Specialty food company Lancaster Colony (NASDAQ:LANC) missed analysts’ expectations in Q2 CY2024, with revenue flat year on year at $452.8 million. It made a GAAP profit of $1.26 per share, improving from its profit of $0.33 per share in the same quarter last year.

Is now the time to buy Lancaster Colony? Find out in our full research report.

Lancaster Colony (LANC) Q2 CY2024 Highlights:

• Revenue: $452.8 million vs analyst estimates of $462.3 million (2% miss)

• EPS: $1.26 vs analyst expectations of $1.38 (8.6% miss)

• Outlook: "Retail segment sales will continue to benefit from volume growth led by our licensing program, including increased sales from the new products, flavors and sizes we introduced in fiscal 2024"

• Announced that the company's "...partnership with Texas Roadhouse has expanded beyond steak sauces to include their popular dinner rolls, which we introduced with a regional pilot test in June"

• Gross Margin (GAAP): 21.6%, up from 20.5% in the same quarter last year

• Sales Volumes were up 1.2% year on year

• Market Capitalization: $5.44 billion

CEO David A. Ciesinski commented, “We were pleased to report gross profit growth of 4.8% in the fourth quarter despite the modest sales decline. In the Retail segment, our licensed items continued to perform well, as the recently introduced Subway® sandwich sauces and Texas Roadhouse® steak sauces provided incremental sales growth to our lineup of licensed sauces and dressings. Our category-leading New York BRAND® Bakery frozen garlic bread also achieved solid volume gains in the quarter. Excluding the perimeter-of-the-store bakery product lines that we exited in March, Retail net sales increased 1.4% and Retail sales volume, measured in pounds shipped, increased 1.2%. In the Foodservice segment, flat net sales reflect the unfavorable impact of deflationary pricing while the segment’s sales volume improved 4.2%, driven by increased demand from several of our national chain restaurant account customers.”

Known for its frozen garlic bread and Parkerhouse rolls, Lancaster Colony (NASDAQ:LANC) sells bread, dressing, and dips to the retail and food service channels.

Shelf-Stable Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

Lancaster Colony carries some recognizable brands and products but is a mid-sized consumer staples company. Its size could bring disadvantages compared to larger competitors benefiting from better brand awareness and economies of scale. On the other hand, Lancaster Colony can still achieve high growth rates because its revenue base is not yet monstrous.

As you can see below, the company’s annualized revenue growth rate of 8.5% over the last three years was decent for a consumer staples business.

This quarter, Lancaster Colony missed Wall Street’s estimates and reported a rather uninspiring 0.4% year-on-year revenue decline, generating $452.8 million in revenue. Looking ahead, Wall Street expects sales to grow 4.4% over the next 12 months, an acceleration from this quarter.

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Operating Margin

Lancaster Colony has done a decent job managing its expenses over the last two years. The company has produced an average operating margin of 9.2%, higher than the broader consumer staples sector.

Analyzing the trend in its profitability, Lancaster Colony’s annual operating margin rose by 2.9 percentage points over the last two years, showing its efficiency has improved.

This quarter, Lancaster Colony generated an operating profit margin of 9.2%, up 6.7 percentage points year on year. This increase was solid, and since the company’s operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as sales, marketing, and administrative overhead.

Key Takeaways from Lancaster Colony’s Q2 Results

Revenue and EPS both missed, but this was due to the impact of Lancaster Colony's tactical decision to exit perimeter-of-the-store bakery product lines this past March. The company's qualitative outlook was also encouraging. Lancaster Colony said that for the full year, Retail segment sales will continue to benefit from volume growth led by their licensing program. Also, the company announced that its partnership with Texas Roadhouse has expanded beyond steak sauces to include their popular dinner rolls, which we introduced with a regional pilot test in June. The stock traded up 1.9% to $201.20 immediately after reporting.

So should you invest in Lancaster Colony right now? When making that decision, it’s important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it’s free.