Good morning. My name is Lauren, and I will be your conference call facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2024 First Quarter Conference Call. Conducting today's call will be Dave Ciesinski, President and CEO, and Tom Pigott, CFO. All lines have been placed on mute to prevent any background noise. After the speakers have completed their prepared remarks, there will be a question-and-answer period. Thank you. And now to begin the conference call, here is Dale Ganobsik, Vice President of Corporate Finance and Investor Relations for Lancaster Colony Corporation.

Good morning everyone and thank you for joining us today for Lancaster Colony's fiscal year 2024 first quarter conference call. Our discussion this morning may include forward-looking statements, which are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially, and the company undertakes no obligation to update these statements based upon subsequent events. A detailed discussion of these risks and uncertainties is contained in the company's filings with the SEC. Also note that the audio replay of this call will be archived and available at our company's website, lancastercolony.com, later this afternoon. For today's call, Dave Ciesinski, our President and CEO, will begin with the business update and highlights for the quarter. Tom Pigott, our CFO, will then provide an overview of the financial results. Dave will then share some comments regarding our current strategy and outlook. At the conclusion of our prepared remarks, we'll be happy to respond to any of your questions. Once again, we appreciate your participation this morning. I'll now turn the call over to Lancaster Colony's President and CEO, Dave Ciesinski. Dave?

Thanks Dale and good morning everyone. It's a pleasure to be here with you today as we review our first quarter results for fiscal year 2024. In our fiscal first quarter, which ended September 30th, consolidated net sales increased 8.5% to a first quarter record $462 million, while gross profit increased 9.8% to $108.7 million. As a reminder, last year's first quarter sales were unfavorably impacted by an estimated $25 million in net sales that had shifted into the quarter ended June 30, 2022, in advance of our ERP go-live. The lower sales reduced last year's Q1 gross profit by an estimated $5 million. In our retail segment, net sales growth of 8.5% was led by continued strong performance of our successful program for licensed sauces and dressings and another solid quarter for our New York Bakery frozen garlic bread products. Excluding the impact of the sales shift that reduced retail sales in the prior quarter, retail segment sales volume measured in pounds shipped increased 1.4%. The Circana Retail Scanner data showed our licensed sauce products continue to perform very well during the quarter as Chick-fil-A sauces were up 17.6% to $41.4 million. Olive Garden dressings were up 9.6% to $39 million, and Buffalo Wild Wings sauces were up 25.9% to $20.8 million. Our category-leading New York Bakery and Sister Schubert brands also increased their market share during the quarter. New York Bakery's leading share of the frozen garlic bread category grew 400 basis points to 44.3%, while Sister Schubert's share of the frozen dinner roll category increased 80 basis points to 54.1%. I'm also happy to report that Chick-fil-A refrigerated salad dressings, which we launched nationally last May, are performing well with $10 million in retailer sales during the quarter. When combined with our Marzetti brand, our refrigerated dressing sales have grown to represent a category-leading share of 28.3%. In the Foodservice segment, net sales grew 8.4% on increased demand from many of our national chain accounts in addition to solid sales growth for our branded foodservice products. Excluding the impact of the sales shift that reduced foodservice sales in the prior year quarter, Foodservice segment sales volumes advanced 1.4%. We are pleased to report our Q1 gross profit increased $9.7 million or 9.8%. Our Q1 gross profit margin of 23.6% reflects a sequential improvement of 310 basis points over the prior quarter as we move past some of the temporary costs associated with strategic investments and increased capacity at our facility in Horse Cave, Kentucky and our new ERP network. Our focus on supply chain productivity, value engineering, and revenue management remain core to further improving our financial performance. I'll now turn the call over to Tom Pigott, our CFO, for his commentary on our first quarter results.

