MGP sharpens ingredients focus as sales continue to fall
back of a good performance from its distillery products, but the
firm's food ingredients segment continued to be unprofitable.
The company last week announced total sales in the quarter ended October 1 2006 of $85m, 10 percent up on last year's figure of $77m.
The increase was a result of increased sales in the firm's alcohol, both fuel grade and food grade beverage and industrial products. Total segment sales rose by $14.4m, 26 percent above levels in the first quarter of fiscal 2006. In contrast, ingredients sales in the first quarter declined by nearly 29 percent to $23m.
MGP, which specializes in grain-based products, said it has already embarked on a planned phase-out of low return products in its ingredients segment in order to achieve a more profitable product mix.
This strategy resulted in lower sales of certain specialty food ingredients, but also led to a significant reduction in losses from the ingredients segment compared to the fourth quarter of 2006, said the firm. The 12 percent decline in sales revenue from the segment this quarter was partially offset by higher selling prices.
Products designed to receive a significant marketing push under the new strategy include the firm's Fibersym resistant starches and Arise wheat protein isolates, even though sales of these ingredients declined from last year.
Other lines that will receive more focus in the company's forthcoming marketing strategy include Wheatex and FiberRite RW. According to MGP's president Tim Newkirk, the firm has seen an increased level of interest in these products, and anticipates improving orders.
"Last year we reviewed the profitability of every product line in our ingredients segment. For the current fiscal year, we are focused on executing our plan to drive profitable transaction growth. The basic premise is to drop low-return products and to maximize our high-value product capacity," said Newkirk.
"We were very pleased to see the early results of our efforts in the first quarter, mainly due to better execution at the operating level. While the sales of specialty ingredients for food applications registered lower unit sales compared to a year ago, average selling prices for both specialty starches and proteins were higher than the prior year period. To compete more effectively, we are now organized around key technology platforms," he added.
The firm said it continues to expect a good performance from its alcohol products going forward, but cautioned that its distillery segment earnings in the second half of this fiscal year could be affected by fluctuations in fuel alcohol pricing and higher corn costs.
As for its food ingredients segment, MGP said it aims to begin generating profits from these products by the end of the fiscal year.
"We have reconfigured this segment to generate earnings growth. The first step was to get our cost structure in line and to place a greater emphasis on fewer key product groups. Going forward we are a more focused operation, with dedicated plants and a more proactive customer support team," said Ladd Seaberg, chairman and chief executive officer.