Lancaster Colony 10Q 2024 Q1 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form			10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-04065



Lancaster Colony Corporation
(Exact name of registrant as specified in its charter)


Ohio		13-1955943
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

380 Polaris Parkway	Suite 400
Westerville	Ohio	43082
(Address of principal executive offices)		(Zip Code)


(614)			224-7141
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, without par value	LANC	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of October 13, 2023, there were approximately 27,517,000 shares of Common Stock, without par value, outstanding.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS




PART I – FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements (unaudited):

	Condensed Consolidated Balance Sheets – S e ptember 3 0 , 2023 and June 30, 2023	3

	Condensed Consolidated Statements of Income – Three Months Ended September 3 0 , 2023 and 2022	4

	Condensed Consolidated Statements of Comprehensive Income – Three Months Ended September 30 , 2023 and 2022	5

	Condensed Consolidated Statements of Cash Flows – Three Months Ended September 3 0 , 2023 and 2022	6

	Condensed Consolidated Statements of Shareholders’ Equity – Three Months Ended September 3 0 , 2023 and 2022	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19

Item 4.	Controls and Procedures	19

PART II – OTHER INFORMATION		20

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	20

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20



Item 6.	Exhibits	20

SIGNATURES		22

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(Amounts in thousands, except share data)	September 30, 2023		June 30, 2023
ASSETS
Current Assets:
Cash and equivalents	$	73,746	$	88,473
Receivables	120,076		114,967
Inventories:
Raw materials	47,659		40,761
Finished goods	130,149		117,504
Total inventories	177,808		158,265
Other current assets	14,628		12,758
Total current assets	386,258		374,463
Property, Plant and Equipment:


Property, plant and equipment-gross	871,290		853,709
Less accumulated depreciation	382,195		371,503
Property, plant and equipment-net	489,095		482,206
Other Assets:
Goodwill	208,371		208,371
Other intangible assets-net	4,708		4,840
Operating lease right-of-use assets	23,073		24,743
Other noncurrent assets	18,797		18,371
Total	$	1,130,302	$	1,112,994
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	120,337	$	111,758
Accrued liabilities	46,871		56,994
Total current liabilities	167,208		168,752
Noncurrent Operating Lease Liabilities	15,286		16,967
Other Noncurrent Liabilities	16,312		17,683
Deferred Income Taxes	52,728		47,325
Commitments and Contingencies
Shareholders’ Equity:
Preferred stock-authorized 3,050,000 shares; outstanding-none
Common stock-authorized 75,000,000 shares; outstanding-September-27,517,313 shares; June-27,527,550 shares	146,439		143,870
Retained earnings	1,524,469		1,503,963
Accumulated other comprehensive loss	(9,289)		(9,365)
Common stock in treasury, at cost	(782,851)		(776,201)
Total shareholders’ equity	878,768		862,267
Total	$	1,130,302	$	1,112,994

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended September 30,
(Amounts in thousands, except per share data)		2023		2022
Net Sales		$	461,572	$	425,537
Cost of Sales		352,850		326,482
Gross Profit		108,722		99,055
Selling, General and Administrative Expenses		51,947		49,757


Operating Income		56,775		49,298
Other, Net		857		(270)
Income Before Income Taxes		57,632		49,028
Taxes Based on Income		13,681		11,436





Net Income		$	43,951	$	37,592






Net Income Per Common Share:
Basic		$	1.60	$	1.37
Diluted		$	1.59	$	1.36



Weighted Average Common Shares Outstanding:
Basic		27,449		27,450
Diluted		27,473		27,458

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended September 30,
(Amounts in thousands)		2023		2022
Net Income		$	43,951	$	37,592
Other Comprehensive Income:
Defined Benefit Pension and Postretirement Benefit Plans:
Amortization of loss, before tax		144		169
Amortization of prior service credit, before tax		(45)		(45)
Total Other Comprehensive Income, Before Tax		99		124
Tax Attributes of Items in Other Comprehensive Income:
Amortization of loss, tax		(34)		(40)
Amortization of prior service credit, tax		11		11
Total Tax Expense		(23)		(29)
Other Comprehensive Income, Net of Tax		76		95
Comprehensive Income		$	44,027	$	37,687

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Three Months Ended September 30,
(Amounts in thousands)	2023		2022
Cash Flows From Operating Activities:
Net income	$	43,951	$	37,592
Adjustments to reconcile net income to net cash provided by operating activities:
Impacts of noncash items:
Depreciation and amortization	13,592		11,203

Deferred income taxes and other changes	5,765		195
Stock-based compensation expense	2,569		2,465



Pension plan activity	(64)		(493)
Changes in operating assets and liabilities:
Receivables	(5,109)		(745)
Inventories	(19,543)		(21,237)
Other current assets	(1,870)		(102)
Accounts payable and accrued liabilities	(3,676)		21,986
Net cash provided by operating activities	35,615		50,864
Cash Flows From Investing Activities:
Payments for property additions	(18,331)		(24,585)

Proceeds from sale of property	—		1,159

Other-net	(1,412)		(55)
Net cash used in investing activities	(19,743)		(23,481)
Cash Flows From Financing Activities:
Payment of dividends	(23,445)		(22,067)
Purchase of treasury stock	(6,650)		(84)
Tax withholdings for stock-based compensation	—		(617)

