Good morning. My name is Caron 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 Second 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, Caron. Good morning, everyone, and thank you for joining us today for Lancaster Colony's fiscal 2016 second 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?

Good morning and thank you for being with us today. We are pleased to report growth in both sales and earnings for our second quarter of fiscal 2016. Our seasonally strongest quarter saw sales growth of 7% and earnings per share of a $1.25 up 4.2% from last year's quarter. Core sales excluding the Flatout acquisition were up 4.2%, which is a bit disappointing given our increase in trading consumer support on our retail channel product lines. Core retail channel sales benefited from some increase pricing in response to higher rate costs. Nice growth in our Marzetti refrigerated salad dressings, New York Brand croutons and Olive Garden dressings. Offset by declines in our frozen product lines, which were impacted by a sizable level of frozen inventory reduction activity by one of our large retail customers in December. Most disappointing was our Sister Schubert frozen roll line where we added some television advertising to our promotional efforts. Our food service channel continued to provide strong growth primarily from our chain restaurant account business. Including Flatout, we saw our retail mix essentially unchanged at about 55% of total net sales. IRI data for the 12-weeks ending December 27 shows us continuing to lead all of our key categories. We gain share in all, but one category frozen dinner rolls and saw a sell through growth in all but two frozen dinner rolls and refrigerated dips, which were nearly flat. Operationally, we performed reasonably well, but not as efficient as we saw in the first quarter. Very high dressing plant utilization, which create some challenges, was paired with a bit lighter utilization in our frozen bread plans. These factors coupled with an unfavorable change in our core sales mix contributed to a small decline in gross margin. Freight costs were down year-over-year largely due to lower diesel cost, which help mitigate the gross margin decline. Ingredient costs were up for the quarter driven by much higher rate cost, particularly offset by favorable soyabean oil cost. Operating expenses grew with the addition of Flatout, an increased spending on consumer marketing. Let me now turn to Doug Fell for a few comments and I'll wrap up with some thoughts in our second half and take questions.

Thank you, Jay. As a reminder, the compared December and June balance sheets reflect our acquisition of Flatout holdings on March '13. I refer you to my commentary for our Q4 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 cash balances, the significant decline of approximately $95 million since June 30, primarily reflects the payment of our $5 special dividend on December 31. As Jay will mention in his remarks, this will total around $137 million. Other notable items impacting the change in our cash position for the first half of fiscal '16 includes cash generated by operations of approximately $74 million reduced by regular cash dividend payments of $26 million and property additions of $7 million. Our accounts receivable balance decreased nearly $2 million from the June level. In general, the decrease reflects continued strong collection efforts as we slightly reduced our days outstanding. Consistent with past quarters, we continue to see our overall agings remain solid. With respect to our inventories, that totaled approximately $80 million at December 31, a slight increase since June 30 primarily reflects the influence of higher sales volumes coupled with the slight overhang in frozen retail inventories related to the decline in December orders from a large retail customer. In general, the increase in accounts payable since June 30, reflects the influence of higher sales volumes and the related increases in inventory. The reduction in shareholders equity reflects the impact of the $5 per share special dividend payment on December 31. With respect to our balance sheet capitalization, we continue to have no debt and nearly $483 million in total shareholder's equity. Likewise in light of the special dividend, we ended the quarter with over $87 million in cash and equivalence as we continue to benefit from strong operating cash flows. Given our balance sheet posture and overall liquidity, we continue to possess considerable flexibility to address our foreseeable cash requirements. Including the supportive of our future organic growth initiatives, acquisition opportunities continued dividends and share repurchases. Finally, the slight decline in our current quarter effective tax rate to approximately 33.5% reflects the tax benefit related to the special dividends paid to shares held in our frozen [indiscernible]. We anticipate our effective tax rate to resume a more historical rate of around 34% for the second half. 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 half with an optimistic outlook for organic sales growth from largely the same areas we've been experiencing, refrigerated dressing, croutons, Olive Garden dressing and the retail channel and continued momentum in the chain restaurant piece of our food service channel. Although growth there may be tempered by a recent initiative to selectively rationalize some of our food service business. New retail products will help a bit as we further roll out Marzetti Vineyard Dressings and Veggie Drizzles. We also have some new introductions for the third and fourth quarter that may provide some modest benefit yet this year. Frozen, particularly Sister Schubert rolls will likely continue to be a challenge. We anticipate ingredient cost trending down as soybean oil stays favorable, flower become so, and egg cost trend down from their recent highs assuming no further Avian influenza outbreaks. Freight costs are expected to stay somewhat favorable through the second half. Trading consumer marketing spend is likely to head up some as we support new product introductions and continue investment in our brands. We continue to look for acquisition opportunities in the branded retail space and have several things to evaluate with the New Year. Capital investment for the second quarter was about $4 million and our full year outlook looks to be in the range of $15 million to $20 million. We were pleased to return $137 million to shareholders with our special dividend in December, as well as increase the regular cash dividend for the 53th consecutive year by 8.7% to $0.50 per quarter. In total for calendar year 2015, we returned a $188 million to shareholders in the form of dividends. We did not repurchase any shares during the quarter. Caron, at this point we're ready to take questions.

