Lancaster Colony (Lancaster Colony) Predictability Rank

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What is Lancaster Colony Predictability Rank?

Warren Buffett said many times that the companies he likes are:

1. Simple businesses that he understands
2. that have predictable and proven earnings and
3. with economic moat
4. those can be bought at a reasonable price.

It is hard to quantify "simple businesses that he (Buffett) understands", so we will focus on the other three characteristics instead. In GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank, we will show that the businesses that have predictable and proven earnings are usually also simple businesses that an average person could understand.

GuruFocus conducted a back test study of Warren Buffett's strategy of "buying good companies at fair prices" for the years from 1998-2008.

Lancaster Colony Predictability Rank Calculation

In our database there are 2403 stocks that have been traded from Jan. 2, 1998 to Aug. 31, 2008. We have the complete 10-year financial data and trading prices of these companies for this period. We rank the predictability of these companies based on the consistency of their revenue per share and EBITDA (earning before interest, tax, depreciation and amortization) per share over the past ten fiscal years, and study the correlation between the stock performances and the predictability of the business.

Our study may be subject to these biases and assumptions:

Dividend yields are not counted for investment returns
Effects of price changes due to spin-offs may not be fully adjusted
Study is subjected to survivorship bias due to de-listing, bankruptcy, LBO, M&A, etc.

The correlation between business predictability and investment returns of a company is showed below.

Correlation Between Business Predictability and Investment Returns

	Predictables	Non-Predictable	All stocks
Total Number of stocks	570	1833	2403
Total Lost Money	61	830	891
Total Lost More Than 50%	18	412	430
Total Lost More Than 90%	4	86	90
Average Gain	260.6%	100.0%	138.1%
Median Gain	150.0%	13.0%	39.0%
Maximum Gain	2852.0%	11483.0%	11483.0%
Maximum Loss	-100.0%	-100.0%	-100.0%
Annualized Average Gain	12.7%	6.7%	8.4%
Annualized Median Gain	8.9%	1.1%	3.1%

For the 570 predictable companies, we have seen strong correlation between the predictability of businesses and the stock performances over the past 10 years, regardless of the valuation of business at 1998. Accordingly, we have ranked the business predictability from 5-star to 1-star, as shown in this table.

Predictability Rank	5-Star	4.5-Star	4-Star	3.5-Star	3-Star	2.5-Star	2-Star	1-Star (non-predictable)	Average among all
% Out of All 2403 Stocks	3.3%	2.9%	3.7%	3.3%	3.3%	3.7%	3.3%	76.3%	100%
% that are in Loss (10y)	3%	10%	8%	9%	11%	18%	16%	45%	37%
Average Gain (10y)	364.6%	330.9%	278.0%	235.1%	243.5%	227.8%	154.8%	100.0%	138.1%
Median Gain (10y)	238.5%	193.5%	171.0%	159.0%	132.5%	113.5%	87.0%	13.0%	39.0%
Maximum Gainer	2228.0%	2547.0%	2452.0%	2852.0%	2432.0%	1892.0%	1807.0%	11483.0%	11483.0%
Maximum Loser	-82.0%	-53.0%	-67.0%	-100.0%	-83.0%	-100.0%	-78.0%	-100.0%	-100.0%
Annualized Average Gain	15.4%	14.6%	13.2%	12.0%	12.2%	11.7%	9.1%	6.7%	8.4%
Annualized Median Gain	12.1%	10.6%	9.8%	9.3%	8.2%	7.3%	6.0%	1.1%	3.1%

For detailed information about each predictability rank, please go to GuruFocus Research: What worked in the market from 1998-2008? Part I: Introduction of Predictability Rank

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Lancaster Colony (Lancaster Colony) Business Description

Industry

GURUFOCUS.COM » STOCK LIST » Consumer Defensive » Consumer Packaged Goods » Lancaster Colony Corp (NAS:LANC) » Definitions » Predictability Rank

Comparable Companies

Traded in Other Exchanges

LC1:Germany

Address

380 Polaris Parkway, Suite 400, Westerville, OH, USA, 43082

Website

http://www.lancastercolony.com

Lancaster Colony Corp is a manufacturer and marketer of speciality food products. The company's segments include Retail and Foodservice. By product segment, the company divides its portfolio into non frozen (roughly 70% of net sales) and frozen food. The key products and brands are salad dressing and sauces (Cardini's, Girard's, Marzetti), frozen garlic breads (New York Brand Bakery, Mamma Bella), vegetable dips and fruit dips (Marzetti), frozen parkerhouse-style yeast rolls and dinner rolls (Sister Schubert's, Mary B's), premium dry egg noodles (Amish Kitchen), frozen speciality noodles (Reames, Aunt Vi's), croutons and salad toppings, flatbread wraps, and pizza crusts.

Executives

Knight George F. Iii	director	380 POLARIS PARKWAY, SUITE 400, WESTERVILLE OH 43082
Zena Srivatsa Arnold	director	2500 BEE CAVE ROAD, BLDG. 1, SUITE 200, ROLLINGWOOD TX 78746
Luis Viso	officer: Chief Supply Chain Officer	380 POLARIS PARKWAY, SUITE 400, WESTERVILLE OH 43082
Kristin Bird	officer: President-Foodservice Division	380 POLARIS PARKWAY, SUITE 400, WESTERVILLE OH 43082
Carl R. Stealey	officer: President-T Marzetti Retail	380 POLARIS PARKWAY, SUITE 400, WESTERVILLE OH 43082
David Alan Ciesinski	officer: President & COO	H. J. HEINZ COMPANY, P.O. BOX 57, PITTSBURGH PA 15230
David S. Nagle	officer: SVP-T Marzetti Co Supply Chain	380 POLARIS PARKWAY, WESTERVILLE OH 43082
K. Pigott Thomas	officer: CFO and Asst. Secretary	C/O MGP INGREDIENTS, INC., 100 COMMERCIAL STREET, ATCHISON KS 66002
Alan F Harris	director
Elliot K. Fullen	director	380 POLARIS PARKWAY, SUITE 400, WESTERVILLE OH 43082
Gerlach John B Jr	director, officer: Chairman & CEO	LANCASTER COLONY CORP, 37 W. BROAD ST., COLUMBUS OH 43215
Barbara L Brasier	director	C/O MEADWESTVACO CORP, ONE HIGH RIDGE PARK, STAMFORD CT 06905
Michael H Keown	director	P O BOX 77057, FORT WORTH TX 76177
Timothy A. Tate	officer: SVP-TMarzettiFoodservice Sales	380 POLARIS PARKWAY, WESTERVILLE OH 43082
Neeli Bendapudi	director	FISHER COLLEGE OF BUSINESS, 556 FISHER H, 2100 NEIL AVENUE, COLUMBUS OH 43210