Principal payments for finance leases	(504)		(679)
Net cash used in financing activities	(30,599)		(23,447)




Net change in cash and equivalents	(14,727)		3,936
Cash and equivalents at beginning of year	88,473		60,283
Cash and equivalents at end of period	$	73,746	$	64,219
Supplemental Disclosure of Operating Cash Flows:
Net cash payments for income taxes	$	6,231	$	7,544

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)


	Three Months Ended September 30, 2023
(Amounts in thousands, except per share data)	Common Stock Outstanding			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, June 30, 2023	27,528	$	143,870	$	1,503,963	$	(9,365)	$	(776,201)	$	862,267
Net income				43,951						43,951
Net pension and postretirement benefit gains, net of $23 tax effect						76				76
Cash dividends - common stock ($0.85 per share)				(23,445)						(23,445)
Purchase of treasury stock	(40)							(6,650)		(6,650)
Stock-based plans	29	—								—
Stock-based compensation expense		2,569								2,569
Balance, September 30, 2023	27,517	$	146,439	$	1,524,469	$	(9,289)	$	(782,851)	$	878,768


	Three Months Ended September 30, 2022
(Amounts in thousands, except per share data)	Common Stock Outstanding			Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Shareholders’ Equity
	Shares	Amount
Balance, June 30, 2022	27,520	$	137,814	$	1,485,045	$	(11,172)	$	(767,000)	$	844,687
Net income				37,592						37,592
Net pension and postretirement benefit gains, net of $29 tax effect						95				95
Cash dividends - common stock ($0.80 per share)				(22,067)						(22,067)
Purchase of treasury stock	—							(84)		(84)
Stock-based plans	34	(617)								(617)
Stock-based compensation expense		2,465								2,465
Balance, September 30, 2022	27,554	$	139,662	$	1,500,570	$	(11,077)	$	(767,084)	$	862,071

See accompanying notes to condensed consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 1 – Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of Lancaster Colony Corporation and our wholly-owned subsidiaries, collectively referred to as “we,” “us,” “our,” “registrant” or the “Company” and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and SEC Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the results of operations and financial position for such periods. All such adjustments reflected in the interim condensed consolidated financial statements are considered to be of a normal recurring nature. Intercompany transactions and accounts have been eliminated in consolidation. The results of operations for any interim period are not necessarily indicative of results for the full year. Accordingly, these condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in our 2023 Annual Report on Form 10-K. Unless otherwise noted, the term “year” and references to a particular year pertain to our fiscal year, which begins on July 1 and ends on June 30; for example, 2024 refers to fiscal 2024, which is the period from July 1, 2023 to June 30, 2024.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost, except for those acquired as part of a business combination, which are recorded at fair value at the time of purchase. We use the straight-line method of computing depreciation for financial reporting purposes based on the estimated useful lives of the corresponding assets. Purchases of property, plant and equipment included in Accounts Payable and excluded from the property additions and the change in accounts payable in the Condensed Consolidated Statements of Cash Flows were as follows:


	September 30,
	2023		2022
Construction in progress in Accounts Payable	$	10,165	$	22,864

Accrued Compensation and Employee Benefits

Accrued compensation and employee benefits included in Accrued Liabilities was $16.3 million and $26.3 million at September 30, 2023 and June 30, 2023, respectively.

Earnings Per Share

Earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock and common stock equivalents (restricted stock, stock-settled stock appreciation rights and performance units) outstanding during each period. Unvested shares of restricted stock granted to employees are considered participating securities since employees receive nonforfeitable dividends prior to vesting and, therefore, are included in the earnings allocation in computing EPS under the two-class method. Basic EPS excludes dilution and is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing income available to common shareholders by the diluted weighted average number of common shares outstanding during the period, which includes the dilutive potential common shares associated with nonparticipating restricted stock, stock-settled stock appreciation rights and performance units.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Basic and diluted net income per common share were calculated as follows:


	Three Months Ended September 30,
		2023		2022
Net income		$	43,951	$	37,592
Net income available to participating securities		(136)		(118)
Net income available to common shareholders		$	43,815	$	37,474

Weighted average common shares outstanding – basic		27,449		27,450
Incremental share effect from:
Nonparticipating restricted stock		3		4
Stock-settled stock appreciation rights (1)		11		—
Performance units		10		4
Weighted average common shares outstanding – diluted		27,473		27,458

Net income per common share – basic		$	1.60	$	1.37
Net income per common share – diluted		$	1.59	$	1.36

(1)Excludes the impact of the following weighted average stock-settled stock appreciation rights outstanding with an antidilutive effect: 0.1 million and 0.3 million for the three months ended September 30, 2023 and 2022, respectively.

Accumulated Other Comprehensive Loss

The following table presents the amounts reclassified out of accumulated other comprehensive loss by component:


	Three Months Ended September 30,
		2023		2022
Accumulated other comprehensive loss at beginning of period		$	(9,365)	$	(11,172)
Defined Benefit Pension Plan Items:
Amortization of unrecognized net loss		159		181
Postretirement Benefit Plan Items:
Amortization of unrecognized net gain		(15)		(12)
Amortization of prior service credit		(45)		(45)
Total other comprehensive income, before tax		99		124
Total tax expense		(23)		(29)
Other comprehensive income, net of tax		76		95

Accumulated other comprehensive loss at end of period		$	(9,289)	$	(11,077)

Significant Accounting Policies

There were no changes to our Significant Accounting Policies from those disclosed in our 2023 Annual Report on Form 10-K.

