NASDAQ:LANC Lancaster Colony Corporation

Sector financial performance:

This company, which produces salad dressing &sauce& vegetable dips& fruit dips, has been grouped into dressing &sauce sector of specialty food industry.

Our data indicates that organic demands for salad dressing, sauce, vegetable and fruit dips both from household consumers and food service companies was strong before 2016 (4% growth annually). Demand went weak since then (0% growth) but may be being boosted by increasing demand from foodservice industry currently.

On the basis of strong demands, while the raw-materials costs swing year and year companies have been able to manage to improve their margins by passing on the costs to price. Therefore, the increased profits enable companies to spend on products innovation so that the new innovated, more value-added products, in return, brought higher margins to the companies.

The typical gross margin, operating margin, and cash flow margin are currently 25%, 14%, and 9% down from 2016 due to increasing raw materials costs. According our analysis, a typical ratio of enterprise price/adjusted EBI is 42 with no debt burden.

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Company performance:

As shown by data about the increased sales volume, it seems the demands for salad dressing/sauce, vegetable/fruit dips, and other frozen grocery products was strong between 2015 and 2016. However, the demand seems to have been weak as indicated by flat increase in sales volume since 2016. Demand may be coming back in the second half of 2018 as a result of recovery in demand from foodservice clients. 

For first quarter of fiscal 2019 compared with 2018(ended 20180930)

Net sales increased 6% due to increase of 13% in foodservice sales (retail was flat) driven by increased sales volume and increase in price.

For fiscal 2018 compared with 2017(ended 20180630)

Organic sales volume was flat but net sales increased 2% due to increase in price.

For the 2017, organic sales volume (excluding acquisition) increased by 1% but offset by decrease of 1% in pricing.

For 2016, organic sales increased by 5% attributable to impacts of the rising selling price (1%) and increased sales volume (4%).

For 2015, organic sales increased by 5% driven by the organic increase of 4% in volume and increase of 1% in product/mix.

Gross margins have been increasing from 24% of 2014 to 26.5% of 2017 due to lowered raw materials costs, raising selling price, and sales mix’s shifting to higher margin and then down back to about 25% in 2018 due to rebounding raw materials costs.

This company increased its spending on SG&A as sales get up. Accordingly, its operating margin increased from 14% of 2014 to 16% of 2017 and then down to 14% in 2018.

Stock price

This stock currently has an enterprise price/EBI ratio of around 42, which we think, is relatively overvalued probably with concerns of uncertainty in rebounding sales/volume