MGP Ingredients Inc. says, 'Thank you, Dr. Atkins!'

Low-carb trend helps company recover from tough times.
ATCHISON, Kan. (AP) -- A few years after wondering whether his 63-year-old wheat processing business would survive, Ladd Seaberg leads a company that has customers clamoring for its products and Wall Street noticing the little northeast Kansas-based firm.
After being hammered in the late 1990s by a steep drop in sales of wheat gluten, a baking ingredient that was the company's main product, Seaberg and other executives at Midwest Grain Products decided they had to refocus or risk going out of business.
Midwest Grain changed its emphasis from ethanol and commodity products such as wheat gluten and animal feed to specialty ingredients from proteins and starches it pulls out of flour. The company was renamed MGP Ingredients Inc.
Turn of events
During the transformation, MGP caught one of the biggest breaks in its history when the low-carb trend hit, ratcheting up demand for its proteins and starches that reduce carbohydrates in bakery and food products.
"Along came Dr. Atkins. It fell in our lap and really accelerated our program," Seaberg said. "Suddenly, we couldn't make enough of the stuff."
The specialty ingredients also have allowed expansion into such diverse areas as pet treats, hair and cosmetic products and even biodegradable golfing tees and cutlery. MGP also makes Wheatex, a textured protein that, with moisture, can be used as meat filler or a protein source for vegetarians.
The transformation was helped by $26 million in federal funds the company received after European competitors cornered the market on wheat gluten through what MGP considered unfair trade practices. MGP used the money to buy or expand its plants, buy millions of dollars in new equipment and enlarge its research and development department.
An explosion at its distillery in Atchison in 2002 even had a serendipitous outcome, Seaberg said, allowing the company to install state-of-the-art equipment at the plant, which produces ethanol and specialty products for alcohol, such as vodka.
On the bandwagon
One of the companies relying on MGP to respond to low-carb diets is Kansas City, Mo.-based American Italian Pasta Co., the largest producer of dry pasta in America. In response to declining earnings blamed mostly on the low-carb trend, the company began marketing several low-carb pastas, using MGP proteins as a base ingredient.
Tim Webster, chief executive of American Italian, is a big fan of MGP.
"It's a company that, for the last 10 years, everything that could have gone wrong went wrong. And they all of a sudden figured out that their products that they had developed for many, many years could be the way to take carbohydrates out of many food products," he said. "So now their business is on fire; they can't build capacity fast enough; their stock's going through the roof. And it could not happen to a nicer bunch of people."
Future promise
Jonathan Braatz, an analyst with Kansas City Capital Associates, said MGP has positioned itself to take advantage of profitable niches in the specialty products industry.
"They were certainly in the right place at the right time with regard to the low-carb products," Braatz said. "But all the other things on their plate are going to pay off. They've done a good job of developing the higher margin, higher proprietary customers."
The numbers back that up. In the third quarter of fiscal 2004, sales of the company's specialty ingredients rose 123 percent over sales in the year ago period, easily offsetting a 4 percent decline in the combined sales of commodity proteins and starches.
Sales of the company's ingredients segment in the third quarter totaled $29.6 million, more than double the $14.6 million in the third quarter of fiscal 2003.
The company's stock is trading in the $17 a share range, down from its 52-week high of nearly $23, but well above its low of nearly $4.