Thanks Dave. The results for the quarter reflect continued topline growth and improved gross margin performance. First quarter consolidated net sales increased by 8.5% to $461.6 million. Decomposing the revenue performance, revenue was favorably impacted by approximately 600 basis points from last year's sales shift. Higher net pricing contributed approximately 140 basis points of growth. The remainder was driven by volume. Consolidated gross profit increased by $9.7 million or 9.8% versus the prior year quarter to $108.7 million. The gross profit growth was driven by the favorable impact of comping to the prior year shift in customer orders, which we estimate to have been an approximate $5 million tailwind, and favorable pricing net of commodities performance, higher volumes and the improved supply chain performance Dave mentioned. Commodity costs were consistent with the prior year. Selling, general, and administrative expenses increased 4.4% or $2.2 million. The increase reflects investments to support the growth of the business as well as higher personnel costs. The investments to support the growth of the business included higher consumer spending and increased brokerage costs. Consumer spending increased to be more in line with historical levels versus a low comparative period as our product supply position has improved. Expenditures for Project Ascent, our ERP initiative, were down partially offsetting these increases. Costs related to the project totaled $3.8 million in the current year quarter versus $9.2 million in the prior year quarter. Consolidated operating income increased $7.5 million or 15.2% due to the gross profit improvement, partially offset by the higher SG&A expenses I mentioned. Our tax rate for the quarter was 23.7%. We estimate our tax rate for the remainder of fiscal 2024 to be 23%. First quarter diluted earnings per share increased $0.23 or 16.9% to $1.59. The net impact of the reduction in Project Ascent expenses was favorable by $0.15. With regard to capital expenditures, our full year payments for property additions totaled $18.3 million. For fiscal 2024, we are forecasting total capital expenditures of $70 million to $80 million. This forecast reflects a decline versus the prior year spending with the Horse Cave expansion now substantially complete. In addition to investing in our business, we also returned funds to shareholders. Our quarterly cash dividend of $0.85 per share paid on September 30th represented a 6% increase from the prior year's amount. Our enduring streak of annual dividend increases stands at 60 years. Our financial position remained strong with a debt-free balance sheet and $73.7 million in cash. So, to wrap up my commentary, our first quarter results reflected continued topline increases, improved gross profit performance, and investments to support further growth. I'll now turn it back over to Dave for his closing remarks. Thank you.

Thanks Tom. As we look ahead, Lancaster Colony will continue to leverage the combined strength of our team, our operating strategy and our balance sheet in support of the three simple pillars of our growth plan: one, accelerate core business growth; two, simplify our supply chain to reduce our cost and grow margins; and three, expand our core focused M&A and strategic licensing. In our fiscal second quarter, we anticipate retail sales will continue to benefit from our expanded licensing program, including incremental growth from new products, flavors and sizes we introduced in fiscal 2023. In the Foodservice segment, we anticipate continued volume growth from select customers in our mix of national chain restaurant accounts. Regarding inflation, while our input costs remain high, in total, we do not anticipate a significant impact from inflationary costs in the upcoming quarter versus the prior year period. With respect to our ERP initiative, Project Ascent, following the successful completion of our final implementation wave in August, we are now devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. In closing, I'd like to thank the entire Lancaster Colony team for all their hard work this past quarter and their ongoing commitment to our business. This concludes our prepared remarks for today, and we'd be happy to take any questions you might have.

Your first question comes from Jim Salera of Stephens. tive, Project Ascent, following the successful completion of our final implementation wave in August, we are now devoting our attention to leveraging the capabilities of the new system to strengthen our execution and support our continued growth. In closing, I'd like to thank the entire Lancaster Colony team for all their hard work this past quarter and their ongoing commitment to our business. This concludes our prepared remarks for today, and we'd be happy to take any questions you might have.

Hi guys. Good morning. Thanks for taking our question.

Good morning.

I wanted to ask about your visibility into consumer restaurant traffic as we exit 2023 and move into calendar 2024. Should we take the commentary around the select restaurant volume growth to mean that overall restaurants are cautiously optimistic moving forward?

I think, Jim, we were talking about this more in the context of our relationships with our customers. If we look at some of the more recent traffic data, L52 traffic across all restaurants was flat. L12 restaurants were down 100 basis points, and that was true in the most recent four weeks as well. When you look at QSR traffic, it was growing modestly, and in the most recent period traffic is now closer to flat. Full-service restaurants, including some quick casual concepts, are seeing their traffic under more pressure. That's sort of industry-wide. When you bring it in and you look at our strategic relationships, we're seeing our QSR customers, on balance and consistent with broader trends, performing in line with what I described. Then we have customers like Chick-fil-A, which continue to buck the trend and see their traffic remain even stronger. So, as we assess things, we will obviously experience what everybody else in the industry is seeing, but our partnership with Chick-fil-A and a couple of others provides us a bit of a tailwind because of what they're seeing from a traffic perspective.