Recent Accounting Standards

There are no recently issued or adopted accounting standards that will impact our consolidated financial statements.

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Note 2 – Long-Term Debt

At September 30, 2023 and June 30, 2023, we had an unsecured credit facility (“Facility”) under which we could borrow, on a revolving credit basis, up to a maximum of $150 million at any one time, with potential to expand the total credit availability to $225 million based on consent of the issuing banks and certain other conditions. The Facility expires on March 19, 2025, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.

The Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions. There are two principal financial covenants: an interest expense test that requires us to maintain an interest coverage ratio not less than 2.5 to 1 at the end of each fiscal quarter; and an indebtedness test that requires us to maintain a consolidated leverage ratio not greater than 3.5 to 1, subject to certain exceptions. The interest coverage ratio is calculated by dividing Consolidated EBIT by Consolidated Interest Expense, and the leverage ratio is calculated by dividing Consolidated Net Debt by Consolidated EBITDA. All financial terms used in the covenant calculations are defined more specifically in the Facility.

At September 30, 2023 and June 30, 2023, we had no borrowings outstanding under the Facility. At September 30, 2023 and June 30, 2023, we had $2.2 million and $2.8 million, respectively, of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. We paid no interest for the three months ended September 30, 2023 and 2022.

Note 3 – Commitments and Contingencies

At September 30, 2023, we were a party to various claims and litigation matters arising in the ordinary course of business. Such matters did not have a material effect on the current-year results of operations and, in our opinion, their ultimate disposition is not expected to have a material effect on our consolidated financial statements.

Note 4 – Goodwill and Other Intangible Assets

Goodwill attributable to the Retail and Foodservice segments was $157.4 million and $51.0 million, respectively, at September 30, 2023 and June 30, 2023.

The following table summarizes our identifiable other intangible assets:


	September 30, 2023		June 30, 2023


Tradenames (20 to 30-year life)
Gross carrying value	$	4,100	$	4,100
Accumulated amortization	(244)		(181)
Net carrying value	$	3,856	$	3,919




Customer Relationships (10-year life)
Gross carrying value	$	287	$	287
Accumulated amortization	(198)		(190)
Net carrying value	$	89	$	97
Technology / Know-how (10-year life)
Gross carrying value	$	2,450	$	2,450
Accumulated amortization	(1,687)		(1,626)
Net carrying value	$	763	$	824




Total net carrying value	$	4,708	$	4,840

Amortization expense for our other intangible assets, which is reflected in Selling, General and Administrative Expenses, was as follows:


	Three Months Ended September 30,
		2023		2022
Amortization expense		$	132	$	629

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

Total annual amortization expense for each of the next five years is estimated to be as follows:



2025	$	527
2026	$	527
2027	$	343
2028	$	251
2029	$	251

Note 5 – Income Taxes

Prepaid federal income taxes of $2.5 million and $3.3 million were included in Other Current Assets at September 30, 2023 and June 30, 2023, respectively. Accrued state and local income taxes of $0.4 million were included in Accrued Liabilities at September 30, 2023. Prepaid state and local income taxes of $0.8 million were included in Other Current Assets at June 30, 2023.

Note 6 – Business Segment Information

Our financial results are presented as two reportable segments: Retail and Foodservice. Costs that are directly attributable to either Retail or Foodservice are charged directly to the appropriate segment. Costs that are deemed to be indirect, excluding corporate expenses and other unusual significant transactions, are allocated to the two reportable segments using a reasonable methodology that is consistently applied.

Retail - The vast majority of the products we sell in the Retail segment are sold through sales personnel, food brokers and distributors in the United States. We have placement of products in grocery produce departments through our refrigerated salad dressings, vegetable dips and fruit dips. Our flatbread products and sprouted grain bakery products are generally placed in the specialty bakery/deli section of the grocery store. We also have products typically marketed in the shelf-stable section of the grocery store, which include salad dressings, slaw dressing, sauces and croutons. Within the frozen food section of the grocery store, we sell yeast rolls and garlic breads.

Foodservice - The vast majority of the products we sell in the Foodservice segment are sold through sales personnel, food brokers and distributors in the United States. Most of the products we sell in the Foodservice segment are custom-formulated and include salad dressings, sandwich and dipping sauces, frozen breads and yeast rolls. The majority of our Foodservice sales are products sold under private label to restaurants. We also manufacture and sell various branded Foodservice products to distributors.

As many of our products are similar between our two segments, our procurement, manufacturing, warehousing and distribution activities are substantially integrated across our operations in order to maximize efficiency and productivity. Consequently, we do not prepare, and our Chief Operating Decision Maker does not review, separate balance sheets for the reportable segments. As such, our external reporting does not include the presentation of identifiable assets by reportable segment. The composition of our identifiable assets at September 30, 2023 is generally consistent with that of June 30, 2023.

