Prepared remarks
Good morning and welcome to the MGP Ingredients Second Quarter 2026 Earnings Conference Call with Julie Francis, President and CEO, and Brandon Gall, CFO. Please also note this event is being recorded today. In addition, this call may involve certain forward-looking statements. The company's actual results could differ materially from any forward-looking statements due to a number of factors, including the risk factors described in the company's annual and quarterly reports filed with the SEC. The company assumes no obligation to update any forward-looking statements made during the call, except as required by law. This call will contain references to certain non-GAAP measures, which the company believes are useful in evaluating the company's performance. A reconciliation of these measures to the most comparable GAAP measures is included in today's earnings release, which was issued this morning before the markets opened and is available at https://www.mgpingredients.com. At this time, I would like to turn the call over to Julie Francis, President and CEO of MGP Ingredients. Please go ahead.
Good morning. I'd like to thank you all for joining us today on our second quarter 2026 earnings call. For the second quarter, sales came in at $124.4 million, down versus the prior year as expected. Adjusted EBITDA of $27.6 million and adjusted basic EPS of $0.72 also declined versus the second quarter of last year. However, both of these key metrics were ahead of our expectations. These results reflected continued momentum in our Premium Plus portfolio, led by Penelope Bourbon and Yellowstone, and an improvement in select mid and value-priced brands. We also delivered sales growth in Ingredient Solutions against our best quarter of 2025, which reflects continued strong customer demand, supported by improved operational reliability and inventory availability. In a challenging environment, our Distilling Solutions team delivered both lower distillation costs and favorable sales price and mix, resulting in gross margin expansion versus the prior year. We are pleased with this performance as it reflects the success of the actions we took during the second quarter to execute against our strategic roadmap. It also demonstrates the positive impact of our efforts to strengthen and revamp our sales, marketing, and supply chain functions while adding specific capabilities across all levels of the company to address new and existing growth opportunities. We also continue to drive progress across the business by eliminating waste, driving efficiencies and maximizing effectiveness through the implementation of our ownership cost management initiative, which I've discussed in previous calls. While we'll talk more about our segment performance later in the call, I'd like to take a few moments to update you on the progress we have made with our key initiatives. As I've mentioned previously, we have been strengthening our core by adding specific capabilities to our leadership team. Yesterday, we announced 4 strategic appointments designed to expand our commercial and marketing excellence across Distilling Solutions, Branded Spirits, and overall MGP. Tom Neiheisel joins us as Vice President to lead Distilling Solutions Sales. For Branded Spirits, Sol Clahane is now serving as Managing Director and Leader of National Accounts, while Marilyn Chen has taken the role of Brand Director to lead the marketing efforts behind Penelope Bourbon. On the corporate side, David Sanders has joined us as Vice President to lead Enterprise Financial Planning and Analysis. Together, these appointments expand our leadership and expertise across customer strategy, national retail and on-premise partnerships, brand marketing and planning, as well as reinforce our focus on driving growth across our business and executing against our strategic roadmap. Before turning to our business segments, I want to address the recent distributor news regarding RNDC's bankruptcy filing. Since the beginning of the year, we have known about RNDC's financial challenges, and while the bankruptcy has a financial impact, which Brandon will cover in his remarks, I want to highlight the significant progress we've made strengthening our national distribution network and expanding our route-to-market capabilities. The team has been executing a disciplined transition strategy, conducting extensive market-by-market distributor assessments and carefully evaluating each market's unique dynamics. Through this process, they successfully identified, vetted, and validated new distribution partners to ensure business continuity and position the portfolio for future growth. That preparation is already impacting results. During June, we successfully transitioned 10 markets to Reyes Beverage Group with minimal changes to our route-to-market model and disruption to customers or field operations. Just as importantly, the partnership is generating early positive momentum. During the first month of operation, depletions in our Premium Plus and mid-tier portfolios increased 7% and 4%, respectively. While we are encouraged by this early success, our work is not yet complete. We are currently progressing through various stages of distributor