MGP Ingredients (MGPI)

Food and beverage supplier MGP Ingredients (NASDAQ:MGPI) announced better-than-expected revenue in Q3 CY2025, but sales fell by 18.9% year on year to $130.9 million. On the other hand, the company’s full-year revenue guidance of $530 million at the midpoint came in 0.5% below analysts’ estimates. Its non-GAAP profit of $0.85 per share was 40.9% above analysts’ consensus estimates.

Company Overview

Headquartered in Atchison, Kansas, MGP Ingredients (NASDAQ:MGPI) is a leading supplier of high-quality ingredients to the food and beverage industry

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Competitors selling distilled spirits include Brown-Forman (NYSE:BF.B) and Diageo (NYSE:DEO) while those selling specialty ingredients include Ingredion (NYSE:INGR) and private company Cargill.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.

With $578.9 million in revenue over the past 12 months, MGP Ingredients is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

As you can see below, MGP Ingredients’s revenue declined by 8.6% per year over the last three years, a poor baseline for our analysis.

This quarter, MGP Ingredients’s revenue fell by 18.9% year on year to $130.9 million but beat Wall Street’s estimates by 2.1%.

Looking ahead, sell-side analysts expect revenue to decline by 11.7% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and indicates its products will face some demand challenges.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

MGP Ingredients has good unit economics for a consumer staples company, giving it the opportunity to invest in areas such as marketing and talent to stay competitive. As you can see below, it averaged an impressive 39.7% gross margin over the last two years. Said differently, MGP Ingredients paid its suppliers $60.31 for every $100 in revenue.

In Q3, MGP Ingredients produced a 37.8% gross profit margin, down 3 percentage points year on year. MGP Ingredients’s full-year margin has also been trending down over the past 12 months, decreasing by 1.3 percentage points. If this move continues, it could suggest a more competitive environment with some pressure to lower prices and higher input costs (such as raw materials and manufacturing expenses).

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

MGP Ingredients has managed its cost base well over the last two years. It demonstrated solid profitability for a consumer staples business, producing an average operating margin of 12%. This result isn’t too surprising as its gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, MGP Ingredients’s operating margin decreased by 18.3 percentage points over the last year. Even though its historical margin was healthy, shareholders will want to see MGP Ingredients become more profitable in the future.

This quarter, MGP Ingredients generated an operating margin profit margin of 16.1%, down 4.1 percentage points year on year. Since MGP Ingredients’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, and administrative overhead increased.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

In Q3, MGP Ingredients reported adjusted EPS of $0.85, down from $1.29 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects MGP Ingredients’s full-year EPS of $3.75 to shrink by 31.9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

MGP Ingredients has shown impressive cash profitability, driven by its attractive business model that gives it the option to reinvest or return capital to investors. The company’s free cash flow margin averaged 8% over the last two years, better than the broader consumer staples sector.

Taking a step back, we can see that MGP Ingredients’s margin expanded by 5 percentage points over the last year. This shows the company is heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

MGP Ingredients’s free cash flow clocked in at $27.57 million in Q3, equivalent to a 21.1% margin. This result was good as its margin was 5.9 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

MGP Ingredients historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

MGP Ingredients reported $13.45 million of cash and $268.7 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $143 million of EBITDA over the last 12 months, we view MGP Ingredients’s 1.8× net-debt-to-EBITDA ratio as safe. We also see its $7.53 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see MGP Ingredients beat analysts’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its full-year revenue guidance slightly missed. Overall, we think this was a solid quarter with some key areas of upside. The stock remained flat at $23.67 immediately following the results.

Updated: December 3, 2025 at 9:39 PM EST

Before deciding whether to buy MGP Ingredients or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

MGP Ingredients doesn’t pass our quality test. For starters, its revenue has declined over the last three years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising cash profitability gives it more optionality, the downside is its declining operating margin shows the business has become less efficient. On top of that, its projected EPS for the next year is lacking.

MGP Ingredients’s P/E ratio based on the next 12 months is 9.4x. While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $36.20 on the company (compared to the current share price of $24.78).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.