Earle Brown - IR Jay Gerlach - Chairman and CEO John Boylan - VP, Treasurer and CFO

Michael Halen - Sidoti & Company Christof Fischer - Longbow Research Greg Halter - Great Lakes Review

Good morning. My name is [Sashanka] and I will be your conference operator today. At this time, I would like to welcome everyone to the Lancaster Colony Corporation Fiscal Year 2013 Results Conference Call. Conducting today’s call will be Jay Gerlach, Lancaster Colony, Chairman and CEO and John Boylan, 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. I’ll now turn the call over to Mr. Earle Brown, Lancaster Colony, Investor Relations. Please go ahead.

Thank you, good morning and let me also say thank you for joining us today for Lancaster Colony’s fourth quarter and fiscal year 2013 conference call. Now please bear with me while we take care of a few details. As with other presentations of this type, today’s discussion by Jay Gerlach, Chairman and CEO and John Boylan, Vice President of Treasurer and CFO will contain forward-looking statements of what may happen in the future, including statements relating to Lancaster Colony’s sales prospects, growth rates, expected future levels of profitability, as well as the extent of share repurchases and business acquisitions to be made by the company. These forward-looking statements are based on numerous assumptions and are subject to uncertainties and risks. Accordingly, investors are cautioned not to place undue reliance on such statements. Factors that might cause Lancaster’s results to differ materially from forward-looking statements include, but are not limited to, risk related to the economy, competitive challenges, changes in raw materials’ costs, the success of new product introductions, the effect of any restructuring and other factors as are discussed from time-to-time in more detail in the Company’s filings with the SEC, including Lancaster Colony’s report on the Form 10-K. Please note that the cautionary statements contained in the Safe Harbor paragraph of today’s news release also apply to this conference call. Now here is Jay Gerlach. Jay?

Good morning and again thank you for joining us. While pleased with our overall results for fiscal 2013, our fourth quarter finish was not up to what we saw in the first three quarters. Overall sales for the quarter were off 2% from last year, with both segments being down. Operating income was off 7% all from our food segment as glassware and candles earnings improved slightly. Our Specialty Food segment sales were off 1% from last year, impacted by the benefit of our some new program roll-out cost last year that did not repeat in ‘13 and higher promotional and marketing support this year. Pricing had no impact on the quarter and volume mix was off just fractionally. We continue to see good performance from our Simply Dressed line of refrigerated salad dressings, which also benefited from the introduction of five new flavors of Vinaigrettes. Offsetting that positive was our repackaged Marzetti Veggie dip line that lagged last year’s sale and continued softness in frozen garlic breads. Foodservice demand from both our national chain account customers and distributors was up modestly for the quarter; so we saw our sales mix move to 51% foodservice versus 49% last year. IRI data for the 12 week period ended July 14th shows the following from our key categories. Refrigerated salad dressings, the category was up 6.7%, our Marzetti brand was up 17.9%. Veggie Dips, the category was down 7.4%, our Marzetti brand was down 9.5%. Croutons; the category was up just barely 0.1%. Our collective Marzetti New York and Chatham Village brands were off 1.7%. Frozen garlic bread, the category was down 3.1%, our New York brand was up 1.1%; and then Frozen Dinner rolls the category was down 1.3%, our Sister Schubert brand was down 2%. We are the leader in all of our key categories. Segment operating income for the quarter was off about 7%, as margins declined approximately 100 basis points from last year's quarter. The primary factors in the decline were lower sales, higher food service mix and higher consumer promotion and marketing cost. Material costs were favorable, but only in the low six figures. Our croutons capacity expansion was completed in the early part of the quarter and its startup probably had an unfavorable six figure cost. Lastly, the prior year benefited from the $1 million recall related vendor recovery. For the full year, the segments had a record top line and reached just over $1 billion in sales, 2.5% increase from the prior year. Simply Dressed and our Sister Schubert’s line were the primary contributors in the retail channels growth, while the food service channel grew as well. Full year mix edged up slightly to retail by 0.2% at 51.7%. Full year segment operating income was up over 9% and operating margins grew about a 100 basis points to 16.3% helped by about $8 million in pricing and over $5 million in lower material cost, mostly happening in the first three quarters of the year. We also benefited from lower slotting cost as we anniversaried some prior year new product introductions, offsetting these benefits were increased consumer marketing cost as we continue to invest in building our brands. Our Glassware and Candle segment for the quarter saw a 6% sales decline and low six figure earnings. Candle sales were off, the wax costs were fairly neutral, and sales mix showed some improvement. While not material in sales and contribution to the segments overall results, we did divest various product lines that were largely directed to the lodging industry during the quarter and a mid-six figure loss. Candles and accessories sold to consumer markets are now the only product lines remaining in this segment. For the year, the segment showed an almost 7% sales increase and an almost $6 million operating income improvement. Segment margin improved to 5.25% from 1.5% the prior year. Now let me ask John to make a few comments.