transition for certain open and control states, with many transitions targeted to go live later this quarter. Together with our new distributor partners, we will concentrate on expanding distribution, elevating in-store execution, and accelerating growth across our Premium Plus portfolio. Now turning to our business segments. I'll begin with Branded Spirits, our primary long-term growth platform. The second quarter provided another strong proof point that our strategy is working and our initiatives are strengthening performance despite a challenging industry backdrop. Throughout the quarter, we continued to outperform the broader spirits category by accelerating growth in our Premium Plus portfolio while stabilizing our mid and value-tier price brands. At the same time, we remain focused on building the capabilities needed to sustain long-term growth, including digital marketing, trade marketing, national accounts, and on-premise execution. While reported sales were modestly below prior year, excluding sales of our other products category, which primarily consists of contract bottled products sold in Europe, our Branded Spirits sales increased 3% compared to prior year. This performance exceeds both Nielsen industry trends, which declined 2% during the quarter, and NABCA trends, which were down 3%. Our Premium Plus portfolio grew 5% in the quarter, significantly outperforming both Nielsen and NABCA, which were down 3% and 5%, respectively. We also delivered approximately 1% growth in our mid and value-priced brands, comparing favorably to declines of 2% at Nielsen and 4% at NABCA. These results reflect the strength of our portfolio and the effectiveness of our brand building and revenue growth management, or RGM initiatives. Profitability also continued to improve. Second quarter gross margin expanded 20 basis points to 53%, driven by favorable portfolio mix and early benefits from our RGM efforts. Gross profit totaling $31.6 million was below prior years, resulting from the anticipated decline in our other products category. Overall, we are encouraged by the continued momentum in Branded Spirits and believe our portfolio remains well-positioned to deliver differentiated growth while gaining share in a difficult operating environment. Let's take a moment to focus on our Premium Plus portfolio, which continued to be a key growth engine during the quarter, led by Penelope, Yellowstone, and Everclear. Penelope sales increased 13% despite cycling the highly successful launch of Wheated in the prior year period. Growth was supported by continued strength in Four Grain, an original core brand, which benefited from increased media investment and expanded distribution. The core also benefited from recent innovation, including the introduction of 2 new core expressions, Penelope Kentucky Straight Bourbon and Penelope Rye. We were also excited to add to our ready-to-pour portfolio with the launch of our new Blackberry Old Fashioned, while also staying true to our brand's ethos with newly introduced limited-time offerings of Penelope Riviera and Architects of Golf. Yellowstone delivered another exceptional quarter, with sales increasing 54%. Growth was driven by innovation, including our recent limited-time release commemorating the United States' 250th anniversary, as well as improved performance of Yellowstone Select in targeted markets supported by increased marketing investment and RGM initiatives. Everclear grew 13%, reflecting increased consumer engagement in key consumption occasions and continued strength in the brand's core positioning. Turning to our mid-price portfolio. Stabilization efforts continue to gain traction. Growth was led by Exotico, Juárez Tequila, and Ezra Brooks, and driven by improved distribution, targeted price actions, and successful distributor transitions and focused brand support. Overall, these results reinforce our confidence that the portfolio is becoming increasingly more balanced with growth in Premium Plus brands complemented by improving performance across our larger heritage brands. Another important strategic initiative is portfolio optimization. During our last earnings call, we discussed plans to rationalize lower priority brands and SKUs to improve focus and profitability. I'm pleased to report that we've exceeded our original expectations. As of the second quarter, we have rationalized 52 brands, representing approximately 47% of our product portfolio. While these brands account for approximately 1% of sales, this effort is expected to improve annualized gross margin by approximately 25 basis points, while also enhancing the sales top-line performance estimated to be 42 basis points through improved commercial focus. Beyond the direct and readily visible P&L benefits, this initiative is creating enterprise value by simplifying operations, improving inventory management, and driving working capital efficiencies across the business. Expanding distribution remains a key strategic priority and an important source of future growth. During the quarter, we grew our national and regional chains off-premise points of distribution by 7% and on-premise points of distribution by 4% sequentially. For these same customers, our Premium Plus