Dale Ganobsik - Director, Investor Relations Jay Gerlach - Chairman and Chief Executive Officer Doug Fell - VP, Treasurer and Chief Financial Officer.

Phil Terpolilli - Wedbush Securities Jason Rogers - Great Lakes Jeffrey Thomison - Hilliard Lyons.

Good morning. My name is Stephanie and I will be your conference operator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2015 Fourth Quarter Conference Call. Conducting today’s call will be Jay Gerlach, Lancaster Colony Chairman and CEO; and Doug Fell, Vice President, Treasurer and CFO.

All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer period. [Operator Instructions] Thank you. And now to begin the conference call, here is Dale Ganobsik, Director of Investor Relations for Lancaster Colony Corporation..

Thank you, Stephanie. Good morning, everyone and thank you for joining us today for Lancaster Colony’s fiscal 2015 fourth quarter conference call.

Let me begin by reminding everyone that 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. With that said, I will now turn the call over to Lancaster Colony’s Chairman and CEO, Jay Gerlach.

Jay?.

Thanks, Dale. Good morning and thank you for joining us. We are pleased to report a strong fourth quarter finish to fiscal 2015 given the slow start to the first half of the year, we are encouraged by the better second half allowing the full year to show growth in sales and operating income of about 6% and 1% respectively.

Turning specifically to the fourth quarter, net sales increased over 7% with strong foodservice channel growth exceeding 9% and retail channel growth of over 4%. Our recent Flatout acquisition made the difference in the retail channel where sales would have declined modestly given the Easter shift.

Overall, Flatout provided over half of the sales growth in the quarter. Sales mix in the quarter saw retail near 50% down about 1% from a year ago. Food segment operating margin grew in the quarter 166 basis points aided by growing sales, improved plant operations, lower ingredient costs and good control of consumer and trade promotional spending.

While we did see ingredients cost down in the mid-six figure area, egg cost shot up significantly in the quarter with more impact to come as we move into fiscal 2016. Plant operations continue to show benefit from the capacity expansion completed in December for our dressing and sauce products.

Consolidated net income and earnings per share from continuing operations grew 22% year-over-year in the quarter against a somewhat weak comparison given last year’s service challenges. The full year saw sales up 6% with good volume growth, the addition of Flatout and minimal pricing.

While full year operating margins were off modestly, we did show growth in operating income, net income and earnings per share versus last year.

Regarding sell-through data for the quarter, based on IRI through July 12, we saw growth in croutons; saw share growth in croutons, produce dips and garlic breads with some share declines in refrigerated dressing and frozen dinner rolls. The frozen dinner roll category is the only one not showing growth.

We maintained our leadership position in all these categories. Let me ask Doug to go ahead and make a few comments..

Thank you, Jay. In general, many of the line items within our balance sheet as of June 30 were affected by the acquisition of Flatout Holdings on March 13. I will comment on some of the larger line items.

Turning first to our accounts receivable, these increased modestly from the prior year June level with about $2.6 million of the increase relating to Flatout and most of the remaining increase due to the stronger sales volumes. Consistent with past quarters, we continue to see our overall agings remain solid.

With respect to our inventories that totaled nearly $78 million at June 30, nearly all of the increase related to the inventories of Flatout.

While generally immaterial, I do wish to point out the fourth quarter of fiscal 2015 reflected non-recurring charges of approximately $500,000 relating to the step-up in the fair market value of the acquired inventory of Flatout. With the inventory step-up charges now fully accounted for, we will not incur charges of this type going forward.

Consistent with our previous call commentary, in general, the net working capital needs of Flatout are proportionally similar to those of our existing business. The Flatout acquisition contributed $6.9 million in fixed assets as adjusted to their fair market value.

Adjusting for this transaction, the net balance of property, plant and equipment remain comparable to the prior year June total as our fiscal 2015 capital expenditures of nearly $18.3 million were offset by depreciation expense of $18.9 million.

As mentioned in our past calls, the largest capital expenditure this fiscal year related to our dressing capacity expansion project at our Kentucky facility.