Thank you Jay and good morning. I'll begin by making several remarks regarding our balance sheet, which I believe is generally reflective of fairly modest year-over-year fluctuations. First, we saw our accounts receivable total approximately $70 million, a 4% decline from the year ago level. The decrease reflects the lower sales for the quarter. We continue to see our overall agents remaining solid. With respect to our inventories which totaled approximately a $109 million at June 30, these declined just slightly from the prior-year level. We were able to reduce candle inventories, but saw a modest offsetting increase in food inventories. In property, plant and equipment, our net property balance increased over $5 million as our fiscal 2013 capital expenditures at $24,147,000 exceeded depreciation. A notable component of this year's CapEx was our investment in additional crouton manufacturing capacity. Although we remain in the process of evaluating several projects, we expect fiscal 2014 capital expenditures could total $25 million perhaps somewhat more. A significant project we foresee working on involves increasing the capacity and throughput of our dressing facility in Kentucky. Turning to the other side of the balance sheet, shareholders equity declined this past year to about $501 million in June 30 as affected by the $5 per share special dividend we paid last December. We continue to have no debt and ended the fiscal year with over $123 million in cash and equivalents. We therefore believe that we retained considerable flexibility in our capital structure to support foreseeable future growth initiatives. Turning to this year’s cash flows, cash flows from operating activities totaled $131,682,000, which compares to $122,447,000 for the prior year. This improvement reflects the improved net income that Jay mentioned. The most prominent non-cash add-back and arriving at this year’s cash provided from operations remained depreciation and amortization which totaled $20,114,000, which was comparable to the prior year total. Also of note, total annual cash distribution of dividends during fiscal 2013 totaled $178,063,000 compared to $38,464,000 a year ago. While this increase primarily reflects the year’s special dividend distribution, it also encompasses the two increases of our regular quarterly dividend that were approved by our Board of Directors in fiscal 2013. Finally, one other matter to comment on is the past year’s effective tax rate. As noted in today’s release, we did see a fourth quarter benefit of approximately $700,000 relating to the release of reserves associated with uncertain tax positions. Our full year rate also benefited from the tax consequences associated with the year’s large special dividend. Looking forward we expect the fiscal 2014 rate so likely return to a more normal level perhaps between 33.5% and 34%. Thanks again for participation with us this morning and I’ll now turn the call back over to Jay for his concluding comments.

Thanks, John. We begin fiscal ‘14 with the good news in July that we’ve become the number one refrigerator salad dressing on a full 52-week basis per IRI. We are also happy to have our new Crouton capacity online enabling us to pursue new business that offer promotional support again after several months on the sidelines. Our repackage Veggie dips are also beginning to get more marketing support is our transition to the new package is largely complete. The Frozen Garlic Bread category remained soft with the exception of our New York Garlic Knots, which continue to grow further product innovation will be important to get this category moving again. We expect our Sister Schubert brand to continue to grow as we selectively enter new markets. We anticipate food service, channel growth for the year driven by modest industry growth in new program gains offsetting any losses. Our new product development effort in this channel is busier than ever. Candle sales will be dependent on seasonal sales as usual and right now, looks likely to fall somewhat below year ago levels. As we move through the year, we anticipate seeing some modest food ingredient cost savings primarily Soybean oil, sweetener and eggs; these certainly can’t change as the year goes on. Wax costs are expected to be relatively flat for the year; we do not foresee any price increases of significance for the year at this time. We hope to see some operational improvements as we benefit from our recent crouton project as well as some addition automation and cost reduction enhancements we will continue to tick up our investment in building our brands while actively pursuing acquisition opportunities we do not have anything to report today we routinely discuss our capital structure and have 1.5 million shares available to repurchase. And finally as you know we have typically taken action on our dividend in our November meeting. [Michelle] we are now ready to take questions.