portfolio grew off-premise points of distribution by 14% and grew on-premise by 10% sequentially. Overall, we are encouraged by the momentum across Branded Spirits and remain focused on expanding distribution, increasing consumer awareness, optimizing our portfolio, and accelerating growth across our highest priority brands. Turning to Distilling Solutions, second quarter sales were $29.2 million, down 42% compared to prior year. Gross profit of $11.3 million declined 40%. However, gross margin improved approximately 110 basis points to 38.7%, driven by favorable ongoing cost savings initiatives and sales mix. We continue to make gradual progress and believe we remain well-positioned to compete intelligently and aggressively in a very challenging market. As you know, the industry remains significantly oversupplied with elevated inventory levels continuing to pressure demand. Despite these market conditions, we remain one of the leading global providers of contracted new make and aged American whiskey and continue to focus on the actions within our control to strengthen the business and position it for long-term success. The primary focus of our larger national and multinational customers, which historically represent the majority of our new distillate demand, is reducing inventory and managing working capital. Many customers are operating under strict capital allocation guidelines and are limited in their ability to enter into long-term supply commitments as they work through existing inventory positions. Importantly, these discussions are less about production capabilities and more about balance sheet management in a market that remains oversupplied. In response, we continue to deepen customer relationships by providing solutions beyond traditional new distillate supply. This includes opportunistic aged whiskey sales, premium white goods offerings, such as premium GNS and gin, and other services that help customers improve profitability, optimize inventory, and support their broader business objectives. While brown goods sales declined approximately 59% in the quarter versus the prior year, we are seeing encouraging progress in several targeted initiatives. We continue to expand our presence in private label whiskey, and the significant national private label customer we discussed last quarter has increased its business beyond the original demand levels communicated to us. We're also focused on driving cash generation by expanding our portfolio of value-added services and strengthening customer retention. Warehouse services represented approximately 30% of Distilling Solutions sales during the quarter, with both sales and gross profit increasing versus the prior year. While industry conditions remain challenging, we believe our customer relationships, commercial capabilities, aged whiskey expertise, and expanding service offerings position us well to capitalize when the market ultimately normalizes. Turning now to Ingredient Solutions, demand across our specialty ingredient portfolio remains healthy. During the quarter, specialty starch sales, including Fibersym, increased 2%, and we continue to ship all available production to meet customer demand. Our specialty protein platform marketed under Arise also grew, benefiting from favorable mix and pricing. These results underscore the continued demand for high-protein, high-fiber, and nutrient-dense food products. Trends such as GLP-1 adoption, lower net carb diets, and protein-focused nutrition continue to drive innovation across bakery, snack, and meal solution categories. For the second quarter, Ingredient Solutions sales increased 2% to $35.5 million, despite lapping a particularly strong prior year comparison. Growth was driven by favorable pricing and mix within our specialty protein and specialty starch portfolios, as well as improved sales of biofuel and other co-products as operational performance stabilized. These results also reflected an addition of 4 significant new national customers. While revenue trends remain encouraging, profitability continues to be impacted by elevated waste starch disposal costs associated with the transition following the closure of the Atchison Distillery and startup of the biofuel facility. As a result, gross profit declined to $3.6 million and gross margin was 10.1% during the quarter. Since the beginning of the year, the team has significantly improved operational reliability and reduced unplanned downtime, resulting in higher production throughput. While these improvements are encouraging, they also generated greater waste starch stream during the first half than initially anticipated. Through various engineering solutions, the team successfully reduced waste volumes during the second quarter. These solutions have proven to be more cost-effective than traditional waste disposal methods and reduce reliance on third-party providers. However, implementation costs were higher during the quarter than originally expected. While we expect these costs to improve over time as our processes are further optimized, the impact is reflected in our updated full-year Ingredient Solutions margin outlook and incorporated into our 2026 guidance. With that, I will turn the call over to Brandon.
