Lancaster Colony Corporation

Good morning. My name is Tawanda, 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 2024 Third Quarter Conference Call. Conducting today's call will be Dave Sosinski, 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 the question during this time, simply press star 11 on your telephone keypad. If you would like to withdraw your question, press star 11 again. Thank you. And now to begin the conference call, here is Dale Gnopcik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporations. You may begin.

Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal year 2024 third quarter conference call. Our discussion this morning may include forward-looking statements which are subject to the safe harbor provisions of this 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 answer any questions you may have. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Sosinski. Dave?

Thanks, Dale, and good morning, everyone. It's a pleasure to be here with you today. as we review our third quarter results for fiscal year 2024. In our fiscal third quarter, which ended March 31st, we were pleased to report record net sales and gross profit as consolidated net sales increased 1.4% to $471.4 million, and gross profit grew 10.9% to $104.5 million. Operating income increased 19.5% to $35.1 million, driven by solid growth in the underlying performance of the business. This was partially offset by the impact of charges arising from the decision to exit our perimeter of the store bakery product lines, specifically Flat Out and Angelic Bakehouse, which reduced operating income by $14.7 million. In our retail segment, net sales growth of 30 basis points was driven by volume gains for our successful licensing program, led by Chick-fil-A sauces and dressings, Olive Garden dressings, and our newly introduced Subway sandwich sauces and Texas Roadhouse steak sauces. Retail segment volume measured in pound shift increased 1.5%, driven by the growth from licensed items and investments in trade spending that drove household penetration gains across our portfolio. Excluding the impact of product downweighting initiatives and sales attributed to flat-out and angelic bakehouse product lines that we exited, Q3 retail sales volume increased 2.8%. Sir Connor retail scanner data for the 13-week period ending March 31st shows our brands, including license items, performed very well, with consumption measured in pounds growing 5.6%. The increased consumption was driven by three primary factors. First, we successfully invested in promotional activity to drive trial and household penetration across a range of our brands. Second, our consumer-relevant licensed brands continued to deliver strong consumption behind notable gains for Chick-fil-A dressings and sauces, Olive Garden dressings, in addition to new contributions from the launches of Subway and Texas Roadhouse sauces. And finally, we experienced a modest benefit in retail consumption attributed to the shift in Easter timing for holiday favorites such as Sister Schubert Rolls and Marsetti Dips. Circona's retail scanner data for the quarter showed Chick-fil-A sauces up 8.3% to $42.8 million. Olive Garden dressings up 7.5% to $41.3 million. Buffalo Wild Wing sauces were down 2.6% to $26.1 million, but compared to a strong quarter last year when sales increased 47.9%. New York Bakery Garlic Bread was up 5.8% to $94.7 million, resulting in a category-leading market share of 44.3%. Sister Schuber's brand was up 13% to $35 million and extended its leading share to 55.5% in the frozen dinner roll category. And finally, we were pleased to share The Chick-fil-A refrigerated salad dressings, which we launched nationally last May, continue to perform well with Circonis data showing sales of $10.8 million and a 7.9% share of the category. When combined with the sales of our Marzetti brand salad dressings, our refrigerated dressing market share has grown over 5 percentage points to a category leading 28.7%. In the food service segment, net sales growth of 2.6% was led higher by demand from several of our national chain restaurant accounts and volume gains for our branded food service products. Food service sales volume measured in pound shift increased 3.9%. As anticipated, the food service segment net sales growth was adversely impacted by pass-through price decreases during the quarter due to commodity cost deflation. During Q3, we were pleased to deliver record gross profit of $104.5 million and a gross margin increase of 190 basis points versus last year. This increase was driven by favorability in our pricing net of commodities, or PNOC, following two years of unprecedented inflation, as well as the beneficial impacts of our cost-stating initiatives and volume growth. Our focus on supply chain productivity, value engineering, and revenue management all remain core elements to further improve our financial performance. Before I turn it over to Tom, I would like to share a few additional comments regarding Lancaster Colony's recent decision to exit our perimeter of the store bakery lines, specifically Flat Out and Angelic Bakehouse. Both brands were typically sold in the deli section of the grocery store. Unfortunately, due to a lack of scale and direct-to-store distribution capabilities, we were not able to achieve the required operational or financial performance for these product lines, and subsequent efforts to sell these product lines were unsuccessful. I can assure you this was a very difficult decision, with 80 of our employees impacted by the closures of our flat-out facility in Saline, Michigan, and the Angelic Bakehouse facility in Cudahy, Wisconsin. Since the announcement of the plant closures on March 12th, we've provided financial assistance and outplacement support for the impacted employees. I extend my sincere thanks to all of them for their dedication and commitment to our business during their time with us. With our exit from these product lines now complete, we intend to direct even greater focus towards categories where we believe we have strategic scale, such as dressings and sauces, and focus scale, such as Broson Bakery. I'll now turn the call over to Tom Piggott, our CFO, for his commentary on our third quarter results.