(Operator Instructions). Your first question comes from Michael Halen with Sidoti. Michael Halen - Sidoti & Company: Good morning. So my question is just in regards to the increased coupon redemption that you saw in the quarter were you more aggressive with the distribution of the coupons or was it just strictly due to a higher rate of redemptions?

We were - on a year-over-year comparison Mike we were more aggressive, it largely was due to a lack of activity a year ago than more stepped up activity this year; on a full year basis I'd say it’s relatively comparable, it was more timing of not as much a year ago back to more normal level this year. Michael Halen - Sidoti & Company: Okay. And can you talk about what you saw in terms promotional activity from some of your competitors?

I think pretty much similar to what we've been seeing, nothing unusual from the standpoint of anything more or less active. Michael Halen - Sidoti & Company: And I guess the last one in terms of veggie dips can you just fill me in on I guess what the difference was like I guess who picked up the difference between how much Marzetti was down and how much the category was down?

Yeah, I think the beneficiaries were the primary competitors of ours, which should be [Murray's] [ph] and [Litehouse] [ph] in that space and again we went through a packaging change in the March and April timeframe that is related to actually showing up on stores shelves probably a little bit further even into the quarter. So as we went through that change, we were not doing as much promotional activity around veggie dips and we've moved into this quarter and particularly moved on into the fall, we will definitely be stepping up that support as we have that new package in the marketplace. Michael Halen - Sidoti & Company: That's helpful, thank you very much.

You're welcome.

Your next question comes from Phil Terpolilli with Longbow Research. Christof Fischer - Longbow Research: Hey, guys, Christof Fischer calling in for Phil. Quick question, I guess like the marketing and promotional cost and how we should think about that in fiscal year ‘14, and if there's any kind of sense of timing and said in other words the difference between 13, 12 there?

From a timing standpoint, I think it will probably be more normal throughout the year without some of the changes we saw this past year that were a bit impacted again by our crouton project and then backing away from promotional support while we went through that capacity addition as well as what we were just talking about around veggie dips. Overall it will probably be up a little bit but I wouldn't say significantly but we do intend to continue to tick up a bit our support for our various brands. Christof Fischer - Longbow Research: Okay, great. And one last question like the new product portfolio that's planned for the coming year and how you might think of that it could affect your revenue potential, any thoughts there?

Yeah, it's a little hard to predict actually our new products introductions of any note are going to be taking place as we get into the calendar '14. So their actual impact on that, the year just from a timing standpoint, let alone how successful they are will probably be relatively modest. Christof Fischer - Longbow Research: Okay, great. Thanks so much.

You welcome.

(Operator Instructions). Your next question comes from Greg Halter with Great Lakes Review Greg Halter - Great Lakes Review: Hello guys.

Hi Greg.

Good morning Greg. Greg Halter - Great Lakes Review: Relative to the hedges or at least buying forward for soybean oil and flour can you speak to where you guys stand currently?

Yeah. Greg, we're in a pretty similar position on soybean oil, we are again as you know we go out a full 12 months, but kind of stair step the coverage level down as those months go out. So we're roughly 50%, 60% covered for the next six months and off after that. So, the practical implication of that is you watch soybean oil go down recently as we don't have immediate benefit from that, but at least not of significance, but we will certainly benefit with from that as time goes on. Flour we’re pretty fully covered through the calendar year with relatively modest coverage in the second half of the fiscal year. Greg Halter - Great Lakes Review: And the impact on a penny change, any significant change there that you can speak to that’s been the historic norm for the company.

