MGP Ingredients, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; comparison is with Q1 2021. Amounts are in millions unless stated otherwise. MGP produces distilled spirits, branded spirits and food ingredients. Luxco, acquired April 1, 2021, is included in Q1 2022 results but not Q1 2021, making year-over-year comparisons—especially for Branded Spirits—significantly affected by the acquisition.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Sales | $195.2 | $108.3 | +80.2% |
| Gross profit / margin | $71.8 / 36.8% | $32.3 / 29.8% | Margin +7.0 pp |
| Operating income / margin | $50.1 / 25.7% | $20.5 / 18.9% | Income +144.3% |
| Net income | $37.4 | $15.4 | +142.2% |
| EPS, basic and diluted | $1.69 | $0.90 | +87.7% |
| Operating cash flow | $22.2 | $17.0 | +$5.2 |
Net income attributable to MGP was $37.4 million; consolidated net income was $37.4 million after a $0.1 million loss attributable to noncontrolling interest. Higher operating income drove earnings growth, partly offset in EPS by a larger weighted-average share count following the Luxco share issuance. Effective tax rate was 23.0% in both periods. Interest expense rose to $1.6 million from $0.5 million.
Sales increased in all segments: Distilling Solutions to $111.5 million (+25.8%), Branded Spirits to $55.8 million (versus $0.6 million), and Ingredient Solutions to $28.0 million (+46.2%). Branded Spirits’ increase primarily reflects Luxco. Distilling Solutions benefited from brown goods, food-grade alcohol and co-products; industrial alcohol sales declined. Ingredient Solutions growth reflected higher sales volumes and prices for specialty starches and proteins. Management cited higher input costs in multiple product lines.
Cash, debt and liquidity
Cash was $27.3 million at March 31, 2022, up from $21.6 million at year-end. Operating cash flow of $22.2 million was offset by $12.0 million of investing outflows and $4.2 million of financing outflows. Cash uses included $10.6 million paid for capital expenditures, $13.7 million for increased inventory—primarily barreled distillate—and $9.6 million for increased receivables. Current assets were $395.3 million and current liabilities $84.5 million; inventory accounted for $259.5 million of current assets.
Total debt, net of unamortized loan fees, was $232.7 million, compared with $233.4 million at December 31, 2021. This included $195.0 million in convertible senior notes and $37.7 million in other borrowings before loan fees. The $400 million revolving credit facility had no borrowings and was fully available. The company reported compliance with debt covenants. Dividends paid were $2.7 million; the quarterly dividend was $0.12 per share. Management expected approximately $47.2 million of capital expenditures for 2022.
Outlook, risks and notable items
The filing provides no specific earnings or revenue guidance. Management said operating cash generation and available borrowing capacity should support operating needs, planned capital spending and potential acquisitions. COVID-19 had not significantly affected operations, supply chain or demand as of the report date, but management continued monitoring possible disruptions.
Risks discussed include volatility in grain, wheat flour and natural gas costs and exposure to interest-rate changes. A 100-basis-point rate increase was expected to have minimal effect on interest expense based on variable-rate borrowings at quarter-end; changes in market rates affect the fair value of fixed-rate debt. Management reported no material changes to the risk factors in the 2021 Form 10-K. Prior shareholder derivative actions and litigation concerning the 2016 Atchison chemical release were dismissed or settled, as described in the filing. Goodwill and indefinite-lived intangible assets were not impaired at quarter-end.
Important facts for investors to verify
- Separate organic performance from the acquisition impact: Luxco was absent from the Q1 2021 reported results; the filing provides pro forma Q1 2021 sales of $152.7 million and net income of $16.8 million.
- Assess whether improved gross margins persist as input costs rise, including the reported price, volume and mix drivers by segment.
- Track inventory, receivables and operating cash conversion, given the substantial working-capital cash use and inventory balance.
- Review execution and funding for the approximately $47.2 million 2022 capital-spending plan, debt service and the convertible notes.
- Monitor commodity costs, supply-chain and demand conditions, covenant compliance, and developments in disclosed legal matters.