Ingredient, energy costs weigh on Lance earnings

by Eric Schroeder
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CHARLOTTE, N.C. — Net income at Lance, Inc. fell 70% in second quarter, bogged down by soaring ingredient costs that the company was unable to offset with price increases. Net income in the second quarter ended June 28 totaled $2,708,000, equal to 9c per share on the common stock, down from $9,052,000, or 30c per share, in the same period a year ago. The most recent quarterly results included a $21 million pre-tax increase in the cost of ingredients and energy.

Net sales for the quarter were $213,614,000, up 8% from $197,036,000 in the same period a year ago. Lance said branded product sales, which represented approximately 63% of total company sales, grew about 6%, driven by higher selling prices, continued strong volume growth in Lance branded home-pack sandwich crackers and Cape Cod branded potato chips, and incremental branded sales from the Brent & Sam’s acquisition. The gains partially were offset by the continued planned decline in certain trade channels and product lines that the company has deemphasized as part of its focused growth strategy.

For the six months ended June 28, net income fell 78% to $3,353,000, or 11c per share, from $15,262,000, or 49c per share. Sales totaled $411,582,000, which compared with $379,463,000 in the first six months of fiscal 2007.

"We anticipated our ingredient costs to be higher in the second quarter, therefore we implemented price increases," said David Singer, president and chief executive officer. "However, our costs for ingredients and energy escalated beyond our expectations; therefore our price increases were not sufficient to restore our profit margins. We are in the process of taking additional pricing actions during the third quarter, which will restore our profit margins once these new prices are implemented."

Mr. Singer added that the company experienced higher-than-expected costs associated with the consolidation of its Canadian sugar wafer facilities.

"The consolidation resulted in some anticipated one-time costs; however, initial productivity of the consolidated operation has not met our expectations, resulting in unanticipated additional costs," he said. "We are aggressively addressing the issues and are confident that we will have the process running smoothly during the third quarter."

Lance lowered its earnings per share estimate to a range of 62c to 70c per share, down from a range of 70c to 80c. Sales, meanwhile, were projected to total $830 million to $850 million, up from an earlier estimate of $805 million to $835 million.

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