MGP Ingredients Inc 2026 Q3 Earnings Call

I'd like to thank you all for joining us today on our third quarter 2026 earnings call. For the third quarter, sales came in at $117.9 million, down versus the prior year and in line with our expectations. Adjusted EBITDA of $21.5 million and adjusted basic EPS of $0.39 also declined versus the third quarter of last year. However, both of these key metrics were ahead of our expectations. This quarter reinforces three things about our company. First, we have a right to win in each of our three businesses. In a challenging industry, this means taking the actions necessary today to emerge stronger, better aligned, and more resilient. Our third quarter performance shows the success of our strategic clarity and roadmap as our efforts are having positive impacts and are delivering results. Second, we are doing what we said we would do.

As we previously shared, our ownership cost management mindset has helped offset the pressures in our businesses, and those savings, together with more efficient and effective A&P spending, are the key reasons adjusted EBITDA came in ahead of our plan. Today, we are reaffirming our full-year guidance. Third, our financial strength, cash generation, and cost discipline give us the staying power to win. We saw that this quarter as we reduced total debt by $28 million and ended the quarter with a leverage ratio of 3.6 times. This was ahead of expectations due to better-than-anticipated adjusted EBITDA and strong operating cash flows. Before turning to our segments, I want to touch on three important updates. As we announced on October 15th, we will become Sempreon this Monday, November 2nd, and our shares will begin trading on Nasdaq under our new ticker symbol, CASK.

This is an important milestone for our company. Since 1941, we have grown from a single distillery into a business spanning three separate segments, branded spirits, distilling solutions, and ingredient solutions. Sempreon brings these three business segments together under one corporate identity and represents the next chapter in our company's evolution, building on the legacies of MGP Ingredients, Luxco, and the many businesses, brands, and teams that have joined the organization over time. Our commitment to tradition looking forward captures that well. We are building on the expertise, relationships, and capabilities that have brought us to where we are today while continuing to evolve, innovate, and create long-term growth and value. Importantly, our rebrand does not change the three reportable segments, how we report our results, our 2026 guidance, or our leadership team. Our next earnings call will be our first at Sempreon.

Second, we are also introducing Epic Mash, our internal leadership and shared values framework for how we work together and lead across the company. It represents four leadership attributes, EPIC, which stands for Execution, Performance, Impact, and Care, and four shared values, MASH, Mindset, Accountability, Shift paradigm, and High standards. At Sempreon, we will continue building on the strengths of our three businesses, investing in our capabilities, and pursuing opportunities to deliver for our customers and shareholders. That commitment reflects our new mission, creating moments that matter, building a legacy that lasts. Finally, I want to highlight the significant progress we have made on strengthening our distribution network and route to market. During the third quarter, an additional six markets transitioned to new distributors. As you may recall, we transitioned 10 markets to a large new distributor in June.

As is typical, these distributor transitions included system cutovers, with many of these occurring during the third quarter. As anticipated, this negatively impacted our branded spirit sales volumes in these territories, but we are pleased that our third quarter branded spirit sales, excluding our other category, which is primarily composed of international sales of private label bottled products, were consistent with prior year and ahead of our expectations. Now turning to our business segments. I will begin with branded spirits, our primary long-term growth platform. Third quarter segment sales were $58.2 million, down 4% versus the prior year. Excluding our other category, sales were in line with the prior year despite the distributor systems cutover pressures. This performance is consistent with Nielsen industry trends, which were flat for the 13 weeks ending October 3, 2026, and exceeds NABCA trends, which were down 2% for the three months ending August 31.

Gross profit was $29.2 million, and gross margin was 50.2%, down 280 basis points year-over-year, primarily due to higher costs, partially offset by favorable price and mix. The higher costs largely reflect bottling facility maintenance and outside contractors supporting efficiency improvements. We expect these costs to continue in the fourth quarter, but at a lower rate. Premium Plus sales were down 1% for the quarter, influenced by a planned shift on the position of Ezra Brooks Bourbon, which has moved into the mid-price tier with a reintroduction of a consumer favorite, Ezra 90 Proof. Excluding Ezra Brooks, Premium Plus would have grown by 1.5%. Penelope sales increased 12%, which is particularly impressive because this growth is building on Penelope's 166% sales growth in the third quarter of last year.