We evaluate our Retail and Foodservice segments based on net sales and operating income which follow:


	Three Months Ended September 30,
		2023		2022
Net Sales
Retail		$	242,184	$	223,216
Foodservice		219,388		202,321
Total		$	461,572	$	425,537
Operating Income
Retail		$	53,124	$	42,900
Foodservice		26,633		31,929

Corporate Expenses		(22,982)		(25,531)
Total		$	56,775	$	49,298

LANCASTER COLONY CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share data)

The following table sets forth net sales disaggregated by class of similar products for the Retail and Foodservice segments:


	Three Months Ended September 30,
		2023		2022
Retail
Shelf-stable dressings, sauces and croutons		$	98,581	$	91,038
Frozen breads		79,630		72,858
Refrigerated dressings, dips and other		63,973		59,320
Total Retail net sales		$	242,184	$	223,216
Foodservice
Dressings and sauces		$	165,271	$	151,060
Frozen breads and other		54,117		51,261

Total Foodservice net sales		$	219,388	$	202,321
Total net sales		$	461,572	$	425,537

The following table provides an additional disaggregation of Foodservice net sales by type of customer:


	Three Months Ended September 30,
		2023		2022
Foodservice
National accounts		$	171,586	$	160,192
Branded and other		47,802		42,129

Total Foodservice net sales		$	219,388	$	202,321

Note 7 – Stock-Based Compensation

There have been no changes to our stock-based compensation plan as disclosed in our 2023 Annual Report on Form 10-K.

Our stock-settled stock appreciation rights (“SSSARs”) compensation expense was $0.3 million and $0.7 million for the three months ended September 30, 2023 and 2022, respectively. At September 30, 2023, there was $0.5 million of unrecognized compensation expense related to SSSARs that we will recognize over a weighted-average period of 1 year.

Our restricted stock compensation expense was $1.2 million and $1.3 million for the three months ended September 30, 2023 and 2022, respectively. At September 30, 2023, there was $8.8 million of unrecognized compensation expense related to restricted stock that we will recognize over a weighted-average period of 2 years.

Our performance units compensation expense was $1.1 million and $0.5 million for the three months ended September 30, 2023 and 2022, respectively. At September 30, 2023, there was $7.5 million of unrecognized compensation expense related to performance units that we will recognize over a weighted-average period of 2 years.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Our fiscal year begins on July 1 and ends on June 30. Unless otherwise noted, references to “year” pertain to our fiscal year; for example, 2024 refers to fiscal 2024, which is the period from July 1, 2023 to June 30, 2024.

The following discussion should be read in conjunction with our condensed consolidated financial statements and the notes thereto, all included elsewhere in this report, and our 2023 Annual Report on Form 10-K. The forward-looking statements in this section and other parts of this report involve risks, uncertainties and other factors, including statements regarding our plans, objectives, goals, strategies, and financial performance. Our actual results could differ materially from the results anticipated in these forward-looking statements due to these factors. For more information, see the section below entitled “Forward-Looking Statements.”

OVERVIEW

Business Overview

Lancaster Colony Corporation is a manufacturer and marketer of specialty food products for the retail and foodservice channels.

Over 95% of our products are sold in the United States. Foreign operations and export sales have not been significant in the past and are not expected to be significant in the future based upon existing operations. We do not have any fixed assets located outside of the United States.

Our business has the potential to achieve future growth in sales and profitability due to attributes such as:

•leading Retail market positions in several product categories with a high-quality perception;

•recognized innovation in Retail products;

•a broad customer base in both Retail and Foodservice accounts;

•well-regarded culinary expertise among Foodservice customers;

•long-standing Foodservice customer relationships that help to support strategic licensing opportunities in Retail;

•recognized leadership in Foodservice product development;

•experience in integrating complementary business acquisitions; and

•historically strong cash flow generation that supports growth opportunities.

Our goal is to grow both Retail and Foodservice segment sales over time by:

•introducing new products and expanding distribution;

•leveraging the strength of our Retail brands to increase current product sales;

•expanding Retail growth through strategic licensing agreements;

•continuing to rely upon the strength of our reputation in Foodservice product development and quality; and

•acquiring complementary businesses.

With respect to long-term growth, we continually evaluate the future opportunities and needs for our business specific to our plant infrastructure, IT platforms and other initiatives to support and strengthen our operations. Recent examples of resulting investments include:

•a significant capacity expansion project for our Marzetti dressing and sauce facility in Horse Cave, Kentucky that reached substantial completion in March 2023;

•a capacity expansion project for one of our Marzetti dressing and sauce facilities in Columbus, Ohio that was completed in January 2022;

•a significant infrastructure improvement and capacity expansion project for our frozen pasta facility in Altoona, Iowa that was completed in March 2022; and

•our enterprise resource planning system (“ERP”) project and related initiatives, Project Ascent, that reached completion of the implementation phase in August 2023.

Project Ascent entailed the replacement of our primary customer and manufacturing transactional systems, warehousing systems, and financial systems with an integrated SAP S/4HANA system. Implementation of this system began in July 2022 and continued throughout fiscal 2023. Customer fulfillment levels remained strong before and after the initial system cutover with no unplanned disruptions in receiving orders, producing products or shipping orders. During fiscal 2023, we progressed through our ERP implementation with no major disruptions. We completed the final wave of the implementation phase in August 2023 as planned and have shifted our focus towards leveraging the capabilities of our new ERP system.

