MGP Ingredients (MGPI) Q3 2024 earnings summary

Executive summary

• Q3 2024 consolidated sales declined 24% year-over-year to $161.5M, with decreases across all segments, mainly due to weak Brown Goods performance, export headwinds in Ingredient Solutions, and the closure of the Atchison Distillery.

• Net income rose 82% to $23.9M, driven by improved margins, lower SG&A, and absence of prior-year impairment charges.

• Premium Plus brands now represent about half of Branded Spirits sales, up from 30% in 2021, with year-to-date sales up 13% and Q3 growth of 1%.

• Strategic actions include reducing whiskey production, focusing on multi-year new distillate contracts, expanding internationally, and premiumizing the Branded Spirits portfolio.

• 2025 plans include reducing net whiskey put-away, scaling down whiskey production, and optimizing costs to address lower volumes.

Financial highlights

• Q3 consolidated sales: $161.5M, down 24% year-over-year; excluding Atchison Distillery, down 14%.

• Distilling Solutions sales declined 36% (18% ex-Atchison); Brown Goods sales down 22%.

• Branded Spirits sales decreased 6% to $62.6M; Premium Plus sales up 1% in Q3; gross margin for Branded Spirits improved to 51.8%.

• Ingredient Solutions sales declined 18% to $26.9M, mainly from export headwinds and lower specialty protein; gross margin fell to 17.6%.

• Q3 gross profit: $65.8M (down 10%), gross margin 40.8%; Q3 operating income up 64% to $32.6M; adjusted EBITDA down 9% to $45.7M.

• Q3 net income up 82% to $23.9M; adjusted net income down 5% to $28.8M; basic EPS $1.07, adjusted basic EPS $1.29.

• YTD cash flow from operations: $73.5M (up from $48.6M); net debt leverage ratio at 1.3x.

• Debt at September 30, 2024: $290M; net debt at $269.2M; $330M available under Credit Agreement.

Outlook and guidance

• Full-year 2024 guidance: sales $695M–$705M, adjusted EBITDA $196M–$200M, adjusted EPS $5.55–$5.65, CapEx $78M.

• Brown Goods sales and profit expected to remain under pressure in Q4 and 2025 due to unfavorable supply-demand dynamics.

• Ingredient Solutions expected to return to growth in Q4 and stabilize in 2025.

• 2025: Distilling Solutions sales projected to decline nearly 35%, gross profit down nearly 50%; Branded Spirits expected to become largest segment by sales and growth engine.

• 2025 outlook to be detailed with Q4 results; management expects further headwinds for Distilling Solutions but improvement for Ingredient Solutions.