WESTERVILLE, OHIO — Shoppers stocked up on frozen dinner rolls, garlic bread and Olive Garden branded dressings in the recent quarter, boosting retail sales for Lancaster Colony Corp. The gains, however, came at a substantial cost as the Westerville-based company incurred higher manufacturing costs, increased commodity costs and increased freight costs due to the pandemic.
Net income for the first quarter ended Sept. 30 was $37.1 million, equal to $1.35 per share on the common stock, down from $40.7 million, or $1.48 per share, in the year-ago period. The results reflected higher operating costs as well as accounting adjustments on the company’s Bantam Bagels business. Lancaster Colony recorded an impairment charge due to Starbucks’ decision to stop serving Bantam Bagels bites in its cafes as part of a menu simplification. Expenditures related to Lancaster Colony’s Project Ascent initiative also dragged on earnings.
Net sales were $349.2 million, up 3.6% from $337.1 million. Excluding sales attributed to a temporary supply agreement resulting from the acquisition of Omni Baking Co., net sales increased 5.2%.
Within the company’s Retail business segment, operating income increased to $42.7 million from $39 million the year before. Segment sales surged 17% to $193.7 million from $166.1 million, led by strong demand for frozen garlic bread, Olive Garden dressings and frozen dinner rolls. Also contributing to the sales growth were new Chick-fil-A and Buffalo Wild Wing bottled sauces sold under exclusive license agreements.
“Sales of Marzetti refrigerated salad dressings grew over 12%,” David A. Ciesinski, president and chief executive officer, said during a Nov. 4 earnings call, citing data from Information Resources, Inc. “New York Bakery frozen garlic bread grew almost 15%. Branded croutons advanced over 21%. Sister Schubert’s frozen dinner rolls increased 24.5%, and Olive Garden dressings grew a very strong 45%.”
Within the company’s Foodservice segment, operating income increased to $27.4 million from $27 million. Foodservice segment sales declined 9% to $155.5 million from $171 million. Excluding Omni Baking sales, Foodservice segment net sales declined 6.4%.
“In our Foodservice segment, the upward trend from the lows we encountered this past April continued throughout the quarter,” Mr. Ciesinski said. “National account, quick-service restaurants and pizza chain customers led the way. Despite the pandemic, we continue to partner closely with key national accounts on a range of new sauces that have and will continue to be featured on their menus in the weeks and months ahead.”
Mr. Ciesinski expressed confidence in the future of the Bantam Bagels business, despite the loss of its major customer. He described a “strong pipeline” of new product introductions, that may include “a pizza bite sort of an item.”
“As far as the impact… I would tell you that it was in the higher 7 figures,” he said of the lost business at Starbucks. “But I would flip that with we also have a real long pipeline of new opportunities that we’re in the process of chasing. We had actually sort of tapped the brakes on chasing new opportunities just because of capacity limitations on that business. So that’s why we remain really bullish about where it’s going.”