CHARLOTTE, N.C. — Snyder’s-Lance, Inc. may divest some of its non-core brands as part of a ”comprehensive and aggressive performance improvement plan” that comes as first-quarter results fell “significantly behind our expectations,” said Brian J. Driscoll, interim chief executive officer.
Net income attributable to Snyder’s-Lance in the first quarter ended April 1 was $11,162,000, equal to 12c per share on the common stock, which compared with a loss of $25,431,000 in the prior-year period. Excluding special items, adjusted net income attributable to Snyder’s-Lance declined nearly 37% to $13,193,000 from $20,827,000.
Net revenue was $531,501,000, up 19% from $447,869,000. The result included the contribution of Diamond Foods, which Snyder’s-Lance acquired in early 2016, as well as 3.3% growth in Snyder’s-Lance’s legacy business, which includes such brands as Snyder’s of Hanover pretzels, Lance sandwich crackers and Cape Cod potato chips.
|Brian Driscoll, interim c.e.o. of Snyder's-Lance|
“Category softness, lower net price realization, unfavorable mix, cost headwinds and certain execution lapses converged, stalling our earnings momentum and pressuring our full-year outlook,” Mr. Driscoll said during a May 8 earnings call with investment analysts. “As we examined the issues and challenges behind our disappointing results, substantial underlying costs and complexity drags were exposed, which were not sufficiently addressed in the past.”
In April, Carl E. Lee Jr., the previous c.e.o. of Snyder’s-Lance, stepped down after 12 years with the company. Mr. Driscoll, formerly president and c.e.o. of Diamond Foods, was named interim c.e.o. No reason was given for Mr. Lee’s abrupt departure.
The company is moving with “an extreme sense of urgency and focus” to improve profitability and margin expansion going forward, Mr. Driscoll said. He outlined five priorities, which include a switch to zero-based budgeting, strategic pricing actions, streamlining manufacturing and supply chain, and investing in innovation and advertising to drive top-line growth.
Additionally, Snyder’s-Lance is planning a broad-based stock-keeping unit (s.k.u.) rationalization effort. Roughly half of the snack company’s 2,000 s.k.u.s contribute only 5% of total branded gross sales, Mr. Driscoll said.
“On average, those products are delivering annual sales of around $90,000 each, versus the remaining 50%, which drive annual sales of about $2.3 million each,” he said. “This proliferation of lower-volume s.k.u.s is having an adverse impact on our manufacturing and supply chain productivity and presents a meaningful opportunity for improvement in efficiency with minimal top-line sales impact.
“In fact, we believe that a substantial reduction in unproductive s.k.u.s will have a liberating effect on our D.S.D. (direct-store delivery) network, resulting in improved productivity and selling effectiveness. Relatedly, this optimization will also focus on orienting our R.&D. efforts around bigger ideas, resizing our co-manufacturing portfolio and evaluating our branded portfolio for non-core divestiture candidates.”
In addition to its core brands, which include Snyder’s of Hanover, Lance, Cape Cod, Snack Factory, Late July, Kettle Chips, Emerald and Pop Secret, Snyder’s-Lance has a handful of non-core brands, such as Tom’s, Jays, Archway and O-Ke-Doke, noted Alexander W. Pease, chief financial officer and executive vice-president.
|Alexander Pease, c.f.o. and executive vice-president of Snyder's-Lance|
“When we talk about evaluating or s.k.u. rationalization/simplification, we’re talking about evaluating where brands fit in the portfolio,” Mr. Pease said. “To the extent brands aren’t accretive to either our margin or our growth story, what role do they play in the portfolio? And is there a more logical home for them?
“There’s also the next level of analysis, which is even within those core brands, we’ve seen significant s.k.u. proliferation. And so what is really the role of the individual s.k.u.s within that brand? How does that support the net price realization? How does that support the growth strategy, and so forth?
“So, really, we’re looking at the issue kind of in its entirety. And to the extent there are options around divesting aspects that aren’t core to the business, that’s certainly on the table. If a better option is to manage that brand for cash and just slowly wind it down over time, that’s also an option. So I would say there’s a pretty broad-based strategic look at what the overall portfolio looks like today and what it should look like going forward.”For the full year, the company continues to expect net revenue in the range of $2,200 million to $2,250 million, an increase from net revenue of $2,109.2 million in fiscal 2016, and adjusted earnings before interest, taxes, depreciation and amortization to be between $290 million and $315 million, up from adjusted EBITDA of $284.1 million in 2016.