Food and beverage supplier MGP Ingredients (NASDAQ:MGPI) met Wall Street’s revenue expectations in Q3 CY2024, but sales fell 23.7% year on year to $161.5 million. The company’s outlook for the full year was also close to analysts’ estimates with revenue guided to $700 million at the midpoint. Its non-GAAP profit of $1.29 per share was 4.6% above analysts’ consensus estimates.
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MGP Ingredients (MGPI) Q3 CY2024 Highlights:
- Revenue: $161.5 million vs analyst estimates of $161.4 million (in line)
- Adjusted EPS: $1.29 vs analyst estimates of $1.23 (4.6% beat)
- EBITDA: $45.65 million vs analyst estimates of $44.4 million (2.8% beat)
- The company dropped its revenue guidance for the full year to $700 million at the midpoint from $749 million, a 6.5% decrease
- Management lowered its full-year Adjusted EPS guidance to $5.60 at the midpoint, a 9.3% decrease
- EBITDA guidance for the full year is $198 million at the midpoint, above analyst estimates of $196.3 million
- Gross Margin (GAAP): 40.8%, up from 34.7% in the same quarter last year
- Operating Margin: 20.2%, up from 9.4% in the same quarter last year
- EBITDA Margin: 28.3%, up from 22.7% in the same quarter last year
- Market Capitalization: $1.24 billion
“Our third quarter performance was in line with the preliminary results we provided on October 17. In response to the softening American whiskey category trends and elevated industry-wide barrel inventories, in 2025 we plan to further lower our net aging whiskey put away, scale down our whiskey production, and optimize our cost structure to mitigate lower production volumes. While current market dynamics will likely have an even greater impact on our Distilling Solutions segment sales and profitability in 2025, we believe that these actions will strengthen the long-term competitive positioning of our brown goods business. Over the longer term, we remain confident in our Distilling Solutions business as our whiskey inventories remain an important part of the still expanding American whiskey category,” said David Bratcher, CEO and president of MGP Ingredients.
Company Overview
Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ:MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry
Beverages, Alcohol and Tobacco
These companies' performance is influenced by brand strength, marketing strategies, and shifts in consumer preferences. Changing consumption patterns are particularly relevant and can be seen in the rise of cannabis, craft beer, and vaping or the steady decline of soda and cigarettes. Companies that spend on innovation to meet consumers where they are with regards to trends can reap huge demand benefits while those who ignore trends can see stagnant volumes. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones grow for years.
MGP Ingredients is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from economies of scale.
As you can see below, MGP Ingredients’s sales grew at a decent 9.6% compounded annual growth rate over the last three years. This shows there was demand for its offerings, a useful starting point for our analysis.
This quarter, MGP Ingredients reported a rather uninspiring 23.7% year-on-year revenue decline to $161.5 million of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to decline 5.8% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and illustrates the market thinks its products will see some demand headwinds.
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Cash Is King
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
MGP Ingredients has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.8%, subpar for a consumer staples business. The divergence from its good operating margin stems from its capital-intensive business model, which requires MGP Ingredients to make large cash investments in working capital and capital expenditures.
Key Takeaways from MGP Ingredients’s Q3 Results
It was good to see MGP Ingredients beat analysts’ EBITDA and EPS expectations this quarter. On the other hand, it lowered its full-year revenue and EPS guidance. Zooming out, we think this was a decent quarter featuring some areas of strength but also some blemishes. The stock traded up 2.2% to $57.50 immediately following the results.
Big picture, is MGP Ingredients a buy here and now? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
