Grainnet

MGP Ingredients Reports Net Loss of $6.6 Million Due to Wheat Prices; Distillery Operations Remain Profitable

Atchison, KS—MGP Ingredients, Inc. (NASDAQ:MGPI) reported May 8 a net loss of $6,629,000, or $0.39 in diluted earnings per share, for the third quarter of fiscal 2008, which ended March 31, 2008.

The loss for the quarter included $4.9 million net of tax, or $0.29 per share, related to an impairment charge recorded in connection with efforts to rationalize certain manufacturing capacity.

This compares with net income of $2,148,000, or $0.13 in diluted earnings per share, for the third quarter of fiscal 2007. Total sales in the third quarter of fiscal 2008 were $106,694,000, an increase of 14 percent from sales of $93,807,000 a year ago.

"Just as we are continuing to gain momentum toward achieving record sales of targeted value-added product technologies in our ingredient solutions segment, our earnings for the third quarter were adversely affected by record wheat prices," said Tim Newkirk, president and CEO.

"In our view, there is less crop risk in global wheat supplies than with corn. Should wheat prices decline to levels experienced during our second quarter, we would anticipate moving toward a stronger sustainable earnings contribution from ingredient solutions going forward.

"Meanwhile, our distillery operations have remained profitable due principally to higher unit sales and pricing for our food grade alcohol, combined with strengthened pricing for our fuel grade alcohol.

"Further progress in the distillery segment was hampered by increased prices for corn, the principal raw material used in our alcohol production process."

Newkirk added, "Following the loss of a significant pet treat customer at the end of fiscal 2006 and the unfulfillment of previously anticipated new business, the company's protein-based resin volumes have not been sufficient to reach profitability.

"More recently, the weak consumer environment has adversely impacted spending by pet owners on premium treats, resulting in certain customers holding increased levels of inventory.

"Demand for the company's protein-based resins has further declined in favor of lower valued starch-based products.

"As the result of such factors, we are also pursuing strategic alternatives for our pet resin manufacturing business and our related Kansas City, Kan., facility.

"As we transform MGPI to a company increasingly focused on the innovation and commercialization of our unique product technologies, in the process of reviewing our pet business we took the opportunity to further rationalize our manufacturing footprint.

"This involved the write-down of plant and equipment associated with the manufacturing of pet-related products and certain of our Wheatex(R) textured wheat proteins that, in the future, we intend to produce through third parties.

"Our distillery operations are running near planned capacity and are therefore positioned to benefit from improved pricing in both the food grade and fuel grade alcohol areas."

Total ingredient solutions sales in the current year's third quarter compared to the same period a year ago increased 49.0 percent due in part to the achievement of a higher margin mix in sales of the company's specialty starches and proteins for food applications.

The company also experienced higher sales of vital wheat gluten resulting from increased volumes and pricing compared to a year ago.

Sales of specialty ingredients improved by 24.6 percent compared with the previous year's third quarter.

The growing contribution from specialty ingredients was offset by higher wheat costs, which increased more than 86 percent over a year ago.

The higher wheat costs contributed substantially to a pre-tax loss of $4,554,000 in the ingredient solutions segment.

This compares with a pre-tax loss of $655,000 in the prior year's third quarter.

Distillery products sales improved by 6 percent compared with fiscal 2007 third quarter levels, as the company compensated for lower production levels by releasing some product from inventory.

The higher volume and pricing in food grade alcohol were offset by the lower volumes in fuel alcohol.

The company's earnings performance in the distillery products segment continued to be affected by the increased costs for corn, which averaged nearly 22 percent higher than the prior year's third quarter.

Pre-tax income in the distillery products segment declined to $3,426,000 compared with $4,163,000 in last year's third quarter.

In the company's other segment, a pre-tax loss of $1.7 million in the current year's third quarter compared with a pre-tax loss of $853,000 a year ago, with most of the loss occurring in the pet products area.

For more information, call 913-360-5229.