Lancaster Colony (NASDAQ: LANC) primarily makes specialty foods like salad dressings, frozen breads, and fruit dips. The company also sells other products, like glassware and candles, but food makes up 87% of the company's revenue. The company does most of its business within the United States; in 2009, domestic sales represented 90% of total sales.
In the early 2000s, the company decided to focus on growing its specialty foods segment. In line with this, the company divested from its previously owned automotive segment and has substantially shrunken its glassware and candles business. In the last decade, specialty foods has grown from 40% of net sales to nearly comprising the company's entire business.
The 2008 recession hurt Lancaster Colony consumers cut back on spending and the demand for the company's products fell. As a result, the company's net income fell 18%. However the economy began its rebound in 2009 and as a result Lancaster had positive growth -- in 2009 the company's net income more than doubled.
Lancaster Colony divides its sales into three different product segments:
Specialty Foods (87% of net sales) - the company produces a variety of products under this segment such as: salad dressings, sauces, croutons, fruit glazes, vegetable dips, fruit dips, frozen hearth-baked breads, yeast rolls, dry egg noodles, and caviar. Some of its brands include: Marzetti, Cardini’s, Pfeiffer, Mamma Bella, New York BRAND, Sister Schubert’s, Reames, Romanoff, and Inn Maid. These products are mainly produced at 15 different manufacturing facilities across the country.
Glassware and Candles (13% of net sales)- the candle product line, sold under the brand Candle-lite, includes products such as candles, candle accessories, and other home fragrance products. The glass product line, sold under the Brody and Indiana Glass brands, includes tumblers, bowls, pitchers, jars, barware, and vases.
When the the economy went into a recession in 2008, Lancaster felt the negative effects in its bottom line as consumers and business cut back on spending and bought fewer of Lancaster's products. Additionally, the company suffered from higher commodities and operational costs. As a result, the company's net income fell 18% to $37.6 million in 2008. However the economy started its rebound in 2009 and has continued into 2010. As the demand for Lancaster's products increase and the price of commodities falls, Lancaster has seen positive growth. In 2009, net income more than doubled to $89 million.
In 2009, 20% of Lancaster Colony's net sales were attributed to Wal-Mart and totaled $206 million. This was 3% higher than what was attributable in 2008. This poses a risk on two fronts. First, if Wal-Mart ever decided to cancel its contract with Lancaster, the company would have to find some way to make up the 20% of revenue it lost. Second, because Wal-Mart contributes so much for Lancaster's net sales, if Wal-Mart's growth started to stagnate or decline (for example from the sluggish economy), Lancaster would be hurt because Wal-Mart would demand fewer of its products and thus reduce sales.
Because Lancaster Colony makes a wide range of products selling in different markets, the company faces competition from both big companies with a diversified line of products and smaller narrowly-focused companies.