Thank you, Julie. Turning now to our financial results. For the second quarter of 2026, we reported consolidated sales of $124.4 million, which were down 15% versus the prior year period. Gross profit of $46.5 million was down 20%. Both metrics were lower versus the prior year, primarily due to expected declines in brown goods sales and Distilling Solutions. This was partially offset by higher Ingredient Solutions sales. Consolidated gross margin of 37.4% declined by approximately 270 basis points as higher waste starch stream costs in Ingredient Solutions pressured overall profitability. Both Branded Spirits and Distilling Solutions saw gross margin expansion in the quarter relative to prior year. Branded Spirits advertising and promotion expenses decreased by approximately 12% year-over-year. It represented 9.3% of Branded Spirits sales, primarily due to the timing of spend throughout the year. For the full year, we continue to expect Branded Spirits A&P to be approximately 13% to 14% of Branded Spirits sales. Our total SG&A spend declined by 13% in the second quarter, while adjusted SG&A declined by 19%, with both amounts showing the benefit of our expanded cost savings efforts. These SG&A savings were partially offset by a $2.1 million credit loss provision taken in the quarter relating to the RNDC Chapter 11 filing. Net income of $12 million was down 17% versus the prior year, while adjusted net income of $15.8 million decreased 25% on a year-over-year basis. Earnings per share for the second quarter were $0.55 versus $0.67 in the prior year. On an adjusted basis, earnings per share of $0.72 decreased 26% year-over-year. Adjusted EBITDA of $27.6 million decreased 23% over the same period. Capital expenditures declined 66% to $6.4 million on a year-to-date basis. We continue to estimate CapEx of approximately $20 million for the full year as we look to optimize our capital deployment in the current industry environment. As of June 30th, our net debt leverage ratio was approximately 3.5x, up from 2.1x at the end of March. This expected increase was primarily due to the Penelope earn-out payment of approximately $111 million, which was made during the second quarter. Turning to annual guidance. We are reaffirming our expectations for 2026 net sales to be between $480 million and $500 million. Adjusted EBITDA is still projected to range from $90 million to $98 million. This is consistent with previous expectations as the efficiencies and savings from our recently implemented ownership cost management mindset initiative are expected to offset our reduced gross profit outlook in Ingredient Solutions and our Branded Spirits second quarter provision for credit loss. Adjusted basic EPS for 2026 is still expected to be between $1.50 and $1.80, with weighted average shares outstanding remaining at approximately 21.4 million. We now expect our full-year 2026 effective tax rate will be approximately 23% due to a recent revision to 2025 Kansas State law, which resulted in a favorable revaluation of certain deferred tax liabilities. Turning to our balance sheet and cash flow outlook, we maintain our expectations for full year 2026 operating cash flow of $50 million to $55 million and free cash flow of $30 million to $35 million. Both of these exclude the impact of the Penelope earn-out payment. We anticipate our net leverage ratio will peak during the third quarter. We continue to estimate net whiskey put away in the $13 million to $18 million range for 2026, which includes both new production and procurement of barrels. From a business segment perspective, our full-year segment outlook for Distilling Solutions is consistent with previously shared estimates, with sales down approximately 35% and gross profit down approximately 40%. Our full-year sales outlook of $140 million to $150 million for Ingredient Solutions reflects strong growth as we expect improved year-over-year reliability and throughput gains from our operational initiatives. However, due to increased waste starch stream costs, we now anticipate Ingredient Solutions gross margins to be in the high single to low double-digit range for the full year. Our full-year segment outlook for Branded Spirits is unchanged as we continue to expect sales declines of mid-single digits with slight gross margin improvement. To close, I'd like to reiterate Julie's previous comments. As we move through the second half of 2026, we will maintain our strategic roadmap and continue to drive our key growth initiatives while prioritizing our best opportunities for growth. We won't stop taking the decisive actions that are key to the company's long-term growth, and we will continue to execute with discipline. And with that, I'd like to turn it back over to Julie.
Thank you, Brandon. Before we wrap up, I want to thank the entire MGP team for another quarter of execution, performance, impact, and care, and for their hard work and commitment to deliver against our strategic roadmap. This strategic roadmap is designed to drive growth across all 3 businesses. For Branded Spirits, we will continue to focus on winning in the Premium Plus category with Penelope Bourbon, while strengthening our overall brand focus. We will prioritize our best-performing brands and plan to rationalize approximately 47% of our product portfolio. We will also strive to increase our penetration in national accounts and to strengthen our digital marketing capabilities. For Distilling Solutions, we will remain focused on rebuilding our aged whiskey pipeline while broadening our premium white goods offerings to complement our brown goods portfolio. We will also continue to work on attracting and retaining a wider pool of customers by growing our private label and international whiskey programs and by expanding our value-added service offerings. We are pleased to have an industry veteran join us who is immediately engaging in the business and with customers. And for Ingredient Solutions, our efforts will remain focused on driving growth through our industry-leading specialty fiber and specialty protein product offerings. We expect to continue our operational reliability, enhance inventory availability, and to make continuous improvements across the segment. Managing high waste disposal costs will remain a key priority for this business. Looking ahead, I'm encouraged by the progress we are making across our organization. As I stated earlier, our strategy remains grounded in focus, execution, discipline, and accountability. We're actively evaluating all levers to operate more efficiently and effectively. While the industry outlook remains challenging, we're committed to addressing our challenges in order to position MGP to emerge as a better aligned and more resilient company that is capable of delivering long-term value creation. And with that, I'd like to turn the call over to the operator for any questions.
