Lancaster Colony Corporation

Good morning. My name is Carmen, 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 2022 Second Quarter Conference Call. Conducting today's call will be Dave Susinski, President and CEO, and Tom Pickett, 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 one on your telephone keypad, and questions will be taken in the order that they are received. If you would like to withdraw your question, press the pound key. Thank you. And now to begin the conference call, here is Dale Gnabczyk, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.

Thank you. Good morning, everyone, and thank you for joining us today for Lancaster Colony's Fiscal Year 2022 Second 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 filings with 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. For today's call, Dave Szczesinski, our president and CEO, will begin with the 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. At the conclusion of our prepared remarks, We'll be happy to respond to any questions you may have. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster County's President and CEO, Dave Suszynski. Dave?

Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today as we review our second quarter results for fiscal year 2022. In our fiscal second quarter, which ended December 31st, consolidated net sales grew 14.2% to a record $428 million, with retail net sales up 10.1% and food service net sales up 20.3%. Retail net sales growth of 10% was driven by pricing across the portfolio and volume led by the expansion of our licensing program and strong performance on Sister Schubert's frozen dinner rolls. This compares to very strong retail sales growth of 19.5% during the same period last year. Retail sales volumes measured in pounds advanced 4% on top of the 12% volume growth last year. Notably, our licensing program continued to perform well in the period, led by distribution gains for Buffalo Wild Wing sauces and increased household penetration and strong repeat rates for Chick-fil-A sauces. In the aggregate, these two licensed sauces combined for over 10% of our net sales growth in the quarter. For the quarter versus prior year, IRI data showed strong share gains for our frozen breads with Sister Schubert dinner rolls up 150 basis points to 54.1%, and New York Bakery garlic bread up 230 basis points to 42.5%. With sales of 61.6 million, Q2 was Sister Schubert's strongest holiday performance ever, thanks to great retail execution in a difficult environment. On a two-year stack basis for the quarter, IRI retail scanner data shows strong sales growth and share gains for several of our branded products, including Marzetti Produce Dressings, Sister Schubert Frozen Dinner Rolls, New York Bakery Garlic Bread, and Reem's Frozen Noodles. Of particular note, during the same two-year stack period, our licensed SaaS platform has grown from $22 million in sales to $78 million in sales, an increase of 250%. Based on the aforementioned growth, I'm pleased to share that in January, IRI named Lancaster Colony Marzetti one of a handful of CPG growth leaders for calendar year 2021. Credit to our retail and R&D teams for all their efforts in this achievement. In summary, our retail top-line performance in the quarter was driven by pass-through pricing and volume growth driven by consumer-relevant brands and great store-level execution. In our food service segment, net sales growth of 20% was driven by inflationary pricing, volume growth with our quick service restaurant or QSR customers, and a rebound in demand for our branded products. Food service volumes measured in pounds advanced 7%. Per NPD Crest, our sales to the QSR channel continue to pace well ahead of the industry driven by our strong relationships with national account customers and our outstanding culinary team. Turning to our margin performance, our gross margin declined in the second quarter reflects unprecedented inflation. Cost incurred to support the shifting and growing demands of our business and a wide array of supply chain disruptions. During the period, we made significant investments in labor and warehousing to improve customer service levels. And while pricing actions served to offset significant commodity cost inflation and higher freight rates, we were not able to fully recover the other industry-wide cost pressures, such as elevated wage rates, in the period. Finally, our margins were also adversely impacted by our decision to significantly increase our utilization of co-manufacturers in the period to help satisfy the growing demand of our bottled sauces business. While costly in the short term, the decision to outsource production has not only enabled the strong retail growth we delivered, but also eliminated the immediate need for us to look at acquiring a dressing and sauce manufacturer to support this rapid growth. In response to these operating and cost pressures, we're implementing discrete actions that should help us improve our margin profile. First, leveraging our recently completed sauce capacity expansion project at one of our Columbus-based facilities to better optimize throughput and reduce cost. Second, adding a new Columbus-based warehouse location and pursuing other initiatives to reduce material handling costs, decrease transportation costs, minimize third-party warehouse needs, and improve inventory management throughout our distribution network. Third, leveraging productivity improvements to enable us to increase the utilization of our own facilities while moderating our reliance on co-manufacturing. And finally, implementing the next phase of our revenue growth management strategy to recover increased labor cost. I'll now turn the call over to Tom Piggott, our CFO, for his commentary on our second quarter financial results.