BUSINESS TRENDS

Dating back to the onset of the COVID-19 pandemic in 2020, the effects of COVID-19 on consumer behavior have impacted the relative demand for our Retail and Foodservice products. More specifically, beginning in March 2020, consumer demand shifted towards increased at-home food consumption and away from in-restaurant dining. Over the course of the following two years, while this shift in demand was inconsistent and volatile, on balance it positively impacted our Retail segment sales volumes and negatively impacted our Foodservice segment sales volumes. From an operations standpoint, the shift in demand over the two-year period, combined with other COVID-19-related issues, unfavorably impacted the operating results of both our segments. Beginning near the end of 2022, the volatility and shifts in demand between our Retail and Foodservice products subsided and our operating environment became more predictable and stable.

The inflationary cost environment we experienced during 2022 resulted in significantly higher input costs for our business. During 2022, we endured unprecedented inflationary costs for commodities, particularly soybean oil and flour, in addition to notably higher costs for packaging, freight and warehousing, and labor. This cost inflation was attributed to numerous factors such as the impacts of the COVID-19 pandemic, the war in Ukraine, climate and weather conditions, supply chain disruptions, including some raw material and packaging shortages, a tight labor market, and government policy decisions.

We continued to experience significant cost inflation through 2023, particularly for soybean oil, eggs and flour. However, our pricing actions served to offset these inflationary costs. In addition, the operating environment stabilized as we did not experience the supply chain disruptions and demand swings of the preceding years.

Near the end of 2023, cost inflation began to diminish notably, and we completed the first quarter of 2024 with our input costs, in aggregate, at levels similar to the prior year.

RESULTS OF CONSOLIDATED OPERATIONS


(Dollars in thousands, except per share data)	Three Months Ended September 30,
	2023	2022			Change
Net Sales		$	461,572		$	425,537		$	36,035	8.5	%
Cost of Sales		352,850			326,482			26,368		8.1	%
Gross Profit		108,722			99,055			9,667		9.8	%
Gross Margin		23.6		%	23.3		%
Selling, General and Administrative Expenses		51,947			49,757			2,190		4.4	%


Operating Income		56,775			49,298			7,477		15.2	%
Operating Margin		12.3		%	11.6		%
Other, Net		857			(270)			1,127		417.4	%
Income Before Income Taxes		57,632			49,028			8,604		17.5	%
Taxes Based on Income		13,681			11,436			2,245		19.6	%
Effective Tax Rate		23.7		%	23.3		%
Net Income		$	43,951		$	37,592		$	6,359	16.9	%
Diluted Net Income Per Common Share		$	1.59		$	1.36		$	0.23	16.9	%

Net Sales

Consolidated net sales for the three months ended September 30, 2023 increased 8.5% to a first quarter record $461.6 million versus $425.5 million last year, reflecting higher net sales for both the Retail and Foodservice segments driven primarily by volume gains. Sales in the prior-year first quarter were unfavorably impacted by an estimated $25 million in net sales attributed to advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live that commenced on July 1, 2022. Consolidated sales volumes, measured in pounds shipped, increased 8.0% for the three months ended September 30, 2023. Excluding the impact of last year’s shift in sales due to our ERP go-live, consolidated sales volumes increased 1.4%. See discussion of net sales by segment following the discussion of “Earnings Per Share” below.

Gross Profit

Consolidated gross profit for the three months ended September 30, 2023 increased $9.7 million to $108.7 million driven by the higher sales volumes, some continued favorability in pricing net of commodity costs, and our cost savings programs. Partial offsets to these positive factors included higher labor costs and increased depreciation expense. In aggregate, the input costs for our commodity basket were generally consistent with last year’s level. In last year’s first quarter, gross profit was unfavorably impacted by an estimated $5 million due to the aforementioned shift of net sales into the quarter ended June 30, 2022 ahead of our ERP go-live.

Selling, General and Administrative Expenses


	Three Months Ended September 30,
(Dollars in thousands)	2023	2022		Change
SG&A Expenses - Excluding Project Ascent		$	48,114	$	40,538	$	7,576	18.7	%
Project Ascent Expenses		3,833		9,219		(5,386)		(58.4)	%
Total SG&A Expenses		$	51,947	$	49,757	$	2,190	4.4	%

Selling, general and administrative (“SG&A”) expenses for the three months ended September 30, 2023 increased 4.4% to $51.9 million compared to $49.8 million in the prior-year period. This increase reflects higher expenditures to support the continued growth of our business, including a more normalized level of consumer promotions, investments in personnel and higher brokerage costs associated with the increased sales. These higher costs were partially offset by lower expenditures for Project Ascent, our ERP initiative. Project Ascent expenses totaled $3.8 million in the current-year quarter versus $9.2 million last year.

Project Ascent expenses are included within Corporate Expenses. A portion of the costs that have been classified as Project Ascent expenses represent ongoing costs that will continue subsequent to the completion of our ERP implementation.

Operating Income

Operating income increased $7.5 million to $56.8 million for the three months ended September 30, 2023 driven by the increase in gross profit, as partially offset by the increase in SG&A expenses. See discussion of operating results by segment following the discussion of “Earnings Per Share” below.