Great. That's very helpful color. Maybe shifting to retail. Can you give us some context around what the promotional environment looks like—have you seen retailers asking for more discounting or more pricing competition across some of the peer groups in your categories?

We're seeing two things. We are seeing requests for increased promotional support, but it is not being manifested as requests to reduce list prices because of deflation. Our basket of goods from an inflation perspective has normalized. We're no longer seeing the inflation we saw before, but we're not seeing deflation to the point where retailers feel they can squeeze us for trade. We are seeing some peers start to increase promotion. What we're looking at more closely is what's going to happen with private label.

Okay, great. That's all very helpful. I'll jump back in the queue.

Our next question comes from Connor Rattigan of Consumer Edge. Your line is now open.

Hey, good morning. Thanks for the question.

Hey, good morning Connor.

So, obviously, impressive volume growth for both businesses even when adjusted for the pull forward. As you look forward with compares getting tougher, especially in retail, what is your visibility on volume growth? Should we expect sustained low single-digit volume growth for the rest of the year?

We are watching the same macro information for food and discretionary spending across channels. We still feel optimistic that we're in a position to deliver low single-digit growth, principally coming in the form of volume. We had a bit of price in Q1, and you will see that work through as we go forward. Right now, we continue to feel that we can deliver low single-digit growth led by volume.

Awesome. Thanks guys. And a quick follow-up on Jim's question as well. There has been some concern that 2024 margins will be flat to modestly up. Given what you saw in Q1, it doesn't sound like you've seen much relief on the cost front. Do you feel you're in a good place to really make progress on margins this year?

Great question. The overall outlook is consistent with flat to slightly up on margins. From a tailwind standpoint, we've got a productivity program and our value engineering program kicking in, which should help. The commodity basket has neutralized—we're not seeing inflation but we're not seeing deflation yet. The key watch-outs are the pressure to spend back by retailers and the broader macro environment. We have many initiatives to drive margin growth, but we're cautious about the outlook given those macro trends.

Got it. Makes sense. Thanks guys.

Our next question comes from Andrew Wolf of C.L. King. Your line is now open.

Thank you. Good morning.

Hi Andrew.

I would like to follow up on pricing and promotional outlook. More specifically, how is wage rate inflation behaving—it's believed to be the second biggest cost factor. Is wage inflation still elevated? And any other inputs—energy or other cost structure items—controllable or not, including the scaling up of Horse Cave?

When you look at the other drivers, we're still seeing higher-than-historic labor inflation but not to the levels we saw a year or two ago. It has moderated to low- to mid-single-digit. The rest of the basket shows similar modest rates of inflation impacting our P&L, and that's where our cost savings program kicks in. One other item is depreciation from the Horse Cave expansion, which has started to hit our P&L and will continue to be amortized over future years.

So, back to normalization. It sounds like your own spending and consumer spending are normalizing. Can you frame your pricing conversations with retailers? Can you present your cost structure the way you have in the past and request adjustments? Or are retailers reluctant given pressures on volume? And finally, how promotional do you want to be on shelf with retailers?

A few thoughts. First, commodity costs are essentially flattening out. We are seeing modest labor inflation that we feel we can offset with productivity programs, so we don't expect a margin headwind from inflation broadly. Regarding conversations with retailers, we don't think there is a need to go to them seeking elevated pricing; that could be disadvantageous. We view the economy as at a transition point brought about by the end of the era of free money. We're seeing higher interest rates on credit card debt, the resumption of student loan payments, and the end of temporary pandemic benefits. Families are reworking their cash flows and making trade-offs across experiences, food, and discretionary items. This brings us to promotion: in this transition environment, brand leaders and sales teams must evaluate their consumer value equations—features, benefits, and brand versus cost—to ensure relevance. If a value proposition is under pressure, we'll consider trade, marketing, shopper marketing, or price-pack architecture changes. We're taking a strategic view because this isn't likely to be a one-quarter or one-year situation; it's a transition similar to 2007–2008, and we need to ensure our brands remain relevant.

Great. That's really helpful. You earlier mentioned private label. I assume private label substitution is an important watch-out and a key driver of responses.