This is John. Historically, we used to talk about a penny change affecting the bottom line or roughly $1 million. It's now more down towards the high six figures, as many of our food service customers over time have moved to contractual arrangements where the cost is passed through on pricing. So it doesn’t really impact our contribution margins from those accounts. Greg Halter - Great Lakes Review: I know it's primarily for soybean oil you are discussing?

That is correct.

That is correct, Greg. Greg Halter - Great Lakes Review: Alright, and any significant change in your employee count done on a year-over-year basis. I think last year you were at about 3,100 and what do you see going forward on the hiring side?

We finished the year within just a few of that exact number, Greg. Going forward, we will probably see a little bit of growth there but don’t expect it to be significant. We of course will get some seasonal fluctuations in both the food and the candle business going particularly through the fall season. Greg Halter - Great Lakes Review: And relative to the capital spending plans for fiscal ‘14, you talked about 25 million maybe more with several projects, the one called out being the Kentucky dressing facility and just wondered if you could elaborate a little more on what you are doing there. The last time I was there, it looked pretty efficient, but I am no expert in the area so may be you can speak to that?

Well it is efficient, so this is largely a capacity driven expansion although it should help efficiencies a bit, but it is all machinery equipment within the existing walls of the plants, so mainly processing equipment, more mixing capability and blending et cetera. Greg Halter - Great Lakes Review: Okay, so no new construction on the exterior [renting] under what you have?

No that’s not planned at this point. Greg Halter - Great Lakes Review: Okay. And there’s been a few deals in the M&A area recently and I just wanted to get your feeling. I know you are always out there looking and price is always consideration and willingness of buyer and a seller, but in light of the Pinnacle and WishBone deal just wanted to get your thoughts on what you are seeing there or what you are looking at currently?

Yeah. Again I would describe in general the deal flow has been relatively light, but we do continue to look for what we would view is good fitting opportunity. So, again we like the departments, categories that we are in today at the retail level and we are particularly looking for branded retail opportunities again and like to produce department we’d still be interested in frozen but open to around the store as well. As you mention the WishBone opportunity, as you know we have a little bit of presence in shelf stable salad dressings, but not a lot, so wouldn’t have considered that a high priority kind of opportunity for us. Greg Halter - Great Lakes Review: And I missed your comment about fiscal ‘14 on the food cost what you specifically called out, could you repeat that?

I think we mentioned we do anticipate a little bit of potential savings on material cost as the year goes on. Again kind of largely reflect in what we touched on and you've seen in soybean oil as we worked through our forward buys and see the benefit of the lower cost we're seeing today. Greg Halter - Great Lakes Review: Okay. And I think that’s soybean and I think wheat, is your flowers down as well what about some of the other area like eggs and milk and sugar and so forth?

Eggs and sweaters we expect to see some savings again as the year goes on, dairy, I think our current look would suggest maybe a slight uptick probably not significant but maybe a little bit of an increase. Greg Halter - Great Lakes Review: All right. And we have some companies that we cover that work with the food service area and it seems like things are going well in that regard from perspective of purchasing equipment and it seems like you're seeing a similar uptick as well with the I think it was 51% versus 49% last year, just wonder if you could further elaborate on the health of that piece of your business?

Yeah I think we see that industry that is performing little bit better and seems to be optimistic about the future it might be skewed a little bit to the QSR side of the chain account business but yeah generally I think there is pretty good optimism there today. Greg Halter - Great Lakes Review: Okay and then last one in your release you talked about added volumes from several newer retail and food service program, any of those you can specifically mention?

Yeah, not -- we can't mention it by particular customer name or anything, Greg. I think on the retail side, we do continue to see Simply Dressed, particularly continue to grow and Sister Schubert as well, more recently as you know we added the Simply Dressed vinaigrettes that's a piece of that growth. Greg Halter - Great Lakes Review: Okay, thank you.

You're welcome.

(Operator Instructions) At this time, there are no further questions. I will turn the call over to Mr. Gerlach for closing remarks.

Well, thank you for joining us this morning and we’ll look forward to talking to you late October with our first quarter results.

Thank you, ladies and gentlemen. This concludes today’s Lancaster Colony’s fiscal year 2013 results call. You may now disconnect.