With respect to other assets, the large increase since June of last year reflects our preliminary estimates of the identifiable intangible assets and goodwill associated with the Flatout acquisition. Amortization expense relating to the intangible assets of Flatout totaled about $600,000 in the fourth quarter of fiscal 2015.

With respect to our balance sheet capitalization, we continue to have no debt and over $580 million in total shareholders’ equity. In light of the use of $92 million in cash in March to fund the Flatout acquisition, we ended the fiscal year with over $182 million in cash and equivalents as we continue to benefit from strong operating cash flows.

Given our balance sheet posture, we continue to possess considerable flexibility to address our foreseeable cash requirements, including the support of our future organic growth initiatives, acquisition opportunities, continued dividends and share repurchases.

Finally, our current quarter and year-to-date effective tax rate of approximately 34% remains consistent with that of the prior periods and in line with the guidance we’ve previously provided for fiscal 2015. Thanks again for your participation with us this morning. And I will now turn the call back over to Jay for our concluding comments.

Jay?.

Thanks Doug. We began fiscal 2016 with good momentum off the second half of last year in an economy that seems to be moving ahead with the addition of Flatout and focus throughout the organization on improving operational efficiency and cost controls.

However, we are not without headwinds which include much higher egg cost, select areas of tight production capacity, the challenging frozen dinner roll category and plenty of competition. With much higher egg cost today, in an unclear future, we have implemented price increases going into effect this quarter with further changes already planned.

To-date, we have not had supply constraints impact our ability to service our business. While our capacity addition last year for dressing and sauces has given us much needed relief, we do have certain specific capabilities where we are tied on capacity, which has us doing select outsourcing.

We are also making some modest capital investments to enhance our capacity where needed. We feel we have developed a comprehensive plan for this year to support our Sister Schubert’s frozen dinner roll line, which includes expanded consumer and trade promotion activities both traditional and digital.

We see strong competition across our channels and categories, so successful product innovation will be an important competitive tool. We feel we have a good and expanding pipeline of new products for the coming two to three years.

Recent introductions off to a good start include our New York brand Soft Pull Apart rolls and Simply Dressed Avocado Ranch Dressings and Sriracha Ranch Dressing and Veggie Dips. We are optimistic about our New York brand breads, New York brand’s snack sticks and salad kickers just recently introduced.

Upcoming product introductions will include, Marzetti Vineyard Dressings, which are a wine-based salad dressing and a flavor cooked vegetables Marzetti Veggie Drizzles. Also of importance will be continued work to simplify our ingredients and existing products.

This effort is ongoing in both channels of our business to address today’s consumer preference for foods with a shorter and simpler list of ingredients. It can be a challenging and time-consuming work as key factors like existing taste profiles and shelf lives need to be considered.

We have no major capital projects in our plans for this year although we do have a variety of cost reduction and capability and/or capacity projects planned. At this point, we would estimate the year’s capital investment to be in the range of $15 million to $20 million.

Acquisitions continue to be of interest and our focus is for branded retail channel businesses with product that is broadly on trend. With our presence in the deli department, we would be interested in expanding there, but could find potential in any part of the store.

We continue to have about 1.4 million shares available for repurchase, although we repurchased less than 10,000 shares in fiscal 2015. Dividends are regularly discussed with our directors and we certainly want to keep our long track record of annual increases live. Stephanie, those conclude my comments. We are ready to take questions. .

[Operator Instructions] Our first question comes from Phil Terpolilli with Wedbush. Phil, your line is open. .

Yes, can you hear me?.

We can hear you now Phil. .

Good morning. .

Good morning..

Jay, it seems like there was a lot of puts and takes in the prepared remarks just around some of the margin impacts for next year, I think you mentioned the avian flu, maybe some efficiencies, the capacity expansion.

If you sum everything together and maybe kind of walk us through how you would get there, but do you think that price increase as well, do you think you get operating margin actually growing here in fiscal 2016?.

Well, Phil, as you know, we don’t give specific guidance but it certainly would be our goal to do that. Probably, the biggest wild card at least near-term here is, egg cost and how that may play out.