In the quarter, Penelope's core expressions, which are composed of the recently introduced Kentucky Straight Bourbons and Rye, as well as Four Grain and Wheated, grew by 35%. Other launches in the quarter included seasonal limited time offerings, Architects of Golf, Cigar Sessions, Chapter 2, and the Estate Collection. Yellowstone declined 23% in the quarter, influenced by the shift of the single barrel program from the third quarter to the second quarter of 2026 and cycling against last year's Ready to Pour launches. However, Yellowstone's core expressions continue to show positive momentum, with Select growing 11% and Toasted growing 38% as we continue to expand digital paid media investments along with revenue growth management initiatives into more markets. Everclear grew 4%, building on the momentum shown in the second quarter and reflecting the continued strength in the brand's core positioning, as well as increased consumer engagement in key consumption occasions.

Our mid and value price brands collectively grew 1% for the second consecutive quarter, comparing favorably to Nielsen-reported declines of 5% and 6% declines reported by NABCA for these categories. Our mid-price brands grew by 6%, led by the successful rollout of Ezra Brooks 90 Proof, the continued expansion of Exotico and Juarez Tequilas, and growth in Saint Brendan's and Arrow. These results show that our stabilization efforts and select investments continue to gain traction as our mid-value portfolio growth was driven by improved execution, targeted price actions, and focused brand support. The results also reflect that value-seeking consumers are turning to established brands they can trust, further demonstrating the importance of this price tier to our portfolio. Innovation remains an important growth lever.

This quarter, we also released MGP Chapter One: Out of the Shadows, a 10-year-old, 111 Proof straight bourbon that brings our whiskey-making expertise directly to consumers under the MGP brand name for the first time. In addition, expanding distribution remains a key strategic priority and an important source of future growth, particularly within national chains. For the third quarter, our Premium Plus portfolio added over 3,500 off-premise points of distribution, led by growing distribution of our Penelope core expressions and Ready to Pour offerings. We also expanded our on-premise chain presence during the third quarter with new programming and distribution in certain national accounts, including menu and cocktail features of our Premium Plus whiskeys and tequilas.

Overall, these results reinforce our confidence that our brand and spirits portfolio is becoming increasingly stronger, more focused, more balanced and diversified, and equally importantly, able to cater to consumers across the broad economic spectrum. Turning to Distilling Solutions, third quarter sales were $29 million, down 29% year-over-year, and gross profit was $9.4 million, was down 34%. Gross margin was 32.4%, down 230 basis points. We continue to make gradual progress on the actions within our control and continue to believe we are well-positioned to compete in a very challenging market where the industry remains oversupplied at elevated barrel inventories continue to weigh on both demand and pricing. These dynamics contributed to our own brown goods sales decline of 47% for the quarter. Despite the difficult backdrop and increased reliance on spot sales, our brown goods sales were ahead of expectations for the quarter.

Our large national and multinational customers remain focused on reducing inventory and preserving working capital rather than making new long-term commitments. As a result, we continue to expand our offerings to all customers with opportunistic aged whiskey sales, white goods offerings such as premium GNS and gin, and other value-added services. Premium white goods sales to large national and multinational customers increased during the quarter, driving our 32% year-over-year increase in sales of white goods and other co-products. As industry dynamics are shifting, our strategy has evolved to focus on expanding into ready-to-drink and private label customers using the breadth of our product offerings and our differentiated value proposition.

On a year-to-date basis, total product sales to this customer set have grown 90% versus prior year, representing more than 25% of total brown and white goods product sales, demonstrating the success we are having with this important and emerging customer segment. In addition, our warehouse services grew 3% compared to the prior year quarter and represented 29% of segment sales. Operationally for the quarter, the business achieved lower distillation costs, driven by higher white goods production volumes and our cost savings initiatives. We continue to believe our long-term customer relationships, reputation for quality, and our diverse and expanding product offerings uniquely position us to win as the industry normalizes. Turning now to ingredient solutions. Third quarter sales grew 5% to $30.8 million. Specialty wheat protein sales, which include texture protein sales, grew by 15%. Sales of biofuel and other byproducts also increased.