Dale Ganobsik – Director of Investor Relations John Gerlach – Chairman and Chief Executive Officer Douglas Fell – Vice President, Treasurer, and Chief Financial Officer.

Brett Hundley – BB&T Capital Markets Frank Camma – Sidoti David Stratton – Great Lakes Review.

Good morning. My name is Susan and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2016 First 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, Susan. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal 2016 first 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'll now turn the call over to Lancaster Colony's Chairman and CEO, Jay Gerlach.

Jay?.

Thanks, Dale and good morning. Fiscal year 2016 is off to a very good start following the strong finish to 2015. Our first quarter saw a sales increase just over 13% and operating income, net income and earnings per share increased 21% from last year's first quarter. Earnings per share reached the $1 up from $0.83 last year.

Food segment operating margins reached 15.3% up from 14.4% a year ago. Last year's first quarter was challenged by inefficient plan and operations due to capacity constraints, IRI product inductory costs and IRI freight cost.

This year's quarter benefited from the capacity addition brought on-stream in January, limited product inductory costs, lower consumer spend and slightly reduced freight cost. Partially offsetting these positives was the significant increase in egg costs. Lower soybean oil and dairy costs help to offset some of the egg cost increase.

Our acquisition of Flatout contributed about one-third of our total net sales increase, our remaining business grew over 8% with both our retail and food service channels showing good growth. Marzetti refrigerated dressings, Olive Garden dressings and New York Brand croutons were all of good contributors to our retail channel growth.

Food service growth was up by sell through of existing customers including some incremental limited time offer promotions. While we implemented pricing actions in both channels during the quarter, primarily to offset the steep increase in egg cost, the actual realization was constrained is our pricing actions typically lag the trends in cost inputs.

We expect greater benefit from this pricing in the second quarter. With the benefit of Flatout, our retail mix in the quarter improved to 50.5%, up a 110 basis points from last year's first quarter. Looking at IRI sell-through for the 12 weeks ending October 4, we held our grew share in four of our six key categories.

Our most challenging category continues to be frozen dinner rolls where both the category and our Sister Schubert brand show declines. As we entered the very important holiday season for this brand, we feel we have a very comprehensive and attractive promotional plan, hopefully the consumer will respond favorably.

We maintain our leadership position in all six of these categories. Let me now ask Doug to make a few comments..

Thank you, Jay. The comparative September and June 30 balance sheets reflect our acquisition of Flatout Holdings on March 13. I refer you to my commentary from our last earnings call regarding the core working capital components of Flatout. Consistent with our expectations, little has changed since June 30 relative to its working capital.

I will now comment on some of the larger line items within our balance sheet that have changed since June 30. Turning first to our accounts receivable, these increase nearly $12 million from the June level. In general, the increase reflects the stronger sales volumes experienced in the month of September versus June.

Consistent with past quarters, we continue to see our overall agings remain solid. With respect to our inventories that totaled $90 million at September 30, the $12 million increase since June 30 primarily reflects the seasonal build of retail inventories for our second fiscal quarter.

Typically, our second quarter is our largest quarter for retail sales. As mentioned in our past calls, in the first half of fiscal 2015 without executing our dressing capacity expansion project at our Kentucky facility. We do not have a similar project of this size and process at September 30.

Consequently, our capital expenditures of approximately $3.4 million for Q1 were offset by depreciation expense of a similar amount. The increase in accounts payable since June 30, generally reflects the influence of higher sales volumes and the related seasonal increases in inventory mentioned earlier.

The primary increase in accrued liability since our past year-end, reflects a higher accrual for better income taxes along with other increases and accruals related to our higher sales volumes such as freight. With respect to our balance sheet capitalization, we continue to have no debt and nearly $597 million in total shareholders' equity.

Likewise, we ended the quarter with nearly $200 million in cash and equivalents as we continue to benefit from strong operating cash flows.

Given our balance sheet last year, we continue to posses considerable flexibility to address our foreseeable cash requirements, including those supportive of our future organic growth initiatives, acquisition opportunities, continued dividends and potential share repurchases.

Finally, our current quarter effective tax rate of approximately 34% remain consistent with that of prior periods and in line with our expectations. 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 our second quarter with a positive view of organic sales growth in addition to the benefit of Flatout. This quarter is the strongest seasonally for a number of our retail products, including Sister Schubert dinner rolls and our Marzetti [indiscernible].

We also hope to benefit from recent new product introductions including our Marzetti Vineyard Dressings and Veggie Drizzles now starting to get on store shells. We expect food service channel sales to continue to rise, generally aided by strong growth with certain chain customers.

We do not see any short-term related from higher aid costs, the impact on our material costs could be meaningful but with more pricing in effect to help offset the impact. Our plant call for higher promotional spending in last year both consumer and trade.

