Snyder's-Lance, Inc. Reports Second Quarter 2017 Financial Results and Provides 2020 Financial Targets

Snyder's-Lance, Inc. (Nasdaq:LNCE) has reported financial results for the second quarter ended July 1, 2017 and updated its full-year 2017 outlook.

 

Total net revenue from continuing operations in the second quarter of 2017 increased 3.3% compared to the second quarter of 2016. GAAP net income attributable to Snyder's-Lance from continuing operations in the second quarter of 2017 was $4.3 million, or $0.04 per diluted share, as compared to $20.5 million, or $0.21 per diluted share, in the second quarter of 2016.

Net income attributable to Snyder's-Lance from continuing operations, excluding special items, for the second quarter of 2017 was $26.8 million, as compared to $26.7 million, in the second quarter of 2016.

Earnings per diluted share from continuing operations, excluding special items, were $0.27 in the second quarter of 2017, compared to earnings per diluted share from continuing operations, excluding special items, of $0.28, in the second quarter of 2016. 

Brian J. Driscoll, President and Chief Executive Officer of Snyder's-Lance: 

 

"I am pleased that we were able to deliver strong top line performance and modest profitability improvement in the second quarter, while stabilizing a very weak start to the year.”

“While we are encouraged by our branded sales momentum, we are not satisfied with our aggregate financial performance and have finalized a broad-based performance transformation plan to sharply expand margins and unlock substantial value for our shareholders."

Performance Transformation Plan 

As announced on April 17, 2017, the Snyder's-Lance's Board of Directors and senior management team have been conducting a comprehensive review of the Company's operations with the goal of significantly improving the Company's financial performance to deliver greater value to shareholders. 

As a result of this review, the Company has finalized a performance transformation plan focused on six key areas: 

 

• SG&A Expense Efficiency:. Reduce direct spending and accelerate zero-based budgeting to improve indirect costs.
• Manufacturing and Supply Chain Productivity: Reduce manufacturing and distribution network complexity and improve productivity.
• Product and Portfolio Optimization: Reduce business complexity through stock keeping unit, or SKU, rationalization and ongoing portfolio maintenance.
• Price Realization: Improve trade spend productivity and effectiveness and optimize brand assortment.
• Marketing Investment Optimization: Reset working/non-working ratios and increase investment in the Company's core branded portfolio.
• Channel Execution Excellence: Elevate the performance of the existing independent business owner direct store delivery partnership.

Brian Driscoll: 

 

"Snyder's-Lance is well positioned with an attractive portfolio of brands and a strong track record of revenue growth.”

“That said, we have not delivered on expectations for profitability and value creation. To address this shortfall, we have designed a comprehensive transformation program we believe will unlock operating profit improvement of approximately $175 million over the next 3+ years.”

“As we announced two weeks ago, we have officially launched this effort, and we expect to achieve the full benefits of the plan in fiscal 2020."

2020 Financial Outlook 

The Company believes that the execution of the strategic initiatives underlying the transformation plan will enhance the Company's margin profile and deliver long-term sustainable value to shareholders. 

By 2020, the Company is targeting for operating margin to reach 14.0% and earnings per share, excluding special items, to grow at a four-year CAGR of 11-13%. The Company will provide further details on the transformation plan on today's second quarter 2017 financial results call and will detail the key initiatives supporting achievement of the plan and targets at the Company's Investor Day scheduled for September 28, 2017, in New York City. 

Second Quarter 2017 Results 

 

Total net revenue in the second quarter of 2017 was $579.6 million, an increase of 3.3% compared to $561.3 million from continuing operations in the second quarter of 2016. Branded net revenue increased 4.9% as a result of a 6.6% increase in the Company's Allied Brands and a 4.7% increase in Core Brands. The Core Brand net revenue increase was led by growth in Late July®, Snack Factory ® Pretzel Crisps®, Lance®, Snyder's of Hanover®, Cape Cod®, Pop Secret®, and Kettle Brand®, partially offset by a decline in KETTLE® Chips. In addition, during the second quarter of 2017, net revenue from the Partner Brand category declined 4.5% while net revenue from the Other category increased 0.9%, each compared to the second quarter of 2016. 

Operating income in the second quarter of 2017 was $22.4 million, as compared to $41.9 million from continuing operations in the second quarter of 2016. Operating income, excluding special items, in the second quarter of 2017 was $52.3 million, or 9.0% as a percentage of net revenue, as compared to $50.2 million from continuing operations, or 8.9% as a percentage of net revenue, in the second quarter of 2016. The modest operating margin expansion was the result of lower general and administrative expenses and supply chain productivity and cost initiatives. These were partially offset by higher service and distribution costs, higher cost of sales related to new product introductions, and higher costs related to a lower quality potato crop which negatively impacted yields. 

Net interest expense in the second quarter of 2017 was $9.5 million compared to $9.4 million in the second quarter of 2016. The GAAP effective income tax rate from continuing operations in the second quarter of 2017 was 62.8% as compared to 37.8% in the second quarter of 2016. The increase in the GAAP effective income tax rates was primarily due to certain executive compensation awards that were not tax deductible. Excluding special items, the effective income tax rate from continuing operations was 36.2% in the second quarter of 2017 as compared to 35.2% in the second quarter of 2016. The increase in the effective tax rate, excluding special items, was primarily due to lower income from our U.K operations. 

GAAP net income attributable to Snyder's-Lance from continuing operations in the second quarter of 2017 was $4.3 million, or $0.04 per diluted share, as compared to $20.5 million, or $0.21 per diluted share, in the second quarter of 2016. In the second quarter, the Company incurred $29.8 million in pre-tax expenses which affected comparability, primarily related to severance and impairment costs as part of the Company's performance transformation plan, and the relocation of Emerald® production from the Stockton, CA manufacturing facility to the Company's manufacturing facility in Charlotte, NC. 

Net income attributable to Snyder's-Lance from continuing operations, excluding special items, for the second quarter of 2017, was $26.8 million, as compared to $26.7 million, in the second quarter of 2016. Earnings per diluted share from continuing operations, excluding special items, was $0.27 in the second quarter of 2017 compared to $0.28, in the second quarter of 2016. 

Adjusted EBITDA from continuing operations in the second quarter of 2017 was $76.8 million, or 13.2% of net revenue, as compared to adjusted EBITDA of $75.7 million, or 13.5% of net revenue, in the second quarter of 2016. Adjusted EBITDA is a non-GAAP measure defined herein under "Use and Definition of Non-GAAP Measures," and is reconciled to net income in the tables that accompany this release. 

Outlook 

Based on the Company's year-to-date performance, and revised expectations for the remainder of the year, for the full-year of fiscal 2017, the Company continues to expect net revenue to be between $2,200 million and $2,250 million, and now expects adjusted EBITDA to be between $300 million and $325 million, and earnings per diluted share, excluding special items, to be between $1.10 and $1.20. 

 

The Company's 2017 full-year outlook also includes the following assumptions: 

 

• Capital expenditures of $75 million to $85 million;
• Net interest expense of $37 million to $40 million;
• Effective tax rate of 35.5% to 36.5%;
• and Weighted average diluted share count of approximately 98 million shares.

Full-year 2017 GAAP guidance is not provided in this release due to the likely occurrence of one or more of the following items where the Company is unable to reliably forecast the timing and magnitude: continued transaction related costs associated with the divestiture of Diamond of California and integration of legacy Diamond Foods operations, other potential transactions and their related costs, settlements of contingent liabilities, possible gains or losses on the sale of businesses or other assets, restructuring costs, impairment charges, and the income tax effects of these potential items.