MGP Ingredients, Inc. Q2 FY2025 earnings call

Management Statement and Operational Highlights

• Leadership: Julie Francis appointed CEO, bringing strategic lens and commercial expertise. She emphasized MGP's culture and growth mindset.
• Branded Spirits: Focus on fewer but more attractive growth opportunities, with premium plus portfolio outperforming the broader category. Penelope's growth trajectory is strong, with new offerings like Penelope Wheated and ready-to-pour products. Partnership with Breakthru Beverage Group in California for distribution.
• Distilling Solutions: Strengthening customer partnerships, stabilizing brown goods sales, and demonstrating flexibility with customers. Disciplined production levels and cost optimization efforts to manage inventory and cash flows.
• Ingredient Solutions: Operational and commercial execution improvement, specialty protein sales rebound after export challenges, and biofuel plant online for cost savings. Continued capital investments in the Atchison plant for operational consistency.

Segment Performance

• Branded Spirits: Sales declined by 5%, but premium plus portfolio grew 1%. Penelope, El Mayor, and Rebel 100 are key focus brands. Premium plus sales are expected to grow low single-digits for the full year 2025, while mid and value tier sales are expected to be down low double-digits.
• Distilling Solutions: Sales declined by 46%, primarily due to a 54% decline in brown goods sales. The segment shows signs of stabilization, with customer contracts paused but customers engaged for future needs. First half sales and profits are expected to be stronger than the second half.
• Ingredient Solutions: Sales increased by 5%, driven by a rebound in specialty wheat protein sales. The segment is well-positioned for higher sales and profitability in the second half of 2025, with the biofuel plant online for cost savings.

Guidance

• Reaffirmed 2025 net sales in the $520 million to $540 million range, adjusted EBITDA in the $105 million to $115 million range, and adjusted basic earnings per share in the $2.45 to $2.75 range.
• Premium plus sales in Branded Spirits expected to be up low single-digits for the year, while mid and value tier sales are below initial expectations.
• Distilling Solutions first half sales and profits expected to be stronger than the second half, with customer contracts paused but future needs engaged.

Risks

• Economic uncertainty, persistent inflation, and higher interest rates impacting consumer spending.
• Tariff impacts on consumer purchasing behavior and supply chain, with potential financial impacts not included in current outlook.
• Challenges in Distilling Solutions with customer contract pauses and ongoing brown goods industry challenges.

Q: Talk about new distillate contracts and visibility.

A: Distilling Solutions team's partnership approach is resonating with customers. No contracts canceled, with most customers either confirming or amending purchases. Visibility provides confidence for operational success, with back half of 2025 expected to be lighter than the first half but in line with projections.

Q: Branded margins and advertising.

A: Branded Spirits margins strong due to premium plus portfolio. A&P spend targeted around central brands, with success seen in focus brands like Penelope. Advertising expenses down due to timing and targeted spend.

Q: Distilling Solutions inventory rationalization.

A: TTB data shows production cuts in the American Whiskey industry. Ongoing inventory adjustment with partnerships helping, and visibility into future customer needs. Margin pressure expected in the back half but mitigated by favorable pricing negotiations.

Q: Ingredient Solutions export and new customers.

A: Specialty protein export challenges mitigated by domestic sales with new customers. ProTerra extruded protein facility online, with progress in onboarding new customers and expected growth in the second half.