MGP Ingredients (MGPI) Q2 Sales Drop 24%

MGP Ingredients (MGPI -1.24%), a major producer of distilled spirits and specialty wheat-based food ingredients, reported earnings results for the quarter ended June 30, 2025, on July 31. The most notable news was that both non-GAAP earnings per share (EPS) and GAAP revenue exceeded analyst expectations, with non-GAAP EPS at $0.97 (versus the $0.66 estimate), and revenue (GAAP) at $145.5 million (versus the $139.4 million estimate). Despite these beats, both metrics dropped substantially from prior-year levels, highlighting continued soft demand, especially in the company’s core whiskey and value spirits segments. Management reaffirmed its full-year guidance, expressing confidence in its commercial strategy and recent operational changes, even as some segments struggled. Overall, the quarter showcased beat-the-street results, offset by further declines in headline metrics and ongoing volatility.

Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report.

What MGP Ingredients Does and Why Its Key Areas Matter

MGP Ingredients specializes in two main areas: distilled spirits production (including whiskey, bourbon, vodka, and gin) and specialty wheat-based food ingredients (like starches and proteins). Its spirits products are sold under its own brands and also in bulk to other companies. Its ingredient solutions segment supplies key baking and food companies across North America.

The company operates through three main business lines: Distilling Solutions (bulk alcohol and contract distilling), Branded Spirits (its own spirits brands, spanning premium to value tiers), and Ingredient Solutions (food-grade wheat proteins and starches marketed under brands like Fibersym and Arise). To succeed, MGP focuses on maintaining a diversified portfolio, managing costs, converting capital expenditures to operational gains, and innovating new products for customers’ changing needs.

Quarter Highlights: Segment Trends and Developments

This quarter brought out sharply contrasting performance across business segments. Branded Spirits sales declined 5% to $60.5 million, but its premium segment (Premium Plus) rose 1% to $31.1 million, driven largely by the Penelope whiskey brand’s strong growth. However, mid-tier and value spirits sales fell about 15%, hampered by competition and weaker demand for tequila and liqueur brands. Even with lower total sales, the segment's gross margin improved slightly to 52.8%, reflecting a shift toward higher-priced products. Efforts to boost innovation—new Penelope ready-to-serve cocktails and expanded product lines—continued to draw in consumers looking for premium options.

Distilling Solutions, which includes contract whiskey distillation and related services, faced acute headwinds. Sales dropped 46% to $50.0 million (GAAP). Brown goods (whiskey for aging in barrels) led this drop, falling 54% year over year as the entire whiskey barrel industry worked through elevated inventory levels. White goods and co-products, including new-make spirits and byproducts, fell 27%, while warehouse services slipped 5%. As a result, gross profit for the segment was cut by more than half, and gross margin contracted to 37.6%. Management’s push to renegotiate customer contracts and adjust pricing was a response to these market forces, and leadership said it has reached out to all customers to better align future volume commitments. The company expects these inventory and demand problems to persist into 2026 but is trying to cushion the effects with cost discipline and operational changes.

Ingredient Solutions marked a rare bright spot, growing revenue 5% to $35.0 million as specialty wheat protein sales jumped 13%. Gross profit increased 7% to $7.6 million, with gross margin at 21.7%. Management attributes the gain to onboarding new customers and improved operational execution. These investments aim to counter past supply disruptions and normalize production volumes for food and nutrition customers.

Profitability on the whole was challenged by both revenue mix and external pressures. Consolidated gross margin (GAAP) narrowed by 3.5 percentage points to 40.1%. Adjusted EBITDA, which stands for earnings before interest, taxes, depreciation, and amortization and excludes certain one-time items, fell 38% to $35.9 million. Net income of $14.4 million on a GAAP basis was down more than 50% year over year, due in part to a non-cash $8.0 million increase in contingent consideration linked to the Penelope brand’s outperformance. The company’s ongoing push to lower operating costs, cut capital expenditures, and maintain strong working capital contributed to a nearly doubled year-to-date operating cash flow ($56.4 million) for the first six months of 2025.

In terms of capital allocation and the balance sheet, MGP ended the quarter with $17.3 million in cash and net debt at $279.8 million, yielding a net debt leverage ratio of 1.8 times. Capital expenditures for FY2025 were trimmed to $32.5 million, down from the previous estimate of $36 million. Dividend payments continued this quarter.

Product and Segment Context for Non-Experts

The Branded Spirits portfolio covers products like Penelope bourbon (Premium Plus), El Mayor tequila, and Rebel 100 bourbon. These are spirits under MGP’s own brands, ranging across price points. Premium Plus refers to the highest-tier, most expensive brands. Mid-tier and value segments include more competitive, mass-market whiskies and liqueurs.

Distilling Solutions comprises contract production of brown goods (whiskey aged in barrels) and white goods (vodka, gin, or neutral spirits produced for other labels), along with warehouse storage and co-product sales. Ingredient Solutions delivers specialty wheat proteins and starches, which are ingredients food manufacturers use to enhance baking, texture, and nutritional profiles of bread and snack foods.

Outlook and What to Watch Going Forward

For the remainder of fiscal 2025, Management reaffirmed FY2025 guidance: sales in the $520-540 million range, adjusted EBITDA of $105-115 million, and adjusted EPS between $2.45 and $2.75. No major shifts in strategy or expectations were announced, with leadership emphasizing stability even as year-to-year comparisons remain negative. Management cited improved contract visibility in Distilling Solutions and ongoing premiumization trends in Branded Spirits as reasons for confidence in the back half of FY2025.

Risks remain, especially in Distilling Solutions, where whiskey industry destocking and price adjustments are likely to linger into 2026. Investors should closely monitor how quickly the segment can stabilize and whether cost controls continue to offset top-line weakness. Premium brand momentum and innovation, performance from Ingredient Solutions as new projects come online, and the management of contingent liabilities such as the Penelope brand earn-out are also areas to watch in upcoming quarters.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.