Lancaster locks up winning formula with Chick-fil-A

WESTERVILLE, OHIO — Sauce and dressing licensing programs have been a winning formula for Lancaster Colony Corp. over the past couple years. Now, the company’s partnership with Chick-fil-A stands to take Lancaster to the next level.

Chick-fil-A sauces alone accounted for about 8 percentage points of growth in Lancaster’s Retail segment during the third quarter.

“Our regional rollout of Chick-fil-A sauces into the retail channel continued as planned during the quarter as we further expanded distribution into the Southeastern and South Central United States, adding 11 more states from Texas to the Mid-Atlantic,” David A. Ciesinski, president and chief executive officer, said during a May 4 conference call with analysts.

Asked what the move from regional to national distribution on Chick-fil-A sauces could mean in terms of incremental revenue growth in the upcoming fourth quarter, Mr. Ciesinski said a lot is going to depend on the timing of how fast the product gets on the shelf.

“So it’s a little bit hard to estimate,” he explained. “What we can tell you is, just in the most recent quarter, if you look at IRI data, Chick-fil-A sauce was probably around $15 million of net sales in the period. So if you think about it, that’s 10 states, one quarter, and now it’s going to be expanding throughout the remainder of the states. So the hardest part to project here is just the timing within which it’s going to get on those shelves. So it’s a little bit difficult for us to do that.”

What Mr. Ciesinski did say, though, is that Lancaster expects the Chick-fil-A sauce line “to continue to grow and for the growth to be robust.”

“But to try to call it closer than that’s difficult,” he said. “We expect retailers like Kroger and Walmart and those with national reach to become, at this point, quite efficient at cutting it into the shelf. Some of the smaller players, what we found in the markets where we’ve had it out so far, it just takes a little bit longer. But suffice it to say, it’s going to be making an impact in the quarter, and we’re really excited about how it’s performing.”

In the three months ended March 31, Lancaster Colony net income was $28.9 million, equal to $1.05 per share on the common stock, up 29% from $22.43 million, or 82¢ per share, in the third quarter last year. Net sales were $357.25 million, up 11% from $321.36 million.

For the nine months ended March 31, net income totaled $110.61 million, or $4.02 per share, up 3.8% from $106.6 million, or $3.88 per share, in the same period a year ago. Net sales rose 6.7% to $1.08 billion from $1.01 billion.

Operating income in the company’s Retail unit increased 21% to $41.18 million in the third quarter, while sales jumped 17% to $198.36 million.

“Our licensing program continues to grow, and we advanced in our efforts to attract and retain new customers for our core brands,” Mr. Ciesinski said. “The growth was led by Chick-fil-A sauces, Olive Garden dressings and Buffalo Wild Wings sauces. These products, which we sell under exclusive license agreements, accounted for nearly 13 percentage points of growth in our retail segment during our fiscal third quarter.”

With respect to its own brands, data from Chicago-based market research firm Information Resources, Inc. showed Lancaster was able to ramp up sales and garner increased market share in several key retail categories during the quarter.

“Sales of Marzetti refrigerated salad dressings grew 9% and added 40 basis points of market share,” Mr. Ciesinski said. “New York Bakery frozen garlic bread grew 10.7% and gained 290 basis points of market share. Sister Schubert’s frozen dinner rolls increased 7.6% and gained 10 basis points of market share. These results demonstrate the positive impact of our digital marketing programs that we have put in place to attract and retain new users.”

Meanwhile, in the company’s Foodservice segment, operating income rebounded, soaring 65% to $21.09 million from $12.77 million. Sales increased 4.6% to $158.89 million.

“In our Foodservice segment, sales to national account QSR and pizza chain customers remained a source of strength representing over 60% of our total Foodservice sales in the third quarter,” Mr. Ciesinski said. “NPD CREST data and our firsthand observations suggest that the increasing number of vaccinations and the economic stimulus programs are driving much higher demand for restaurants. Encouragingly, this includes strong growth for many of the casual dining concepts in our mix of national account customers as well.”

Thomas K. Pigott, vice president, assistant secretary and chief financial officer, said Lancaster expects capital expenditures in the fiscal year ending June 30 to total approximately $110 million. The forecast includes spending related to the expansion project at the company’s Horse Cave, Ky., facility, which Mr. Pigott said will allow Lancaster Colony to meet the stepped-up demand for dressing and sauce products. The total cost for the Horse Cave expansion is estimated at approximately $130 million, with expenditures of $30 million planned for this fiscal year, he said.

Mr. Ciesinski said Lancaster also broke ground on another expansion project for one of its facilities located in Columbus, Ohio. The expansion will provide Lancaster with three new packaging lines to support growing demand for dressing and sauces in the company’s Foodservice segment and has a target completion date near the midpoint of fiscal 2022, he said.

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