MGPI reassures investors

- Last updated on GMT

Related tags: Carbohydrate, Wheat

Despite acknowledging last week that considerable investments in
R&D and production facilities, designed to support the low carb
surge, would impact sales in the first quarter of 2005, wheat
protein and starch supplier MGP Ingredients, delivered an upbeat
message yesterday to investors.

"Fiscal 2004 was the year in which we made our greatest strides toward evolving to a customer-centric specialty ingredients company,"​ said Ladd Seaberg, the president and CEO of the company.

He added that MGPI's​ goal for the year ahead was to evolve its product line focus towards foods that fit specific nutritional profiles. The firm also expects to enhance its grain science technology, patented technologies and research and development investment.

Seaburg noted that a further aim for 2005 is to improve financial discipline.

"MGPI will target earnings and cash flow growth by focusing on productivity of fixed assets, aggressive management of raw materials costs, improved inventory management and cost controls,"​ said the company.

Until now the company has enjoyed soaring revenues on the back of the low-card fad, that has recently started to show some signs of slowing down. MGPI said last week that it expected fiscal 2005 first quarter earnings 'to be substantially lower' than earnings in last year's first quarter.

For the first nine months of 2004, sales of the firm's speciality ingredients, consisting mainly of wheat proteins and starches, increased by nearly 100 per cent from the year before. And in February this year the firm reported a net profit for the quarter ended 13 December of $1.8 million (€1.5m), a massive leap from $48,000 the year before.

"Orders for our low-carb products were lower for the quarter than we anticipated and down from the level we experienced toward the end of fiscal 2004,"​ confirmed Ladd Seaberg, president and chief executive officer of MGPI.

In June this year MGPI reported that opportunities for growth had come from the growing fad for the low-carbohydrate Atkins diet that had upped demand for its speciality wheat protein isolates - Arise - and FiberStar 70, the firm's resistant wheat starch.

"They are attracting a tremendous amount of attention for both their functional and nutritional qualities in creating high-protein, low-carbohydrate products,"​ Mike Trautschold, vice president of marketing and sales at MGPI said at the time.

The Atkins regime, that promotes protein consumption over carbohydrates, has been eagerly taken up by US and UK consumers. With an estimated 30 million followers, food makers have invested time and money to launch a raft of new low-carb 'friendly' products onto the market.

According to Productscan Online, only 3.8 per cent of new food and beverage launches in the US in 2003 were no- or low-carb products (compared to 2.1 per cent the year before). This year, the figure has jumped considerably to 17.9 per cent, meaning that 2585 products were placed on the supermarket shelves this year in comparison with 633 in 2003.

However, some industry observers believe the low carbohydrate dietary regime might have peaked, particularly because last month Atkins Nutritionals' announced it had hired a turnaround specialist to help it cope with tough competition from rival food companies.

There has also been a decline in SKUs (Stock Keeping Units) of no- or low-carb foods and drinks across the US in the last three months, decreasing from 633 SKUs in June, to 306 in July and 209 in August.

Seaberg acknowledged that without an upturn in the low-carbohydrate area, the first quarter 2005 earnings guidance would be difficult to achieve.

"The low-carb market is currently exhibiting a high degree of volatility, and we are managing through this transitional period by ratcheting down production within that group until order activity improves,"​ said the CEO.

The wheat-based resistant starches supplied by MGPI are based on a technology invented by Kansas State University grain science researchers and subsequently patented in 1999 by the Kansas State University (K-State) Research Foundation. In March 2003, the research foundation licensed the technology exclusively to MGP Ingredients.

The patent covers a special modification of any starch derived from the cereal grains, roots, tubers and legumes; for example, from wheat, corn, oats, rice, potato, tapioca and mung beans. Any product that uses flour can be made with these resistant starches, including breads, buns, crackers, biscuits, chips and pastas.

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