MGP INGREDIENTS INC Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Recognized the team's efforts in a volatile environment, with fourth quarter results in line with expectations and full-year 2024 within updated guidance.
• Challenges in Distilling Solutions due to elevated industry-wide barrel whiskey inventories, leading to faster-than-expected and larger-than-expected decline. Industry whiskey production is down, but inventories remain elevated.
• Progress in Branded Spirits and Ingredient Solutions: Premium plus brands like Penelope and Elmayor saw strong double-digit sales growth in 2024; Ingredient Solutions expects to return to positive sales growth in 2025 with improving gross margins.
• Actions taken: Optimizing Distilling Solutions cost structure, reducing corporate headcount, realigning advertising and promotion spend to key growth opportunities.

Segment Performance

• Distilling Solutions: Fourth quarter reported sales declined 25%. Excluding the Atchison Distillery, segment sales declined by 6% with a 10% decline in Brown Goods Sales partially offset by a 15% increase in warehouse service sales.
• Branded Spirits: Segment sales decreased by 12% due to double-digit declines in value price brands and a 12% drop in premium plus sales.
• Ingredient Solutions: Sales increased by 4%. Specialty protein posted its first quarterly growth in Q4 with new business wins offsetting the strong U.S. dollar impact on international sales. Specialty starch sales increased 8% leading to a record year in 2024.

Guidance

• 2025 net sales expected in the $520 million to $540 million range.
• Adjusted EBITDA expected in the $105 million to $115 million range.
• Adjusted basic earnings per share expected in the $2.45 to $2.75 range.
• Distilling Solutions segment sales expected to decline 50%, segment gross profit 65% relative to previous estimates.
• Branded Spirits segment sales expected to be relatively flat with high 40s gross margin.
• Ingredient Solutions expected to return to positive sales growth in 2025 with improving gross margins.

Risks

• Elevated industry-wide barrel whiskey inventories continuing to impact Distilling Solutions sales and gross profit.
• Potential tariff impacts on tequila and other international sales.
• Operational challenges in Ingredient Solutions post-Atchison distillery closure, including one-time costs and choppy order patterns for specialty protein.

Question and Answer

• Q: Talk about strategy for aged whiskey going forward and customer interactions.

A: Brandon Gall mentioned they are proactively reaching out to contracted customers, assuming proactive partnership will lead to sales and gross profit reductions, and implementing cost savings initiatives.

• Q: Confidence in Distilling Solutions returning to growth and timeline.

A: Brandon Gall stated the tough environment will persist, but they are reducing production, controlling costs, and remain committed to the business though it will be smaller in the future.

• Q: Appetite for share repurchase given Chairman Don Luck's share sale.

A: Brandon Gall explained it's a housekeeping item related to the LuxCo acquisition agreement, with previous delays due to board information.