CHARLOTTE, N.C. — Executives of Snyder’s-Lance, Inc. expect a six-area performance transformation plan, which includes dropping hundreds of stock-keeping units (s.k.u.s), will improve operating profit by about $175 million over the next three-plus years. The company expects to complete the plan by 2019 and to achieve its full benefits in 2020, said Brian J. Driscoll, president and chief executive officer, in an Aug. 8 earnings call.
|Brian Driscoll, president and c.e.o. of Snyder's-Lance|
“In 2020, when the plan is complete, we anticipate operating margins to reach 14%, earnings per share to grow at a four-year CAGR (compound annual growth rate) of between 11% and 13%, and to deliver $175 million in operating profit improvement,” he said.
Shares of Snyder’s-Lance on the Nasdaq opened at $36 per share on Aug. 8 and closed at $39.08, an increase of nearly 12%.
S.k.u. rationalization and portfolio maintenance will reduce business complexity, according to the company.
“For perspective, the team has identified close to 750 s.k.u.s of our approximately 2,000 branded s.k.u.s that can be eliminated in a three-year time frame with what we believe will have a minimal impact to revenue and a positive effect on operating income,” Mr. Driscoll said.
Removing low-profit, low-velocity s.k.u.s from retail shelves will allow Snyder’s-Lance to redeploy trade dollars into high-velocity, high-margin s.k.u.s, Mr. Driscoll said. The s.k.u. reduction also will allow Snyder’s-Lance to expand space and presence for its core items at retail.
“So it's not necessarily in every instance adding new s.k.u.s on core, but expanding core into the space vacated by some of the s.k.u.s that we're eliminating,” he said. “So we think we'll get better productive capacity, if you will, in terms of our shelf presence than we have today in certain key categories.”
The other five areas in the transformation plan are reducing direct spending and accelerating zero-based budgeting to improve indirect costs; reducing manufacturing and distribution network complexity and improving productivity; improving trade spend productivity and effectiveness and optimizing brand assortment; resetting working/non-working ratios and increasing investment in the company’s core branded portfolio; and elevating the performance of existing independent business owner direct-store delivery partnership.
While Snyder’s-Lance on Aug. 8 gave more details about its transformation effort, the plan launched July 25. Snyder’s-Lance on that date announced plans to close a chips plant in Perry, Fla., by the end of September and to reduce its global workforce by about 250 positions. To reduce selling, general and administrative expenses, Snyder’s-Lance is eliminating redundant positions across its locations, Mr. Driscoll said.
“We intend to continue looking for opportunities as we streamline and automate our back-office processes and eliminate non-value-added work,” he said. “In addition, we are rapidly ramping up our zero-based budgeting efforts.
“Turning to manufacturing and supply chain productivity, we have begun to address our capacity utilization challenge with the announcement of the Perry plant closure. We also plan to aggressively advance our deployment of lean manufacturing across our sites, put in more technology-based inventory and demand planning tools, drive procurement efficiencies and streamline logistics and transportation.”
The pacing of the margin expansion achieved in the plan should be more back-end loaded, he said. Operating margin should exceed 10% in 2018, approach the low teens in 2019 and then reach 14% in 2020.
“Furthermore, our long-term revenue growth goal continues to be to outpace the categories we compete in,” Mr. Driscoll said. “However, considering the impact from our s.k.u. rationalization and trade effectiveness initiatives, we do anticipate growing modestly below category levels in the early stages of these initiatives.”
Financial results for the second quarter ended July 1 came in slightly stronger than expected, he said.
“Importantly, our bottom line has stabilized, and our top line momentum continued,” he said.
Second-quarter net income under generally accepted accounting principles (GAAP) attributable to Snyder’s-Lance from continuing operations was $3,970,000, or 4c per share on the common stock, which was down 80% from $19,681,000, or 21c per share, in the previous year’s second quarter. Snyder’s-Lance in the 2017 second quarter incurred $29.8 million in pre-tax expenses, which primarily were related to severance and impairment costs as well as to the relocation of Emerald production to Charlotte from Stockton, Calif. Net income attributable to Snyder’s-Lance from continuing operations, excluding special items, was $26.8 million, which compared to $26.7 million in the second quarter of the previous year.
Snyder’s-Lance, in giving an outlook for the full fiscal year, now expects adjusted EBITDA to be $300 million to $325 million, up from an initial range of $290 million to $315 million. Earnings per diluted share, excluding special items, now is expected to be $1.10 to $1.20, which compares to a previous guidance of $1.05 to $1.20.
Net revenue for Snyder’s-Lance in the second quarter was $579,595,000, up 3.3% from $561,292,000. Branded net revenue grew 4.9%, thanks to a 6.6% increase in the allied brands and a 4.7% increase in the core brands. Growth in Late July, Snack Factory Pretzel Crisps, Lance, Snyder’s of Hanover, Cape Cod, Pop Secret and Kettle Brand was offset partially by a decline in Kettle Chips. Net revenue from the partner brand category declined 4.5% while net revenue from the Other category increased 0.9%.Snyder’s-Lance over the six-month period ended July 1 reported net income of $15,132,000, or 16c share, which compared to a net loss of $5,750,000 in the same time period of the previous year. Six-month net revenue was $1,111,096,000, up 10% from $1,009,161,000. Snyder’s-Lance continues to expect net revenue for the full fiscal year to be between $2,200 million and $2,250 million.