Taxes Based on Income

Our effective tax rate was 23.7% and 23.3% for the three months ended September 30, 2023 and 2022, respectively. For the three months ended September 30, 2023 and 2022, our effective tax rate varied from the statutory federal income tax rate as a result of the following factors:


	Three Months Ended September 30,
	2023		2022
Statutory rate	21.0	%	21.0	%
State and local income taxes	2.6		2.5
Net windfall tax benefits - stock-based compensation	—		—
Other	0.1		(0.2)
Effective rate	23.7	%	23.3	%

We include the tax consequences related to stock-based compensation within the computation of income tax expense. We may experience increased volatility to our income tax expense and resulting net income dependent upon, among other variables, the price of our common stock and the timing and volume of share-based payment award activity such as employee exercises of stock-settled stock appreciation rights and vesting of restricted stock awards. For the three months ended September 30, 2023 and 2022, the impact of net windfall tax benefits from stock-based compensation reduced our effective tax rate by less than 0.1%.

Earnings Per Share

As influenced by the factors discussed above, diluted net income per share for the first quarter of 2024 totaled $1.59, as compared to $1.36 per diluted share in the prior year. Expenditures for Project Ascent reduced diluted earnings per share by $0.11 and $0.26 for the three months ended September 30, 2023 and 2022, respectively. Diluted weighted average common shares outstanding have remained relatively stable for the current and prior-year periods ended September 30.

RESULTS OF OPERATIONS - SEGMENTS

Retail Segment


	Three Months Ended September 30,
(Dollars in thousands)	2023	2022			Change
Net Sales		$	242,184		$	223,216		$	18,968	8.5	%
Operating Income		$	53,124		$	42,900		$	10,224	23.8	%
Operating Margin		21.9		%	19.2		%

For the three months ended September 30, 2023, Retail segment net sales increased 8.5% to $242.2 million from the prior-year total of $223.2 million, including the favorable impact of higher sales volumes and, to a lesser extent, our 2023 pricing actions that have not fully lapped. Sales in the prior-year first quarter were unfavorably impacted by advance orders accounting for an estimated $11 million in Retail net sales that were made near the end of fiscal 2022 ahead of our ERP go-live, which commenced on July 1, 2022. Retail segment sales volumes, measured in pounds shipped, increased 7.1%. Retail sales volume growth was driven by the continued success of our program for licensed dressings and sauces. Our New York BRAND® Bakery frozen garlic bread products also contributed to the increase in the Retail sales volumes. Excluding the impact of last year’s shift in sales due to our ERP go-live, Retail segment sales volumes increased 1.4%.

For the three months ended September 30, 2023, Retail segment operating income increased 23.8% to $53.1 million due to our previous pricing actions, our cost savings programs and the favorable impact of higher sales volumes.

Foodservice Segment


	Three Months Ended September 30,
(Dollars in thousands)	2023	2022			Change
Net Sales		$	219,388		$	202,321		$	17,067	8.4	%
Operating Income		$	26,633		$	31,929		$	(5,296)	(16.6)	%
Operating Margin		12.1		%	15.8		%

For the three months ended September 30, 2023, Foodservice segment net sales grew 8.4% to $219.4 million compared to $202.3 million in the prior-year period driven by increased demand from several of our national chain restaurant account customers and growth for our branded Foodservice products. Sales in the prior-year first quarter were unfavorably impacted by the advance ordering that occurred near the end of fiscal 2022 ahead of our ERP go-live, which reduced Foodservice net sales in the prior-year period by an estimated $14 million. Foodservice segment sales volumes, measured in pounds shipped, increased 8.6%. Excluding the impact of last year’s shift in sales due to our ERP go-live, Foodservice segment sales volumes increased 1.4%.

For the three months ended September 30, 2023, Foodservice segment operating income decreased 16.6% to $26.6 million driven by higher supply chain costs, as partially offset by the benefit of increased sales volumes and a more favorable sales mix. The Foodservice segment’s operating margin compares to strong results in the prior-year period.

Corporate Expenses

For the three months ended September 30, 2023 and 2022, corporate expenses totaled $23.0 million and $25.5 million, respectively. This decrease primarily reflects a decline in Project Ascent expenses, as partially offset by increased investments in personnel. Expenditures for Project Ascent totaled $3.8 million and $9.2 million for the three months ended September 30, 2023 and 2022, respectively.

LOOKING FORWARD

Looking forward to our fiscal second quarter, we anticipate Retail sales will continue to benefit from our expanding licensing program, including incremental growth from the new products, flavors and sizes we introduced in fiscal 2023. In the Foodservice segment, we expect continued volume growth from select customers in our mix of national chain restaurant accounts. Regarding inflation, while our input costs remain high, in total we do not anticipate a significant impact from inflationary costs in the upcoming quarter versus the prior-year period. External factors, including U.S. economic performance and potential changes in consumer sentiment, may impact demand.

With respect to Project Ascent, we completed the final wave of the implementation phase in August 2023 as planned and have shifted towards leveraging the capabilities of our new ERP system to improve execution.

We will continue to periodically reassess our allocation of capital to ensure that we maintain adequate operating flexibility while providing appropriate levels of cash returns to our shareholders.

