MGPI to revamp food ingredients division after slow sales

By Lorraine Heller

- Last updated on GMT

Related tags Revenue Generally accepted accounting principles

MGP Ingredients (MGPI) is set for a major overhaul in its
ingredients operations, after disappointing results in the segment
for the company's fiscal year prompted it to announce that it will
review its entire ingredients business.

The US firm said it expects it will now focus on a range of specialty ingredients.

The announcement, made by MGPI's president and chief executive officer Ladd Seaberg, came as the company announced its fourth quarter and fiscal year results this morning.

Ingredients sales in the company's final quarter ended June 30 2006 were down to $18.7m, a decline of almost $8m or 30 percent from last year. And for the year, segment sales saw a total decline of 8 percent.

The majority of the blow to the segment was a result of a poor performance from the firm's non-food ingredients division, after a discontinued contract resulted in a slump in sales for a resin product, followed by a lawsuit filed against the customer for breach of contract.

Profitability in the segment was also affected by higher raw material prices for wheat, which were almost 25 percent up on prices in last year's fourth quarter.

But higher sales of certain of the company's specialty proteins and Pregel specialty starches resulted in a 5 percent increase in fourth quarter sales revenue from specialty ingredients for food applications. However, sales of the company's Fibersym resistant starches and Arise wheat protein isolates declined from the prior year's fourth quarter.

The company now says that it will focus on profitability in its ingredients division.

"We are in the process of reviewing the entire operation, including raw material costs, new product development, and even how we go to market,"​ said Seaberg.

"It is likely that we will direct our resources over a narrower range of specialty ingredients, with a focus on profitability. Our best opportunity is to return to our strengths in applications and R&D, and work more closely with our core base of loyal customers,"​ he added.

"The food industry continues to seek new innovations that are nutritious, delicious and convenient. We know that we can add greater value by providing total solutions rather than just selling products."

The company's overall sales were lifted by a strong performance from its distillery products segment, which rose 51 percent above the prior year's fourth quarter. Total net sales for the fiscal year were at $322m, compared to last year's figure of $275m.

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