—~23% (management estimate) New
Dividend (Quarterly)FY2025$0.90 per share $0.95 per share (payable Dec 31, 2024); indicated annual $3.75 vs $3.55 in FY2024 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3 FY2024; Q-1: Q4 FY2024)Current Period (Q1 FY2025)Trend
Licensing expansionAdditions of Subway and TXRH steak sauces; Retail volume +1.5% YoY; PNOC favorable Subway sauces traction; TXRH dinner rolls expanding; category share gains across brands Strengthening
Supply chain & cost savingsCost savings offset higher labor; PNOC not a driver in Q4; margin +110 bps Continued productivity, value engineering, automation, SAP benefits; gross margin +20 bps YoY; +220 bps seq Improving
PNOCFavorable in Q3 Neutral in Q1 Normalizing
QSR traffic/macroExpect demand impacts from macro/consumer behavior QSR traffic modestly negative; expect consumer headwinds; value/hero items to drive relative outperformance Cautious
Portfolio pruningExited perimeter bakery lines; restructuring/impairment charges in Q3/Q4 Exits behind; Retail focus on core brands and licensing Transitioned
M&A / Network optimizationScreening brands; evaluating facilities to optimize footprint $75M Atlanta facility acquisition to add capacity/efficiency; active M&A pipeline Active
DividendsFY2024 dividend $3.55 Quarterly dividend increased to $0.95; indicated annual $3.75 Shareholder returns rising

Management Commentary

  • “We were pleased to complete the quarter with record sales of $466.6 million and record gross profit of $110.8 million… Retail net sales increased 1.4% [exited lines]… Foodservice… net sales grew 3.5% driven by increased demand from several of our national chain restaurant customers.”
  • “Our reported gross profit margin reflects a sequential improvement of 220 basis points… and an increase of 20 basis points compared to last year’s fiscal first quarter… benefited from higher sales volume and our ongoing cost savings initiatives.”
  • Strategic priorities: “Accelerate core business growth; simplify our supply chain… and expand our core with focused M&A and strategic licensing.”
  • Outlook tone: “We anticipate Retail… will continue to benefit from our growing licensing program… In the Foodservice segment, we anticipate continued volume gains from select customers… We expect both commodities and inflation overall to be neutral for the remainder of the year.”

Q&A Highlights

  • Foodservice outperformance: Despite industry traffic softness, LANC outperformed due to its mix of national chain customers, strength in chicken and sauces, and branded operator business; expects low single-digit volumetric growth ahead.
  • Segment profitability: Foodservice OI pressured by labor/benefits, supply chain investments, outsourcing, new trade system, and customer programming costs; efficiencies and reduced outsourcing expected to benefit back half.
  • Texas Roadhouse dinner rolls: National Walmart launch in September showed strong velocity; added shifts to meet demand; early signs of repeat; rollout to broaden through Q3–Q4; largely incremental to Sister Schubert’s, helping western expansion.
  • Gross margin trajectory: Management expects gross margin to improve beyond Q1’s +20 bps YoY as productivity pipeline (value engineering, automation, SAP) offsets normalized trade spend; trade headwinds expected to neutralize in back half.
  • Licensing/M&A: Robust licensing pipeline with case study proof (Olive Garden growth over a decade); capacity/network optimization underway alongside active screening for accretive brand acquisitions.

Estimates Context

  • S&P Global Wall Street consensus estimates for LANC were unavailable in our data due to a missing CIQ mapping, so we cannot determine beat/miss versus Street for Q1 FY2025 at this time. As a result, estimate comparisons in tables are marked N/A.

Key Takeaways for Investors

  • Licensing momentum is driving Retail resilience and share gains; Texas Roadhouse dinner rolls represent a potentially meaningful incremental platform beyond sauces.
  • Margin story improving: sequential gross margin expansion (+220 bps) and YoY up (+20 bps) with PNOC neutral—driven by productivity, automation, SAP benefits—suggests continued margin tailwinds into the back half.
  • Foodservice volume remains positive but OI is under investment pressure; management expects efficiencies to improve segment profitability later in FY2025.
  • Strong balance sheet (debt-free, $135.1M cash) supports increased dividends ($0.95/qtr) and strategic capacity expansion via $75M facility purchase—bolstering medium-term growth and network efficiency.
  • Near-term trading: Watch datapoints on TXRH dinner roll sell-through and broader Retail new-item cadence; any upside surprises in scanner data or margin progression could be catalysts.
  • Medium-term thesis: A mix-shift toward licensing and branded platforms with disciplined M&A/network optimization can sustain EPS growth even in a neutral PNOC/macro environment; monitor trade spend normalization and foodservice traffic trends.
  • Street context: With consensus unavailable, price reaction may hinge on internal records (sales/gross profit), narrative strength (licensing), and capital deployment signals (dividend increase, facility acquisition).

Appendix: Additional Data

Balance Sheet Snapshot

Metric ($USD Millions)Jun 30, 2024Sep 30, 2024
Cash & Equivalents$163.4 $135.1
Receivables$95.6 $101.5
Inventories$173.3 $193.7
Total Assets$1,206.9 $1,216.2
Total Current Liabilities$184.0 $173.2
Shareholders’ Equity$925.8 $945.1

Other Relevant Press Releases

  • Dividend increase: quarterly cash dividend raised to $0.95; indicated annual payout $3.75 vs $3.55 in FY2024; 62 consecutive years of increases.
  • Facility acquisition: $75M purchase of Atlanta sauce/dressing plant (≈300k sq ft total; ≈250k sq ft manufacturing), enhancing capacity, efficiency, proximity to core customers, and business continuity. Closing expected Q1 calendar 2025.