Overall, demand is always a key factor and while we are optimistic on the outlook from a sales standpoint for 2016, you never know what can change during the year, but egg cost, as you know are up dramatically. The outlook is very unknown at this point but those prices are still at high levels today.

So we have implemented some pricing, we’ll be implementing some additional pricing and both those are such moving targets at this point it’s hard to really put any kind of even ballpark estimate on their impact..

Right, okay, that’s helpful. Couple others real quick. Refrigerated dressings, I think you mentioned that you may have lost a little bit of share in the quarter.

I know there was some new product innovation coming out, anything else competitively maybe going on there, maybe BoatHouse getting little more aggressive or any of the other competitors in the space?.

I would say that the category is – overall, it’s pretty competitive, it’s got more players it would have just two or three years ago including some relatively new entrants and just the arrival of those can nick away a little bit of shelf space and growth potential.

So, yes, we did lose a modest amount of share in the most recent period; maintain a leading position in the category. The Marzetti Vineyard Dressings I mentioned though have a relatively select rollout. Those are refrigerated dressings; it will be merchandized in the produce department as well.

So hopefully, we’ll have some added innovation coming into that category also. .

Right, okay, on Flatout, any idea, I think you did break it out, any idea kind of year-over-year if we are looking at our model, what that business was maybe up? I know you understand you own it last year, but should we have a sense of kind of how it’s doing and maybe any sort of color around the new products you’ve introduced there that would free the high protein, how those are going as well?.

Phil, not able to quantify specifically the year-over-year growth of Flatout, but we are seeing a little bit of an improvement in sales. The new product, I think, particularly the new protein up product is getting good placement. It seems to be getting good initial sell-through with the consumer.

Gluten-free is off to a slower start, okay placement, but slower sell-through to the consumer. So, both relatively recent in the marketplace at this time, they were both being introduced at the time of the acquisition and that transition. So don’t know whether any of those activities distracted a little bit from getting those fully introduced.

But I think we are optimistic about both of them, but at this point, I think the protein up looks like the stronger of the two. .

And Phil, if it helps at all, the annual run rate on the Flatout when we purchased them was about $46 million that was in our press release back in March..

Right, okay. And just last thing, you mentioned a little bit on M&A, but, what have you seen kind of year-to-date, is the pipeline relatively consistent, little bit slower, little bit faster, it’d be helpful as well? Thanks. .

No, I’d say it’s relatively consistent, I think we are in kind of a little quieter point right now at this time of the summer which we typically see, but, yes, I’d say it’s generally consistent..

Okay, great. I appreciate it. Thanks guys. .

Thank you..

Your next question comes from Jason Rogers with Great Lakes. .

Good morning, Jason..

Good morning.

Do you have the total impacts from ingredient costs and pricing for fiscal 2015?.

Overall, the pricing for ingredients was about mid seven-digit figure, favorable, favorable, sorry about that. .

All right, and the ingredient cost?.

That was ingredient, I am sorry, pricing was up just modestly, I don’t know that it barely cracked seven-figures for the year. .

I would agree..

Okay.

And, you mentioned egg cost lowering, but also soybean oil, which is your largest food input cost has come down pretty dramatically and I was wondering if you can give an outlook on your total food ingredient costs going forward as well as freight?.

Well, if you talk about ingredient cost, ex egg, because that’s just been so volatile and changed so dramatically with the unknown outlook; take that out of the mix completely our outlook for the full year would be a modest decline in ingredient cost with soybean oil being a key factor there..

Okay, and I was wondering if you can give an update on the operational improvements you made in the Dressing and Sauce facility expansion, if those are coming in as expected..

You know, they are, Jason, but a little later than we anticipated, but what we have think at this point you can seen the benefit of those over the last – really over the entire fourth quarter and even as we move into the first and probably will be a little more incremental benefit over the next couple of months at that point we’d probably reached our expectations.

.

And the price increase that you are implementing, that in both the food service and the retail channel and about what is the amount of the increase?.

You know, it is in both channels. The amount is very slightly depending on the level of egg content and particular product and the whole scheme of things.

