MGP Ingredients (MGPI) Q2 FY26 earnings call: guidance and Q&A

Is this quarter's innovation level above average, or is the pipeline balanced? What is the runway for distribution expansion, especially for national/regional accounts?

The quarter saw strong innovation, but the pipeline is measured for the next couple of quarters, with 15% less innovation than last year but better quality. Penelope launched two new core expressions (Kentucky Straight Bourbon, Rye) and a new ready-to-pour (Blackberry Old Fashioned). There's significant runway for distribution expansion, especially in national and regional accounts where MGP is under-indexed, with a new VP hired to lead national accounts.

“We have anywhere between a 3x to 6x disadvantage in average number of items in national and regional. So we're certainly very pleased with the performance, but we certainly think there's a bigger runway to be had.”

asked by Seamus Cassidy · answered by Julie Francis

Why reaffirm guidance if Q2 was solid, given Ingredient Solutions costs? Any changes to other segment outlooks? Cadence for the rest of the year? Updates on Distilling Solutions visibility and potential bottoming?

Branded Spirits and Distilling Solutions outlooks are confirmed. Distilling Solutions still faces oversupply, but management is pleased with performance, operating expense management, and white goods expansion. Ingredient Solutions outlook was updated due to waste disposal costs. Q4 is expected to be stronger than Q3, which will still be affected by ingredient issues. Distilling customers remain focused on inventory reduction and working capital, not new long-term commitments. New TTV data supports a gradual rationalization scenario, with production down 28% YoY and inventory growth cut in half, indicating conditions are not deteriorating further.

“We don't yet see evidence of a sharp recovery, but we also don't see evidence that the industry conditions are deteriorating further. Finally, we're seeing a market that is slowly working through excess inventory, moving towards other routes over time.”

asked by Mark Tarente · answered by Julie Francis

What is holding up Ingredient Solutions margin improvement, and when will progress be seen? Clarify if 1% of sales for rationalized brands refers to Branded Spirits or total company sales.

Ingredient Solutions margin improvement is held back by higher waste starch disposal costs, which are expected to persist through year-end. The team has a roadmap to reduce these costs, with expectations to reach low 20s gross margin by end of 2027. The 1% of sales for rationalized brands refers to 1% of Branded Spirits segment sales.

“for 2027, our expectation, again, the same team that has improved the reliability, same team that is solving the fluent is the same team that has identified the different work streams that we can improve the other two different disposals. And so we expect, and I'd say by the end of the 2027, you can expect ending the year around the low 20s for the gross margin.”

asked by Sean McGowan · answered by Julie Francis

Confirm $13M-$18M barrel distillate put away is correct and if it's for branded business. How does the Remus brand fit into the branded spirits outlook?

Confirmed $13M-$18M barrel distillate put away, which supports both branded and distilling solutions, unlike last year when distilling put away was cut. Remus is a fantastic but small brand, primarily managed through limited-time annual releases for highly engaged bourbon consumers, rather than being a core growth driver like Penelope or Yellowstone.

“Remus brand is a fantastic brand that is well received by bourbon consumers. They love our our annual release, but it's a very, very small percent of our business.”

asked by Mitchell Pinheiro · answered by Brandon Gall

What is the end objective for the Ingredient Solutions waste stream (less waste, upcycling, lower disposal costs)? How is MGP balancing innovation vs. leaning into existing successful RTD products?

The objective for the waste stream is a combination of reducing waste (new dryer), more efficient disposal, and eventually upcycling. The elevated costs are operational, and a roadmap exists for reduction, with full implementation expected in 18-24 months. For RTDs, MGP takes a measured approach, focusing on purposeful innovation that connects with consumers and sells, rather than just launching many SKUs. They emphasize price-pack architecture (e.g., <$30, <$3/drink for Penelope RTDs) and ensuring each brand plays an appropriate role.

“RTPs play a really important role. We're early days into it. I mean, 2.4% market share with just seven SKUs is pretty good, right? So we want to make sure that we're not just launching innovation and launch innovation.”

asked by Ben Clive · answered by Julie Francis