FINANCIAL CONDITION

Cash Flows

For the three months ended September 30, 2023, net cash provided by operating activities totaled $35.6 million, as compared to $50.9 million in the prior-year period. This decrease was primarily due to the year-over-year changes in net working capital, particularly accrued liabilities and accounts payable. Accrued liabilities reflect the unfavorable cash flow impact of a current-year decrease in the accruals for compensation and employee benefits. The favorable cash flow impact of higher accounts payable, as adjusted to exclude construction in progress amounts, was more pronounced in the prior year due to increased commodity costs as well as the timing of payments. These changes in net working capital were partially offset by higher net income.

Cash used in investing activities for the three months ended September 30, 2023 was $19.7 million, as compared to $23.5 million in the prior year. This decrease primarily reflects a lower level of payments for property additions in the current year as the capacity expansion project at our dressing and sauce facility in Horse Cave, Kentucky reached substantial completion in March 2023.

Cash used in financing activities for the three months ended September 30, 2023 of $30.6 million increased from the prior-year total of $23.4 million. This increase reflects higher levels of share repurchases and dividend payments.

Liquidity and Capital Resources

Under our unsecured revolving credit facility (“Facility”), we may borrow up to a maximum of $150 million at any one time. We had no borrowings outstanding under the Facility at September 30, 2023. At September 30, 2023, we had $2.2 million of standby letters of credit outstanding, which reduced the amount available for borrowing under the Facility. The Facility expires in March 2025, and all outstanding amounts are then due and payable. Interest is variable based upon formulas tied to SOFR or an alternate base rate defined in the Facility. We must also pay facility fees that are tied to our then-applicable consolidated leverage ratio. Loans may be used for general corporate purposes. Due to the nature of its terms, when we have outstanding borrowings under the Facility, they will be classified as long-term debt.

The Facility contains certain restrictive covenants, including limitations on indebtedness, asset sales and acquisitions, and financial covenants relating to interest coverage and leverage. At September 30, 2023, we were in compliance with all applicable provisions and covenants of this facility, and we exceeded the requirements of the financial covenants by substantial margins. At September 30, 2023, there were no events that would constitute a default under this facility.

We currently expect to remain in compliance with the Facility’s covenants for the foreseeable future. However, a default under the Facility could accelerate the repayment of any then outstanding indebtedness and limit our access to $75 million of additional credit available under the Facility. Such an event could require a reduction in or curtailment of cash dividends or share repurchases, reduce or delay beneficial expansion or investment plans, or otherwise impact our ability to meet our obligations when due.

We believe that cash provided by operating activities and our existing balances in cash and equivalents, in addition to that available under the Facility, should be adequate to meet our liquidity needs over the next 12 months, including the projected levels of capital expenditures and dividend payments. If we were to borrow outside of the Facility under current market terms, our average interest rate may increase and have an adverse effect on our results of operations. Based on our current plans and expectations, we believe our capital expenditures for 2024 could total between $70 and $80 million.

Beyond the next 12 months, we expect that cash provided by operating activities will be the primary source of liquidity. This source, combined with our existing balances in cash and equivalents and amounts available under the Facility, is expected to be sufficient to meet our overall cash requirements.

We have various contractual and other obligations that are appropriately recorded as liabilities in our condensed consolidated financial statements. Certain other contractual obligations are not recognized as liabilities in our condensed consolidated financial statements. Examples of such obligations are commitments to purchase raw materials or packaging inventory that has not yet been received as of September 30, 2023, as well as purchase orders and longer-term purchase arrangements related to the procurement of services, including IT service agreements, and property, plant and equipment. The majority of these obligations is expected to be due within one year.

CRITICAL ACCOUNTING POLICIES

There have been no changes in critical accounting policies from those policies disclosed in our 2023 Annual Report on Form 10-K.

RECENT ACCOUNTING PRONOUNCEMENTS

Recent accounting pronouncements and their impact on our consolidated financial statements are disclosed in Note 1 to the condensed consolidated financial statements.

FORWARD-LOOKING STATEMENTS

We desire to take advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). This Quarterly Report on Form 10-Q contains various “forward-looking statements” within the meaning of the PSLRA and other applicable securities laws. Such statements can be identified by the use of the forward-looking words “anticipate,” “estimate,” “project,” “believe,” “intend,” “plan,” “expect,” “hope” or similar words. These statements discuss future expectations; contain projections regarding future developments, operations or financial conditions; or state other forward-looking information. Such statements are based upon assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, expected future developments and other factors we believe to be appropriate. These forward-looking statements involve various important risks, uncertainties and other factors that could cause our actual results to differ materially from those expressed in the forward-looking statements. Actual results may differ as a result of factors over which we have no, or limited, control including, without limitation, the specific influences outlined below. Management believes these forward-looking statements to be reasonable; however, one should not place undue reliance on such statements that are based on current expectations. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update such forward-looking statements, except as required by law.

