ATCHISON, KAN. — After a demand slump in the third quarter, characterized as “transitory headwinds,” the Ingredient Solutions business of MGP Ingredients, Inc. is poised for improvement in the final months of the year, according to company executives.
Segment sales and profits slumped during the quarter, the company said.
Pressure on MGPI’s overall business and outlook, particularly for the Distilling Solutions segment, sent the company’s share price tumbling. Its stock closed at $48.04 on Oct. 31 after results were issued, down 15% from the $56.31 close a day earlier. The stock price was down more than 50% from the 52-week high of $102.42 set last December.
Quarterly net income at MGPI in the third quarter was $23.65 million, equal to $1.07 per share on the common stock, up 82% from $13.08 million, or 59¢ per share, in the third quarter last year. Sales were $161.46 million, down 24% from $211.62 million in the third quarter of 2023.
Adjusted net income during the quarter fell 5%. Results in the previous year included asset impairment charges of $18.33 million, related to the closing of the company’s Atchison distillery in December 2023. Adjusted for the closing, sales fell 14%.
MGPI reaffirmed guidance the company revised earlier in October. Sales for 2024 are expected to range between $695 million to $705 million, and earnings per share are anticipated between $5.55 and $5.65. Previous guidance had called for sales to range between $742 million and $756 million and EPS of $6.12 to $6.23.
Ingredient Solutions gross profits in the quarter were $4.7 million, down 58% from $11.1 million in the same period last year. Adjusted gross profit was down 50%. Segment sales fell to $26.9 million, down 18% from a year earlier. The company attributed the decrease to the impact of the strong value of the US dollar on specialty protein sales together with increased competition domestically for commodity wheat starch.
“We expect the Ingredient Solutions segment to return to positive sales growth in the fourth quarter as we continue to win new specialty protein business,” Brandon Gall, chief financial officer, said during an Oct. 31 call with investment analysts.”
He went on to predict the division would stabilize and “return to profitable growth” in 2025.
Results in the third quarter fell shy of initial expectations for the segment, Gall said. Because strength in the value of the dollar has cut into export demand, MGPI is working to “repurpose sales from export markets domestically,” he said.
Asked by an analyst to elaborate on developments in the sector, David Bratcher, president and chief executive officer, described the Ingredient Solutions segment as a “high-margin business.”
“A lot of those sales were in export specifically to Japan historically,” he said. “And, due to the strength of the US dollar, that’s been a tremendous headwind for us, year-to-date. And while we did have some success in Q1 and Q2, the life cycle of a new sale for the ingredients business takes time —it can take anywhere from two to three to four quarters to get something specced into a new product and actually make that sale. And there are two customers we had in mind for Q3 that we were anticipating. We’ve made a lot of great ground with (those two customers) year-to-date. While they’re still planning to purchase, it’s now got pushed into Q4. So the good news is we are making a lot of progress on that, and we expect it to continue in Q4 and then in the next year as well.”
Weighing on MGPI’s overall business was a softer American whiskey market and growing inventories, Bratcher said.
“In 2025 we plan to further lower our net aging whiskey put away, scale down our whiskey production, and optimize our cost structure to mitigate lower production volumes,” he said. “While current market dynamics will likely have an even greater impact on our Distilling Solutions segment sales and profitability in 2025, we believe that these actions will strengthen the long-term competitive positioning of our brown goods business. Over the longer term, we remain confident in our Distilling Solutions business as our whiskey inventories remain an important part of the still expanding American whiskey category. We are pleased with our progress toward becoming a premier branded spirits company. Though further inventory tightening is a headwind in the near term, we expect our continued investments behind our brands portfolio to deliver attractive organic growth. In addition, we expect our Ingredient Solutions segment to have a stronger 2025 despite current transitory headwinds.”