[Operator Instructions] And your first question comes from Phil Terpolilli of Wedbush.

Thanks for taking the questions. I guess may be to start on the food service side. You mentioned in your prepared remarks around some rationalization in that business. Do you have any sense of maybe the kind of the timing in the magnitude of what you're potentially talking about? And then, the rationale behind it is it potentially just growing so fast, you don't necessarily have the capacity or is the business you're trying to rationalize may be lower margin to get start with that.

It probably goes as much to capacity and complexity, Phil, as anything and timing wise we've seen just a little bit of take affect at the present time and that probably continues to roll out over the calendar year. Don't have a real good estimate for you to let the impact may be, but probably in the single digit percentages of that channel of our business. But trying to take some complexity out of the business that ideally we'll also help us on the capacity side of things.

That's very helpful. And then quick question on the inventory side, I think you mentioned a reduction in some of your customers on the inventory side. Can you quantify that at all in terms of the impact was in the quarter for the topline?

Not down to the dollar, Phil, but we're probably talking kind of mid single-digit million dollar impact.

Okay. And then just a couple of more from me. Shifting to the sort of a new product side. I know we've talked for quarter to now about these Marzetti subline launches, the Vineyard, and the Drizzles. Any update as to how that's going sort of the consumer acceptance, any signs if it’s cannibalizing versus incremental growth for the dressing business?

It’s still little early to form much of an opinion on that. So I think we’ve been generally positive about its roll out with still a fair bit more to come yet this spring, but not good enough data to give you anything at this point as to whether we actually see any cannibalization yet.

And that distribution, I guess where are you at now versus where are you hoping to get to by call the spring summer time frame?

I again can't give you a specific numbers but I think we’ve definitely got more to go versus where we’ve been so far.

And then just one last one from me on the Flatout portion of the business. Any sense of how that performed in the quarter, I heard you kind of [blanket] [ph] remarks but anymore detail there. And then I know Wal-Mart with their clean floor policy, I'd imagine has been impacting Flatout but any signs of their maybe readjusting this policy or how are you guys kind of adapting towards going on there?

Well, first you’re right, it is impacting the Flatout business and probably the most significant headwind we’ve got in that business right now. I wouldn’t say we’re seeing any signs of that changing but we’re working on initiatives to try to find alternative ways to still get attractive displays in front of consumers. So, work to be done there but in the near term that has been a headwind and is going to be at least for a little bit here.

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

Just a piggy back on that Flatout question for a second, looks like sequentially if I back into the numbers Flatout filled pretty a lot sequentially. Do I have the right A and then B is there is really not much seasonality in that business right as compared to your Sister Schubert's business?

First of all yes you’re right, Q1 to Q2 the business is off. Seasonality is a little bit of a factor as we’ve come to find out that product isn’t as popular during the holiday season than the balance of the year. But the issue that Phil just brought up is certainly a factor and then we have a little bit of - some inventory reductions going on with one or two of the distributors that are involved in that business also.

And how is the - I know initially you had some issues with - I believe the protein, I might have this reverse but the protein version was doing well but may be the gluten was not doing well, just wondered if you give us update on that.

Really was the opposite, the protein has been doing pretty well and the gluten-free is still slow moving getting a little bit better but still relatively slow.

This might be a silly question, but is there an opportunity to, I wouldn't think you’d want to do this but to me it seems like you know it’s not a lot of healthy choices in the frozen, would you be able to take a brand like Flatout and bring it into frozen somehow where you know people would have the convenience to bring that home and store it. And you know make something kind of healthier for you at home versus like a Sister Schubert’s is obviously not a super healthy type of product?

I wouldn’t rule that out Frank, it’s not something we’re currently considering. We do know consumers actually do buy it, some of them take it home and freeze it, so some of that does go on but we don’t have our current plan to try to merchandise having frozen.

Okay. And the last question from me is just on the institutional side. Obviously it looks like you did pretty well there, is there one if you could talk about sort of the volume impact versus like the price increases that you got there?

Yes, Frank, pricing and volume in the food service channel probably had about an equal contribution to grow.

Okay. And I think you called out specifically like the restaurants were overall doing fairly well, is this correct?

Yes, I think generally we’ve seen the chain guys see their business improving.

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

So I heard this issue with the large retailer as I recently last night with another one of my companies and it looks like they are creating a lot of noise, and so I just want to understand it a little bit better as far as what the conversation is like today. And if you’re worried at all about these efforts bleeding into maybe other products that you might produce? And the reason I ask that is, it’s kind of been explained to me that this is more of a national brand focus in addition to trying to clean up the store area. And so I question if they can bleed over into other brands that you produced besides just maybe what you have on open floor displays and things like that and this particular retailer I think it was a few years ago, they tried to tear brands and then that kind of died off and now we’re in this moment where they are reducing inventories and working on the clean store initiative. And so just the conversation is it that this might just be a near term effect, what does that conversation sound like and then just more broadly are you concerned about this effort affecting other products that you produce?