Questions and answers
We will now begin the question and answer session. The first question comes from Seamus Cassidy with TD Cowen.
Spirits, you mentioned some strong innovation and distribution gains that helped drive growth for some of your brands this quarter. So I guess two-part question. One, would you characterize this quarter as above average in terms of innovation or is the pipeline fairly well balanced throughout the year? And then two, what's the runway for distribution expansion going forward? And I guess thus far, how have your teams sort of been successful in realizing these distribution gains?
Seamus, it's Julie. The very first part of your question was cut off, so I just want to make sure that we have exactly what you said because you didn't start right away.
Yes, sorry, I was just saying strong innovation and distribution gains drove the growth. So, I guess, is this quarter above average in terms of innovation or is the pipeline fairly well balanced?
Okay, got you. First and foremost, I appreciate you joining the call. This quarter we were very pleased with our Branded Spirits performance, driven by our Premium Plus portfolio. We had strong innovation this quarter, though we also had strong innovation last year. If you recall, Penelope was up 13% in the quarter, and we were lapping a 100% increase from last year. We are demonstrating that we can cycle strong new innovation. During the quarter we launched two new core Penelope expressions, Kentucky Straight Bourbon and Everyday Rye, so we now have a core lineup, all priced under $40, to put on shelves. We will continue to add limited-time offerings that the Penelope core consumer appreciates, but we plan to be fairly measured over the next couple of quarters. Because we did a lot of innovation last year, we are doing about 15% less innovation now, but the quality is better and we have digital investment behind it, so we feel bullish that our innovation is working. Ready-to-Pours was another opportunity we had been underparticipating in, and we are now up to seven RTPs, four of which are in Penelope. We launched Blackberry in the quarter as well, and so far those seven SKUs have a 2.4% share, so we are certainly pleased with the performance.
Great. And then just the runway for distribution expansion for the Branded Spirits portfolio?
Yes, that's great. Yes, in the national and regional accounts, I think you've seen the numbers. We are very pleased with the expansion and what we're seeing there, and we do think there's more opportunity. We recently announced a seasoned 30-plus year industry veteran to lead the national accounts. We do think we're under-indexed in both regional and national, so that runway is certainly there. As we've said before, we have anywhere between a 3x to 6x disadvantage in average number of items in national and regional accounts. We're very pleased with the performance, but we think there's a much larger runway to be had.
Next, we have Marc Torrente with Wells Fargo.
First, this was another quarter of solid results versus expectations, yet you still reaffirmed the guide. You called out Ingredient Solutions costs as an offset. Any other changes to your outlook for the other segments? Or are those progressing to plan? And how are you thinking about cadence for the remainder of the year?
Yes, I'll take the first part and let Brandon talk about the cadence. As you saw, for Branded Spirits we have confirmed our full segment outlook, and we've done the same for Distilling Solutions. On Distilling Solutions, the oversupply environment is certainly present, but we're pleased with the performance we're still able to deliver. The team is doing a great job managing operating expenses and working with customers to expand our premium white goods. We're also pleased to have an industry veteran like Tom join us; he has worked in Distilling Solutions for three different multinational companies and will support our next chapter of growth. Our margins were in the mid-30s and we still expect that to be maintained. In Ingredient Solutions, we updated the full segment outlook to reflect increased costs due to waste stream disposal. We've always assumed in the full-year outlook for Ingredient Solutions that the back half would see 15% to 20% more pounds. Because those pounds are somewhat more costly to dispose of, we sequentially reduced that performance. I'll turn it over to Brandon for cadence.
Yes, as far as cadence goes, Marc, depending on the segment it can be a little different, but we are, as typical with our business, expecting Q4 to be stronger relative to Q3. And as we're working through the ingredients issues, which are more near term, we expect those to affect profitability in Q3 as well. So Q4 will be relatively stronger than Q3.
Okay, I appreciate that. And then entering the year, it seemed you were cautiously optimistic '26 could be a bottom. You had also said that you hope to get some better visibility on key distilling customer needs for '26 and beyond at some point during Q2 or front half of the year. Any updates here in terms of order outlook and maybe your ability to grow off the '26 base?
