CHARLOTTE, N.C. — Full-year net income at Lance, Inc. rose 29%, boosted by three strong quarters that helped offset a fourth quarter that was hurt by higher commodity costs. Net income in the year ended Dec. 29 totaled $23,838,000, equal to 77c per share on the common stock, up from $18,478,000, or 61c per share, in fiscal 2006. The most recent year’s results included a $22 million pre-tax increase in the cost of ingredients, primarily flour and vegetable oils.
Revenue for fiscal 2007 was $762,736,000, up 4% from $730,116,000 in fiscal 2006. Lance said branded product sales, which represented approximately 63% of total 2007 company sales, grew about 3%, driven by double-digit growth in Lance branded Home Pack sandwich crackers, double-digit growth in Cape Cod branded potato chips, and mid single-digit growth in Tom’s branded salty snacks. The gains partially were offset by declines in several product lines Lance deemphasized in order to focus on growth in more profitable lines.
For the fourth quarter ended Dec. 29, net income fell 91% to $1,081,000, or 4c per share, from $5,605,000, or 18c per share. Sales totaled $185,222,000, which compared with $172,402,000 in the fourth quarter of fiscal 2006.
"Despite the significant cost pressure we and the industry faced during the second half of 2007 from the unprecedented rise in the cost of flour and vegetable oils, we remained focused on executing our key initiatives aimed at strengthening the foundation of the company to drive long-term profitable growth and margin enhancement," said David Singer, president and chief executive officer. "During the year, we completed the building of our management team and developed an organizational structure that will support our growth and profitability initiatives. We increased the efficiency of our supply chain with significant investments in more efficient assets and changes to our warehousing and shipping operation. We began the development and installation of an Enterprise Resource Planning information system. We also drove efficiency improvements in our Direct-Store Delivery organization as we re-engineered routes in conjunction with the exit of our vending business and implemented a more efficient and capable hand-held computer system."
Mr. Singer said this progress led to "solid gains" in profit margins in the company’s branded business, which more than offset the lower profitability in non-branded business.
In an effort to compensate for the higher ingredient costs in late 2007, Mr. Singer said Lance has implemented price increases to its customers in the first quarter of 2008. But he noted that the price increases will not be sufficient to cover escalating flour and vegetable costs.
"These two important ingredient costs have moved up significantly since our 2008 prices were established, and we are in the process of making additional price adjustments to offset the increases," he said. "We expect our earnings to be squeezed until our pricing has caught up with the higher level of ingredient costs. We anticipate that our earnings in the second half of 2008 will be significantly stronger than the first half of 2008, as we believe that higher pricing will be in place and ingredient costs will have stabilized."
Looking ahead to 2008, Mr. Singer said Lance expects earnings per share to be in the range of 70c to 80c per share, with sales expected to be $790 million to $820 million.