Items which could impact these forward-looking statements include, but are not limited to:

•efficiencies in plant operations and our overall supply chain network;

•the reaction of customers or consumers to pricing actions we take to offset inflationary costs;

•price and product competition;

•the impact of customer store brands on our branded retail volumes;

•adequate supply of labor for our manufacturing facilities;

•adverse changes in freight, energy or other costs of producing, distributing or transporting our products;

•inflationary pressures resulting in higher input costs;

•fluctuations in the cost and availability of ingredients and packaging;

•dependence on contract manufacturers, distributors and freight transporters, including their operational capacity and financial strength in continuing to support our business;

•stability of labor relations;

•dependence on key personnel and changes in key personnel;

•cyber-security incidents, information technology disruptions, and data breaches;

•capacity constraints that may affect our ability to meet demand or may increase our costs;

•geopolitical events, such as Russia’s invasion of Ukraine, that could create unforeseen business disruptions and impact the cost or availability of raw materials and energy;

•the potential for loss of larger programs or key customer relationships;

•failure to maintain or renew license agreements;

•significant shifts in consumer demand and disruptions to our employees, communities, customers, supply chains, production planning, operations, and production processes resulting from the impacts of epidemics, pandemics or similar widespread public health concerns and disease outbreaks;

•changes in demand for our products, which may result from loss of brand reputation or customer goodwill;

•the possible occurrence of product recalls or other defective or mislabeled product costs;

•the success and cost of new product development efforts;

•the lack of market acceptance of new products;

•the extent to which business acquisitions are completed and acceptably integrated;

•the ability to successfully grow acquired businesses;

•the effect of consolidation of customers within key market channels;

•maintenance of competitive position with respect to other manufacturers;

•the outcome of any litigation or arbitration;

•changes in estimates in critical accounting judgments;

•the impact of any regulatory matters affecting our food business, including any required labeling changes and their impact on consumer demand;

•the impact of fluctuations in our pension plan asset values on funding levels, contributions required and benefit costs; and

•certain other factors, including the information disclosed in our discussion of risk factors under Item 1A of our 2023 Annual Report on Form 10-K.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our market risks have not changed materially from those disclosed in our 2023 Annual Report on Form 10-K.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures. As of the end of the period covered by this Quarterly Report on Form 10-Q, our management, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2023 to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is 1) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and 2) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, in a manner that allows timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. No changes were made to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

We are required to disclose certain environmental matters when a governmental authority is a party to the proceedings and such proceedings involve potential monetary sanctions that we reasonably believe will be in excess of an applied threshold not to exceed $1 million. We are using a threshold of $1 million as we believe this amount is reasonably designed to result in disclosure of such proceedings that are material to our business or financial condition. Applying this threshold, there are no environmental matters to disclose in this Form 10-Q.

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under Item 1A in our 2023 Annual Report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(c) In November 2010, our Board of Directors approved a share repurchase authorization of 2,000,000 common shares, of which 1,136,608 common shares remained authorized for future repurchases at September 30, 2023. This share repurchase authorization does not have a stated expiration date. In the first quarter, we made the following repurchases of our common stock:


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans	Maximum Number of Shares that May Yet be Purchased Under the Plans
July 1-31, 2023	—	$	—	—	1,176,739
August 1-31, 2023 (1)	16,057	$	166.22	16,057	1,160,682
September 1-30, 2023 (1)	24,074	$	165.35	24,074	1,136,608
Total	40,131	$	165.70	40,131	1,136,608

(1)Includes 57 shares in August 2023 and 74 shares in September 2023 that were repurchased in satisfaction of tax withholding obligations arising from the vesting of restricted stock granted to employees under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan.

Item 6. Exhibits

See Index to Exhibits below.

INDEX TO EXHIBITS


Exhibit Number						Description

10.1(a),(c)						Form of Restricted Stock Award Agreement for Employees and Consultants under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan

10.2(a),(c)						Form of Performance Unit Award Agreement for Employees and Consultants under the Lancaster Colony Corporation 2015 Omnibus Incentive Plan

10.3(a),(c)						Lancaster Colony Corporation Form of Change in Control Agreement

31.1(a)						Certification of CEO under Section 302 of the Sarbanes-Oxley Act of 2002

31.2(a)						Certification of CFO under Section 302 of the Sarbanes-Oxley Act of 2002

32(b)						Certification of CEO and CFO under Section 906 of the Sarbanes-Oxley Act of 2002

101.INS(a)						XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document

101.SCH(a)						Inline XBRL Taxonomy Extension Schema Document

101.CAL(a)						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF(a)						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB(a)						Inline XBRL Taxonomy Extension Label Linkbase Document


Exhibit Number						Description

101.PRE(a)						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104(a)						The cover page of Lancaster Colony Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, formatted in Inline XBRL (included within Exhibit 101 attachments)

(a)						Filed herewith

(b)						Furnished herewith

(c)						Indicates a management contract or compensatory plan, contract or arrangement in which any Director or any Executive Officer participates.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

LANCASTER COLONY CORPORATION

(Registrant)

Date:

November 2, 2023

By:

/s/ DAVID A. CIESINSKI

David A. Ciesinski

President, Chief Executive Officer

and Director

(Principal Executive Officer)

Date:

November 2, 2023

By:

/s/ THOMAS K. PIGOTT

Thomas K. Pigott

Vice President, Chief Financial Officer

and Assistant Secretary

(Principal Financial and Accounting Officer)

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Lancaster Colony (LANC) 10-Q2024 Q1 Quarterly report

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