Operating cost should continue to be help by the added capacity in overall efforts to improve plant for efficiency. We will however continue to be pushed on capacity in certain areas with immediate future. We continue our acquisition serve focused on branded retail products that would generally be viewed as on trend and a good strategic fit.

No shares will repurchased in the quarter and we spend about $3.4 million on capital projects. As typical at our upcoming November board meeting, we will review our cash dividend for potential increase. Susan, we're ready to take questions..

[Operator Instructions] Your first question comes from the line of Brett Hundley of BB&T Capital Markets..

Hey, good morning, gentlemen, and thanks for the time..

Sure. Good morning, Brett..

Good morning..

I have a few questions.

Doug, do you have the volume performance during the quarter?.

The volume performance is roughly around 8%..

Okay, okay. And honestly, your volume performance I'm not sure your sales goals is clearly very strong, especially relative to your peers. And the market environment is such that I think that customer exposure becomes increasingly important.

And I'm wondering if you can talk to – not specifically of course, but I'm wondering if you can talk to that the customer exposure that you might have both on the retail or the food service side, and how you believe that that’s benefitting you in this environment?.

Well, you know Brett, I think on the retail channel of the business, I wouldn’t point to any dramatic changes there, obviously the addition of the Flatout gets us into the deli department and presence with that particular brand and product line as it relates to the rest of our retail channel products.

I think it's incremental improvement but nothing dramatically different overall.

On the food service channel, as we've referenced in the past we're selling 19 of the top 25 restaurant chains there haven't been any additions in the current quarter to that, we may have added a smaller chain or two over the past quarter or two, but nothing significant as far as new major customer share.

Having said that, I think we continue to find opportunities to sell existing customers additional product.

And then the benefit of these limited time offers that that times hard to predict and don’t always line up from a comparative basis on a year-over-year standpoint in a similar fashion and drive that business a little bit more so than the general trends in the restaurant trade..

Okay. And Jay, we've heard reports over this past quarter of a large mass merge customer pushing for some pretty heavy discounts from vendors.

And I'm just curious if Lancaster was negatively impacted materially in the quarter or if you largely saw business as usual?.

Generally business is usual Brett..

Okay. And then I wanted to ask you Jay about the plan you talked about on your frozen rolls. You've talked a little bit now for the – I guess the pressure in that category. And I'd just be curious to learn more about the plan you have in place as you're into the Q2 now..

Well, as we typically do – going into the holiday seasons we try to put a total plan together both from a trade standpoint, so ideally getting the best merchandising decisions on the retail shelf as well as consumer support around that.

And I think this year on the consumer side we've tried to be as all encompassing as ever with the use of kind of traditional FSI kind of coupon support to a expanded use of digital, both from a coupon as well as an advertising standpoint.

And for the first time this season in Sister Schubert's core markets we're going to do some television which is new for us generally as well as specifically for this brand. So overall we think we've got a very strong both consumer and trade program in place that we hope we'll make a difference from a consumer sell-through standpoint..

That’s helpful. And then just two more from me. It might be tough to answer but you guys of course talked about marketing and promo cost uptick going forward here. And I'm just wondering if you can couch that a bit further for us.

Your operating margin performance was a bit stronger than expected during the quarter and there is always a lot of puts and takes to think about as we model your consolidated operating margin.

And so I'm trying to think about an increase in marketing and promo costs relative to last year but also relative to other pluses and minuses that maybe effecting your margin profile going forward.

And so as you can, as we think about Q2, can you maybe just lead us through some of the puts and takes that might affect margin, of course, again you talked about marketing and promo, you also should have better pricing in place on the ad coverage side. So just wanted you to talk about qualitatively about that..

Well, Brett, probably still the biggest issues going to be the egg cost headwind. Overall we might anticipate the whole ingredient debt to be up maybe in the mid seven figure area with the plus being especially on the egg side and some of the benefit being over on, so on soybean oil and dairy costs.

Promotional expenses probably in the low seven figure area of an increase year-over-year plus or minus a little bit there. Freight cost in general I think we'd expect to be generally flat, so what I am think about Doug down here..

Plan operations..

Yeah, plan operations, we do expect to continue to show some improvement year-over-year in the capacity additions didn’t start to come on screen until the first of this current calendar year. So still we're challenged working through the December quarter of last year there..

Okay, and at least related to the egg cost headwind I understand that that remains a big issue from a standalone cost basis but from a impact to margin standpoint you should have more price coverage in place during Q2, thus I would expect the margin hit to be better in Q2 relative to Q1..

We would anticipate that, all right..

Okay. And then the last question from me, I appreciate either Jay or Doug is I wanted to just talk about your balance sheet for a minute. You continue to hold a fantastic balance sheet roughly $200 million in cash. And I wanted to explore potential for a special dividend and understand how you think about that, clearly as you evaluate M&A.

Depending on what you see out there and what kind of return you see, what is your openness to a special dividend and when do you think that you would look at something like that? Thank you..

