Rising costs knock MGP Ingredients results

Company results continue today with US ingredients company MGP Ingredients reporting net losses for the third quarter ended 31 March 2003 due to a combination of factors including higher energy costs and the lack of expected funds from the US Department of Agriculture.

On sales of $52,536,000 (€45m) the company faced a loss of $312,000 (€271,000) or 4 cents per common share. This compares to a net income of $709,000, or 9 cents per share, on sales of $55,403,000 for the same period the prior year.

"Higher energy and grain costs contributed substantially to the company's third quarter earnings decline,"​ said Ladd Seaberg, president and chief executive officer of the company.

The increase in energy costs, the majority of which are related to the company's distillery operations, resulted from a more than 100 per cent hike in the average per unit price of natural gas compared to a year ago.

In addition, prices for wheat and corn, the principal raw materials used in the company's production processes, rose 24 per cent and 19 per cent, respectively, compared to last year's third quarter averages. "Currently, prices for both grain and natural gas are lower than those we experienced in the third quarter, so the impact these two factors have on our performance in the final quarter of fiscal 2003 should be less severe,"​ added Seaberg.

The company was also affected by the failure of the US Department of Agriculture to come up with expected funds. "The prior year's third quarter earnings included approximately $575,800 (net of income taxes) resulting from a previously announced US Department of Agriculture programme that was established to provide cash incentives to ethanol producers,"​ said Seaberg. According to the CEO, no funds from this programme were received by the company in the current year's third quarter as eligibility and application requirements for that period are still being determined by the USDA.

For the first nine months of fiscal 2003, MGPI had a net income of $6,526,000, or 81 cents per share, on sales of $139,843,000 versus net income of $5,704,000, or 70 cents per share, on sales of $164,091,000 for the first nine months of last fiscal year. But the earnings increase in the first nine months of fiscal 2003 was principally due to $13 million in non-operating income ($7.9 million net of income tax) in the first quarter. This resulted from the recognition of expected insurance proceeds in excess of the net recorded costs of assets that were destroyed in a distillery explosion at the company's Atchison plant in September 2002.

Third quarter sales of the company's speciality ingredients, primarily speciality wheat proteins and starches, remained buoyant with the company reporting an increase of 17 per cent compared to a year ago. Year to date, sales of speciality ingredients rose 7 per cent compared to the prior year's first nine months. Seaberg noted that further growth in this area was limited by the effects of the distillery explosion. Total ingredient sales declined 11 per cent compared to last year's third quarter due to a significant decrease in sales of commodity ingredients, which consist of vital wheat gluten and commodity wheat starch.

Because of the expiration of the wheat gluten quota in June, 2001, the company has significantly reduced its production of vital wheat gluten. This measure was taken in the face of greatly increased competitive pressures from the European Union. Concurrently, the company reports that it is placing greater attention and resources on the development, production and marketing of its specialty wheat proteins and starches for use in value-added applications in food, personal care and pet products.