Yes, let's talk about Distilling Solutions visibility. I think that's a very good question. Tom and his team have recently had customers across large multinationals and also large and medium craft producers. All the customers still remain very focused on reducing inventory. They're in an oversupply situation, preserving working capital rather than making new long-term distillate commitments. In addition, tighter inventory finance and the availability of attractively priced aged whiskey continue to discourage new-make purchases across most customer segments. We do remain very engaged. Our partnership approach with our customers is working. We'll continue to find opportunities through aged whiskey sales, private label, where you heard some nice progress and results from our new customer that we launched in May, and also in premium goods and warehouse services. We're still very bullish on how well positioned we are at the end of this, and as we get through this very difficult time there will be a few winners and we think we're positioned to be one of those. But the market does continue to be driven by inventory rationalization and capital allocation discussions. We certainly, again, reaffirm our full year outlook, which is good. I do want Brandon to speak, and we have some new TTB data that was recently released, and I think it's important for Brandon to share that.
Yes. And so TTB data was recently updated through March. So we got 5 incremental months of data recently. And the data supports that exact view, which is this is fundamentally an inventory rationalization cycle. On the production side, trailing 12-month, production is down roughly 28% year-over-year, which is we're now operating as an industry at the lowest run rate we've seen since 2018. On the demand side, dumps for bottling and others is down approximately 9%, not a great print. However, a lot of this we believe is being driven by weak export data and demand due to tariffs and international trade flows. The most encouraging thing within the data is inventory. Although they remain elevated, year-over-year inventory growth has been cut roughly in half from what it was 6 months ago, which is an important signal that production cuts are beginning to work their way through the system. So overall, Marc, we view the data as supportive of a gradual rationalization scenario. 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.
The next question comes from Sean McGowan with Roth Capital Partners.
I'd like to drill down a little bit more on the Ingredient Solutions side. So can you talk about, you know, what is it that's holding up the improvement in margins and when would you expect to start to see some progress on that year-over-year?
Thanks, I appreciate that. Here’s what has improved: reliability and throughput. As you know, we faced significant challenges while closing our Atchison Distillery and running that facility reliably. The good news is that since March we have produced the pounds we expected, and in the back half those pounds will be up by more than 20%. The downside is that as we produce more pounds, waste starch disposal and implementation costs rise. We have made great progress on one work stream, effluent, which has improved sequentially, but we still see this headwind, especially with the higher production in the second half, and we expect it to persist through the end of the year; our full segment outlook reflects that. For 2027, the same team that improved reliability and addressed effluent has identified additional work streams to improve the other two disposal areas, and we expect to finish the year with gross margins around the low 20s. We are pleased with some areas of performance but not satisfied with the other challenges we are encountering.
Okay. And if I can ask you to clarify something you said earlier when you were talking about rationalizing brands. I think you said that the brands that have been rationalized accounted for 1% of sales. Did you mean 1% of Branded Spirits sales or 1% of total company sales?
No, 1%. Yes, that's a great question. Just 1% of segment sales, sorry, 1% of Branded Spirits sales. Since you brought it up, I'm certainly pleased with the progress. Last time we were at 30, we had targeted 45, and now we're at 52. In discussions with our newest distributor partner about executing our plan, they were very pleased to see we are focused on the product portfolio, and their encouragement made us rethink that even more. We're seeing early proof points that when you focus on the main brands and invest accordingly, with heavy investment in five brands, mid-level investment in the next five, and selective investment in some value brands, streamlining focus and investment is producing nice results. I appreciate the question, and we are pleased with the progress we're making.
The next question comes from Mitch Pinheiro with Sturdivant.
I had just a couple of questions. So first, just a clarification. Brandon said on the barrel distillate, you would still expect an increase in net put away between $13 million and $18 million. Did I hear that correct?
Yes, that's correct, Mitch.
So we're basically at the high point of the barrel distillate inventory level?
Yes, that's correct.
Is that fair to say?
Yes, if you look at last year, we followed a very similar arc: we strove for efficiencies in the front half and scheduled most of our put-away, so this is going according to plan.
Okay. And obviously this put away is for the branded business, correct?
It's for both, Branded and Distilling. As you recall, last year, we cut back a distilling put away all the way. And this year we're turning that back on to support our long-term strategy in support of our customers. And so it consists of both this year, Mitch.
Okay, you mentioned something, and I also saw that finished goods are down. Are finished goods down? Is that in the Branded Spirits business?
Yes, much of that's going to be in the Branded Spirits business. That's correct.
