LANC Q1 Earnings Call: Supply Chain Actions Offset Weak Sales, New Retail Initiatives Highlighted

Yahoo

14-05-2025

Specialty food company Lancaster Colony (NASDAQ:LANC) missed Wall Street's revenue expectations in Q1 CY2025, with sales falling 2.9% year on year to $457.8 million. Its non-GAAP profit of $1.54 per share was 2.3% below analysts' consensus estimates.
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Revenue: $457.8 million vs analyst estimates of $483.3 million (2.9% year-on-year decline, 5.3% miss)
Adjusted EPS: $1.54 vs analyst expectations of $1.58 (2.3% miss)
Adjusted EBITDA: $65.53 million vs analyst estimates of $69.24 million (14.3% margin, 5.4% miss)
Operating Margin: 10.9%, up from 7.5% in the same quarter last year
Free Cash Flow Margin: 6.7%, down from 13% in the same quarter last year
Sales Volumes were flat year on year (1.5% in the same quarter last year)
Market Capitalization: $4.62 billion
Lancaster Colony's first quarter results were shaped by soft consumer demand and industry-wide pressures in both retail and foodservice channels. Management identified weather disruptions, the timing of major holidays, and lower restaurant traffic as key factors weighing on sales. CEO Dave Ciesinski pointed to growth in licensed products and margin expansion through cost-saving initiatives as areas of progress, despite the overall sales decline.
Looking ahead, the company's forward guidance is driven by ongoing efforts to expand distribution of newer licensed brands and optimize its supply chain. Ciesinski emphasized, 'We project that our Retail segment sales will benefit from our licensing program including expanding distribution for the recently introduced Texas Roadhouse dinner rolls and the extension of Chick-fil-A sauce into the club channel.' Lancaster Colony is also monitoring external headwinds, such as the cautious consumer environment and industry shifts toward value offerings, while focusing on margin improvement through manufacturing network changes.
Lancaster Colony's management attributed the first quarter's financial results to a combination of external market challenges and internal operational improvements. The company discussed actions taken to boost core brand performance, manage costs, and expand its network for future growth.
Retail Licensing Expansion: The launch of Chick-fil-A sauce in club channels and the ongoing success of Texas Roadhouse dinner rolls were cited as primary drivers of retail segment momentum. Management expects these initiatives to support volume growth next year as distribution widens.
Foodservice Volume Pressures: Foodservice sales were pressured by weather-related restaurant closures and softer industry traffic, with management noting that several large customers experienced extended downtime. The broader trend of restaurant chains shifting to value-focused menus also weighed on volumes.
Operational Efficiencies: Gross margin improvements were attributed to supply chain productivity, value engineering, and stable commodity costs. CFO Tom Pigott highlighted that cost-saving measures and favorable pricing versus input costs offset the impact of lower sales.
Manufacturing Network Changes: The acquisition of an Atlanta-based sauce and dressing facility and the planned closure of a California plant were described as key steps to streamline operations and reduce costs. These moves are expected to enhance the company's ability to serve key customers efficiently.
Retail Market Share Gains: Despite the challenging environment, core brands such as New York Bakery and Sister Schubert's increased market share in frozen bread categories. The company's licensing program also contributed to share gains in sauces and dressings.
Management expects Lancaster Colony's near-term performance to be shaped by expansion of licensed products, continued supply chain optimization, and persistent industry headwinds in both retail and foodservice.
Licensed Product Distribution: Broader rollout of Chick-fil-A sauces in club stores and Texas Roadhouse dinner rolls in mass retail channels are expected to drive incremental sales, with management describing these as meaningful contributors in upcoming quarters.
Supply Chain Restructuring: The integration of the Atlanta facility and closure of the Milpitas, California plant are central to margin improvement goals, with management aiming to streamline production and reduce operating costs.
Consumer and Industry Risks: Ongoing softness in consumer demand and restaurant traffic, as well as potential shifts in promotional activity, remain risks that could impact both revenue and volume trends.
Jim Salera (Stephens): Asked about collaborating with foodservice customers to offset weak industry traffic; management responded that menu innovation and select price increases could help, but they expect low single-digit declines unless traffic recovers.
Scott Marks (Jefferies): Inquired about refrigerated dressings' underperformance; CEO Ciesinski explained it was largely due to Easter timing, and noted some broader consumer softness in that category.
Andrew Wolf (C.L. King): Sought clarity on promotional strategy and competitive dynamics; management reiterated a cautious approach to trade spending, preferring targeted promotions and end-cap placement over broad price cuts.
Alton Stump (Loop Capital): Questioned the potential impact of Chick-fil-A sauce in club channels; management characterized it as a significant growth opportunity and noted strong early performance at Sam's and Costco.
Andrew Wolf (C.L. King): Asked for quantification of the Easter holiday impact; management estimated at least a one percentage point effect on adjusted volume.
The StockStory team will be monitoring (1) the pace and impact of new licensed product rollouts, especially the expansion of Chick-fil-A sauces and Texas Roadhouse dinner rolls; (2) progress on supply chain initiatives, including the Atlanta facility integration and Milpitas plant closure; and (3) stabilization or improvement in both retail and foodservice volumes. Any shifts in consumer demand or competitive pricing will also be key drivers in the quarters ahead.
Lancaster Colony currently trades at a forward P/E ratio of 23.7×. Should you double down or take your chips? The answer lies in our free research report.
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