Brett I certainly don’t have all the answers to that exactly but our situation is on the inventory side about is particularly focused in the frozen space and I think there is just an initiative to try to be as clean on seasonal inventory at the end of the season as possible and maybe just a little more aggressive effort on that little earlier in the end of the calendar year than we’ve historically seen. The other issue with the merchandising related one or the clean floor policy is one that we anticipate is going to continue to go on going forward and that more particularly affects our Flatout flat bread business. So as I mentioned earlier, we’re trying to work to find alternative merchandising opportunities that meet the requirements that they have at this time and likely going forward live hopefully will mitigate any impact on our business.

That's good color. So can I read that as maybe other parts of the store might be more appropriate in this type of environment?

Could potentially be, yes.

Okay. And then it sounds like you're more hopeful just in reading your body language. It sounds like you’re more hopeful that the inventory issue can subside in coming months, I don’t want to put words in your mouth but would that be a fair statement?

Yes I think with that hopeful qualifier yes.

Okay. Independent of any change in a particular customer strategy. It sounds to me like you’re disappointed in the response of Sister Schubert’s relative to the brand support that you put in place. Can you describe maybe what you and your team learned from that and ideas on how to attack this going forward?

Well, I think we haven't fully digested the potential learnings from that at this point Brett, and are evaluating some of the information as it relates to those efforts. Though we’re concerned that we don’t feel that our investment really moved the needle to the degree it should have and we will be considering what kind of alternative approaches may make more sense in the future.

Is part of that consideration maybe working on to expand distribution west or is that lower on the totem pole for you?

Yes, that would be a little lower on the totem pole, certainly want to continue to expand distribution where possible but we want to be sure we're taking advantage of potential sell through that existing consumers and new consumers in our core markets which are generally in the Eastern half of U.S.

Okay. Just two more from me, I appreciate it. On the rationalizing your - part of our food service business effort, I want to attack on to a question that was asked earlier and just see – I assume you make these decisions for the benefit of the bottom line and can you may be frame up how I can think about what that might do for your operating margin. Is it something that can add 10, 20, 30 basis points of operating margin just from rationalizing some of these products away?

I don't know if there is going to be quite that easily evident, Brett, but overtime hopefully it does let us improve the margin a little bit. And it would be likely relatively modest basis point area that you mentioned 10 or 20 basis points more likely to be there versus 100 basis points.

So I take it as the rationale for the move more near term is simply to help to ease any operating constraints and things around that nature?

Yes. That's true.

And my last question is just - I'm just trying to understand, eggs have come way down. Now, egg products haven't come down as much when you look at the liquid in the drive market, but they're still off pretty nicely. And can you just frame up the benefit maybe qualitatively during the quarter from that. It sounds like you kind of got back to even with where your pricing was. So it still should have been a margin help in my opinion net. And then can you kind of frame out what your expectation would be if AI doesn't come in and give us round two here cannot benefit fallen nicely in coming quarters. So that's my first question. And related to that, does the decline in the dairy complex, hope you guys at all going forward.

Brett, I'll make couple of comments and see what Doug would like to add here. But I think as it relates to the second quarter, we didn't quite get whole on pricing versus egg cost. We should start to - assuming these egg costs trend down further that should be beneficial as we move through the third and fourth quarter. And as you know our pricing as it relates to passing on ingredient cost particularly in the chain restaurant business has a lag affect. So we lagged on the way up and paid some margin penalty there. The lag on the way down should give us a little better margin benefit. So those are the quick comments I'd have relative to the eggs. And yes the dairy, the dairy side of things looks like it may play out a little bit favorable in the second half always subject to change. There is a little more volatility there at times than we see elsewhere. So Doug, would you add anything to add?

No Jay, you've covered it all. Thank you.

Your next question comes from the line of Jason Rogers of Great Lakes Reserve. Go ahead Mr. Rogers.

Would you mention what the overall impact on as far as pricing was in the quarter?

Right around 2%.

And you talked in the release about looking in the second half for higher cost and supporting of new products, product place and marketing and so forth. Is there any way to quantify that or at least the magnitude that we should expect?

It’s a little tough to gauge exactly, because of the timing of some of these events. But it will be appreciable as we work away through the second half. I'm not real close to all of the fine details, but from what we're seeing and hearing, there would be some modest impact as we work our way through. There are some new planned introductions in there so certainly the support of those products will help to drive that figure as well.

I wonder if you could just talk a little bit more about the frozen dinner roll category. What you think might be behind the share loss and what can be done about it, if it's new products, pricing or whatever?

Jason at this point it could be all of the above. We're certainly working on some innovation ideas, certainly considering whether there should be some different views on pricing. One of the challenges we feel we continue to have in the dinner roll category is the competition overrun the - on the fresh bread side of things that obviously has a myriad of choices for the consumer. And while we have a very clean label kind of product in the frozen case, I think we get labeled as a frozen product and a perception that maybe it doesn’t have as clean a label as it does. So we need to figure out how to get that message across to more and more consumers. So clearly more work to be done for us in that space.

If there are no further questions, we will turn the call back to Mr. Gerlach for any concluding remarks.

Well, thank you again for joining us. We look forward to sharing our third quarter results with you as we get to late April. Have a great day.