Again, it’s just an unknown to where we are headed here, but, pricing coming off of egg across the entire business is relatively modest, low single-digit kind of percentage, but individual items, would be moving significantly.

In addition to pricing, and I don’t think I mentioned earlier, we are looking at opportunities to a kind of reformulating both in just reducing the content of eggs perhaps using some egg substitutes, all dependant on customer and consumer preferences of that taste impact..

To this point, you’ve had no disruptions in egg supply, correct?.

That’s correct, in a total basis, we’ve had some suppliers that had some issues, but we’ve had others that are able to cover that for us. So we’ve not had any problem servicing our business. .

And then finally, one of you could provide an update on Presto Pasta?.

Presto Pasta, we are withdrawn from the market. It did not reach the expectations we anticipated. So, it might still be a little bit at on store shelves today, but we are not moving forward with that..

Thank you..

You are welcome..

[Operator Instructions] Your next question comes from Jeffrey Thomison with Hilliard Lyons. .

Hi, good morning. Congrats on an excellent quarter. .

Thank you. .

I had two topics I wanted to ask you about, and you touched on both, well, I thought I would just put them back on the table for a further discussion. One is the food service operations.

I wondered if we could drill down a bit, and look at what else going on there to spur things, I wonder if there are macro factors, industry factors or company-specific factors at play that are leading to a bit of a boost there in helping that business.

And then the second question, Doug, little bit more, kind of the CapEx how – like I believe I heard you gave a number of $18 million CapEx last year and then for the current year, I believe you said $15 million to $20 million.

So, essentially, kind of flat CapEx whereas I thought the CapEx may have been lower coming off your Dressings plant expansion project last year.

So, just wanted to clarify where the CapEx stood?.

Jeff, it’s Jay. Maybe on the first question on food service, I think that the drivers are kind of all the above, from a macro standpoint, I think in an improving economy it seems to be helping the restaurant business pretty much across the board and a lot of our national chain accounts are seeing improvements in their business.

We do also then have customer-specific situations where they are seeing maybe above average growth driven by whatever – whether it’s product innovation or their marketing and promotional activities.

So we have that benefit and then tied in with that, our limited time offers which it can vary customer-to-customer and time period-to-time period how much activity there is there. But we’ve seen a pretty solid stream of that kind of activity going on as well. So all those things have been helping the food service channel of our business.

I’ll let Doug comment on the CapEx..

Okay. .

And on the CapEx, Jeff, the range that Jay gave in his commentary is that at the range, there is going to be an influence of several factors there and I appreciate your thought in terms of perhaps CapEx being lower this year.

But, as we look out into fiscal 2016, we do see some specific pockets of CapEx that are going to be necessary to balance supply and demand if you will and those have a little bit of a price tag to them.

And so, it’s still being developed if you will, ultimately how much of that CapEx we will expend in the current year and so I would take that Jay’s commentary as general guidance for right now. .

But then, when you have that range, you are – the comparison will be 18.3 from last year?.

That is correct..

Okay.

Okay, and then just back on the food service, just to make sure I am clear that the pricing benefit that could happen or when you were talking about pricing benefits, were you talking about fiscal 2016 outlook or did you also have pricing benefit in the just completed fiscal 2015 year?.

No, there wasn’t a pricing from the food service standpoint in 2015. In fact, there might have been even a little deflation going on in 2015 coming off the lower soybean cost. So the pricing inflation that will be both on the retail and food service side is going to be again egg cost-driven at this point.

And that is starting to a degree this quarter and again the output is just hard to predict as to how far they have to go..

Okay, and when you are talking about your customer base on food service, do you have any customers that are saying net growth on the restaurant side of things, net growth and the number of units they operate?.

We do have some that are, yes..

Okay.

But then, just unit volume will be another driver?.

Yes, that would certainly be a factor, absolutely. .

Okay. That’s all for now. I may circle back with you later today..

Okay, great. Thank you, Jeff. .

Thank you..

If there are no further questions, we will turn the call back over to Mr. Gerlach for concluding remarks..

Again, thank you for joining us today. We look forward to talking to you in late October with our first quarter results..

Thank you. This concludes today’s conference. You may now disconnect..