Brett, that’s something we do talk about from time-to-time. We do feel it's certainly a potential opportunity for the shareholders. It's obviously relatively easy to implement so you can't do it in a relatively short period of time.

Our priority still remains on investing in acquisition growth potential and we do continue to actively look at a lot of opportunities in the market, not seeing a lot that we would consider to be great fits as we speak today but there are opportunities out there and we continue to explore those. So, it's something we do consider and will consider.

We don’t want to just accumulate cash on the balance sheet definitely, so as you know we've done a couple special dividends over the last seven or eight years when we've gotten into a situation, not a lot of different than where we've been today. So it is something that we do talk about from time-to-time..

Thanks so much for taking my questions..

You're welcome..

Thanks, Brett..

Your next question comes from the line of Frank Camma of Sidoti..

Good morning, guys..

Hi Frank..

Hi Frank..

Good morning, Frank..

Nice quarter..

Thank you..

So you had a number of new products here that called out in the press release.

I was just wondering if you could talk about any of these that’s specific, I mean obviously you go in with the position that is all going to do well but have any done have exceeded your expectations at this point or is it too early to say I was wondering if you could just give some color on that..

The newest ones are the Marzetti Vineyard Dressings and Veggie Drizzles and it is too early there to tell other than the trade reaction has been very positive to both those, but just now getting on the shelf, so I really don’t have a strong feel for how that’s going to play out with the consumer yet..

Okay. And could you talk about you mentioned Flatout and I wish we've talked about this in the past about how you can overtime utilize that to gain more access into the deli section.

Has there been any specifics that you can mention either happened in the quarter that you will soon do with other products?.

Frank, at this point no, nothing real specific to talk about there but we obviously are getting some experience now and work into the deli with the Flatout brand and with the team that we brought over from Flatout has been very helpful and helping us learn and understand that category of decision market.

So we do anticipate we can take advantage of that hopefully with some product innovations and perhaps some of our existing product with that more importantly acquisition ideas..

Okay, good.

It reminded me, is the Flatout's capacity that you purchase, is that have enough capacity going forward for your growth or do you need to add expenditures to build that out?.

It's a fair amount of growth capacity available today, yes..

Okay. And the final question is just on the food service side. Obviously you're seeing good growth there too.

Was the strength – you have good exposure obviously, but just wondering if the strength was kind of across the board or were there specific name your customers but it wasn’t just specific customers that kind of pulled that up?.

It's kind of a combination of three things Frank. One is just the general industry I think is stronger and see the growth. And then there certainly are some change that are outperforming and we are fortunate to be aligned with two or three of those that are doing better than average.

And then the third would be again these limited time offers where we have some strong events like that going on during the quarter..

Okay, got you. Thanks guys..

You're welcome..

Thanks..

Your next question comes from the line of Phil Terpolilli of Wedbush Securities..

Hi, good morning guys. This is [indiscernible] on the line for Phil. Thanks a lot for the time this morning..

You're welcome..

Going through the question I had setup, it was the question and the setup were already asked but I was wondering if maybe you could provide a little bit more color on the expectations with increased marketing and promotional spend? In fact I know you guys said it was going to be high gear towards Sister Schubert in the second quarter.

Is that something you guys expect to remain elevated throughout the end of the year or do you guys expect to kind of reallocate that towards some of the new products as well, if you can provide anymore color on that that'd be great..

Well, yeah we do have the uptick that’s particularly targeted with Sister Schubert in the second quarter which is their seasonable, seasonal peak period but we do anticipate more consumer spend year-over-year throughout the balance of the fiscal year and that is across different products, different brands over that period of time..

Okay, so it should be sustained with that, okay..

Yes..

And actually that takes all my questions. Thanks a lot for the time today guys..

You're welcome. A - Douglas Fell Sure, thank you..

Your next question comes from the line of David Stratton with Great Lakes Review..

Good morning, thanks for taking the call..

Hi David..

Good morning, David..

I just have one question about the Avian Influenza and that is as a suspect at the migratory birds took at north and there could be a repeat of migratory birds bringing it then the south for the winder.

Do you or your suppliers have any plans in place to ensure that there is a disruption or in some way to mitigate any increases that might come from a recurrence of the outbreak?.

You raise a great point and we all remain a little anxious as to what might happen as the birds do migrate south. We are in constant contact with all of our egg suppliers and well, I don’t think any of them can guarantee or supply. They have been working on certainly increased biometric security around all of their egg producing facilities.

And there has been quite a press on that as you're well aware of. So I think we're in a good position with our suppliers and we use several suppliers, so we're not dependent on any one. And we just remain guarded for the next several weeks and months as we work our way through this period..

All right. Well, thank you very much..

Sure..

At this time, there are no further questions. I would now like to turn the call back over to Mr. Gerlach for any closing remarks..

Well thank you again for joining us this morning. We look forward to talking to you late in January with our second quarter results..

Thank you for participating in today's conference. You may now disconnect..