Emerald plant relocation 'more challenging' than expected

by Eric Schroeder
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Emerald nuts, Snyder's-Lance
Relocating its Emerald nuts facility resulted in a number of challenges for Snyder's-Lance.
 

CHARLOTTE, N.C. — Significant headwinds in freight and logistics expenses, coupled with higher-than-expected costs related to the relocation of the company’s Emerald nuts facility, offset some momentum at Snyder’s-Lance, Inc. in the third quarter of fiscal 2017.

In the quarter ended Sept. 30 Snyder’s-Lance sustained a loss of $56,263,000, which compared with income of $29,315,000, equal to 30c per share on the common stock, in the same period a year ago. The most recent results included $105,230,000 in impairment charges.

Meanwhile, revenues increased 3.7% to $564,184,000 from $543,903,000.

Brian Driscoll, Diamond Foods
Brian Driscoll, president and c.e.o. of Snyder’s-Lance

During a Nov. 7 conference call with analysts, Brian J. Driscoll, president and chief executive officer of Snyder’s-Lance, described the capital project initiative of relocating Emerald’s plant to Charlotte, N.C., from Stockton, Calif., as “more challenging than we expected,” adding that the project has resulted in “higher cost than planned and service-level disruptions.”

Alexander W. Pease, chief financial officer and executive vice-president, said a couple of things have made the transition of the Emerald plant challenging.

Alexander Pease, Snyder's-Lance
Alexander Pease, c.f.o. and executive vice-president of Snyder's-Lance

“What we were doing was dismantling a facility in California, shipping it 2,500 miles, or all the way across the country, and then reassembling it in Charlotte,” Mr. Pease said. “In the course of doing that, we were also adding upgraded engineering functionality to improve food safety, improve material handling, improve operating efficiencies and so forth. So, the overall investment case once the plant is up and running is actually very compelling. We’ll see significantly improved operating margin performance from what we saw historically when the plant was operating in Stockton.

“In terms of what’s been challenging, handful of things. First, obviously, just the inherent nature of plant relocation of that magnitude is always going to be challenging. So that’s just the truism. On top of that, obviously, given the distance we were relocating the plant, we weren’t able to retain or we were able to retain only very limited amounts of the talent pool, so we’re effectively rebuilding the talent pool from scratch. Third is that we’ve engineered some complexity into the plant that is requiring us to learn new capabilities, so things like automated material handling that requires a different level of rigor around cleaning for allergens, things like automated case packing, those sort of things. So the complexity overall has been significant.”

Despite the challenges, Mr. Driscoll said Snyder’s-Lance has made encouraging progress of late, and he is confident the pressures will abate and margins will improve dramatically once the company has the line operating in a more normal level of efficiency.
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