Okay. And then when you're looking at the Branded business, obviously the focus has been on Yellowstone and, I guess, Penelope as well. Are you going to focus at all on the Remus brand on the Ross & Squibb side, and how does that factor into the Branded Spirits outlook?
Yes, Remus is a fantastic brand that Bourbon consumers respond to. They love our annual release, but it represents a very small percentage of our business. We believe offering a limited-time release at the cadence Bourbon consumers expect is the right approach given the quality of the juice and the highly engaged Bourbon consumer behind it. That is the strategy. We also have clear strategies for Premium Plus, Penelope, Yellowstone, El Mayor, and Rebel. Selectively we are investing in mid and value to test for movement. For example, Yellowstone was up 54% this past quarter. Part of that was a limited-time offering, the 250th U.S. anniversary bottle with the Statue of Liberty and a seven-year juice, which was well received. Last quarter we began testing digital investments, ramped up capabilities, and are running those programs. About 15% of our A&P is now targeted to digital, up from zero last year. We tested Yellowstone Select in two markets, California and Pennsylvania, and both were up double digits. That momentum has continued and we have expanded into eight additional markets with similar results. We are very pleased with the focus on our product portfolio, streamlining it, and making sure each brand and product has the appropriate role and resources.
The next question is from Ben Klieve with Benchmark.
Congratulations on a nice quarter here. First, I want to double click on the Ingredient Solutions dynamic. And I'm wondering if you can talk about kind of what the end objective is going to be here for this waste stream. Is your expectation that, you know, you're going to have less of the waste stream when improvements are made, more successfully be able to upcycle it, say, to the fuel plant, or just that your costs to get rid of it are going to decrease? And then also I'm wondering if the elevated cost associated with this dynamic this year is, how much of it is a mechanical issue or an operational one?
On the three items you mentioned, the improvements will come from all three. First, we installed a new dryer. We also completed a successful shutdown with about 100 projects, including two large pieces of equipment and four miles of underground electrical cable replacement, and we came back up on time. That dryer will help reduce the waste stream. Second, we are becoming more efficient and effective in how we dispose of the material. Third, we expect additional improvements once we get class implementation; implementing this type of facility typically takes 18 to 24 months. We know the costs and where they sit relative to our financial thesis, and the same team that restored reliability is working on this. We have a roadmap to reduce those costs.
Got it. Got it. Thank you, Julie. One more question and then I'll get back in the queue. Could you elaborate a bit on the ready-to-drink business you are building? How are you balancing the innovation pipeline, introducing new flavors, with accelerating existing flavors and products that are gaining commercial traction and really leaning into what you've already built? Maybe that is not a trade-off, but I'm curious how you are thinking about this balance so we can understand how significant this product will be later this year or next year.
Listen, it's a measured approach. We streamline our product portfolio so each brand gets the attention and resources it needs. We have a continuous roadmap for both innovation and optimization — it's ongoing, not episodic. RTPs play an important role and we're still early days: 2.4% market share with just seven SKUs is a strong start. We don't want to launch innovation for innovation's sake. Distributor partners and consumers want products they connect with and that will sell, so we're purposeful about choosing the right flavors and how they are differentiated. We're very focused on price and package architecture. These new items are all below $30, with twelve pours to a bottle — less than $3 a drink for a fantastic-tasting beverage — and consumers are enthusiastic about the SKUs, the price point, and how they connect. It's not just whiskey; we have new flavors in espresso and other on-trend areas. We'll be thoughtful about rollout, while also supporting our broader business. We have five focus brands where we will keep innovating. The new alcohol consumer wants moments, experiences, and to try different things, so we need to stay engaged. Penelope is a great example: a highly engaged bourbon consumer who loves trying new expressions. We're excited about Penelope expressions and drops and will continue those thoughtfully. At the same time, we need core offerings: we didn't have a Kentucky Straight Bourbon or an everyday rye, and those play an important role for any national brand, so we're launching them purposefully. Our core price point is below $40, which in a value-minded world gives consumers great juice at a great price. In short, we're being measured, thoughtful, and impactful.
Congratulations again on a good quarter.
This concludes our question and answer session. I would like to turn the conference back over to Julie Francis for any closing remarks.
Thank you, everyone. We appreciate your engagement in our business and we look forward to talking again in the next quarter. Take care. Cheers.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.