Yes, it's a watch-out. Recent data shows private label growth is still modest; it's not a massive run to private label. The transition away from free money is affecting some demographic segments more than others—some consumers will change outlets or turn to private label. Historically, brands had to maintain certain price gaps versus private label because creeping above those gaps put brands under pressure. That remains true today. We need to ensure all our brands provide the right value proposition both in absolute terms and versus substitutes, whether private label or competitor brands.

Great. Appreciate it.

Your next question comes from Todd Brooks of The Benchmark Company. Your line is open.

Hey thanks. Good morning gentlemen.

Good morning Todd.

Good morning Todd.

I want to dig into licensed branded products a bit. First, do you have at your fingertips the Arby's number for Q1? You talked about the other three key brands.

Give me a second here. Dale, if you get it before I do, feel free.

So, for the quarter, Todd, Arby's was about $3 million.

Okay, great. Thanks Dale. My follow-up: is there seasonality to demand for these licensed products between the September quarter and the June quarter? I know we saw some impacts last year possibly related to Horse Cave ramp-up. We've seen a sequential downtick of about $7 million in the September quarter by my estimate. Can we talk about seasonality for those products?

My sense is this really isn't a seasonal business. Sister Schubert is a highly seasonal brand with spikes around Thanksgiving, Christmas, and Easter, and gravy would show seasonality, but most of our sauces are level-loaded across periods. What can drive period-to-period differences are launch-related elevated displays and end caps that can create spikes and then normalize. You may see brands like Buffalo Wild Wings have more focus around March Madness and football, which creates some timing effects, but Olive Garden dressing is more of a year-round business with a small post-New Year salad spike. Overall, the sequential changes you've seen are likely lapping launch and merchandising timing rather than fundamental seasonality.

Okay, great. My follow-up: can you snapshot the licensed branded product portfolio entering the end of this year versus the end of last calendar year 2022? How much broader are the offerings—pack sizes, flavors, distribution—and did Horse Cave allow you to open different channels? Also, can you discuss growth outlook for these products across fiscal 2024?

When you look at the business overall, the change we're talking about in Q1 for all of our licensing was about $26 million, roughly 30% growth. We feel good about growth from the licensed proposition. Specifics: last fall we launched a 24-ounce size for Chick-fil-A and then in the spring expanded distribution with barbecue and Sweet & Spicy Sriracha. In the spring we also launched Chick-fil-A refrigerated salad dressings in four flavors, which produced $10 million in retailer sales this quarter. For Buffalo Wild Wings, we launched two incremental new flavors. For Olive Garden, we launched a Caesar dressing that is performing well. We announced Texas Roadhouse previously, but that is not expected to be in-market until later in the fiscal year. Altogether, that's perhaps seven or eight new SKUs with the 24-ounce size being a big driver as loyal consumers trade up to the larger size; all of the items are contributing. On capacity, we have enough capacity to support growth of our own brands, branded bottles and licenses. Horse Cave has sufficient capacity; we could add shifts if demand required it.

Overall, we feel really good about the platform. If you go back to 2022, we generated 28% growth in net sales, around 30% in 2023, and we expect to continue to drive strong growth behind this platform, enabled by new items Dave mentioned and the Horse Cave capacity expansion.

With capacity at Horse Cave, are there opportunities to expand into channels you may have deferred before—club, drug and dollar channels—especially with larger pack sizes? There was good pre-pandemic work on drug and dollar channels. Where do you stand on revisiting those opportunities?

It continues to be an opportunity, but licensed partnerships require the partner to weigh in on which channels they want their products in, so we don't always have full latitude. Recently, Olive Garden has been building distribution in the drug channel and performing well, and Buffalo Wild Wings has been taken into club with some rotations planned this fall, including Costco and others. This is an active and ongoing discussion. The nuance is we have to bring our restaurant partners along; they're smart operators but not always CPG experts, so our sales and marketing teams work to educate and align them on channel strategy.

Perfect, very helpful. Thanks guys.

Your next question comes from Alton Stump of Loop Capital. Your line is open.

Alton might be having a technical difficulty. We can certainly bring him back if you'd like to go to the next caller, operator.

All right. If there are no further questions, we will now turn the call back to Mr. Ciesinski for his concluding comments.

Thank you and thank you, everybody, for joining us this morning. We know it's a busy time with lots of companies reporting. So, thank you for joining us and we look forward to talking to you in February when we report our second quarter results. Have a great rest of the day.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.