Snyder’s-Lance: Reports Results for Q3 of Fiscal 2016

Charlotte / NC. (sli) Snyder’s-Lance Inc. reported financial results for the third quarter ended October 01, 2016 and narrowed its full-year 2016 earnings per share outlook to the upper-end of the Company’s previous expectations. Total net revenue in the third quarter of 2016 increased 41.3 percent including the contribution of Diamond Foods. GAAP net income attributable to Snyder’s-Lance Inc. in the third quarter of 2016 increased to 29.3 million USD, or 0.30 USD per diluted share, as compared to 15.7 million USD, or 0.22 USD per diluted share, in the third quarter of 2015. Net income attributable to Snyder’s-Lance Inc. excluding special items for the third quarter of 2016, increased 80.8 percent to 33.7 million USD, as compared to 18.6 million USD in the third quarter of 2015. Earnings per diluted share excluding special items increased 34.6 percent to 0.35 USD in the third quarter of 2016 compared to 0.26 USD in the third quarter of 2015. All financial comparisons to the prior year are compared against the legacy Snyder’s-Lance results, where the prior year does not include any contribution from Diamond Foods.

Third Quarter Financial Summary

(in thousands, except for earnings per share amounts) Q3/2016 Q3/2015 Change
Total Net Revenue USD 588’801 USD 416’773 41.3 %
Total Net Revenue, Excluding Diamond Foods USD 419’873 USD 416’773 0.7 %
Branded Net Revenue, Excluding Diamond Foods USD 306’328 USD 298’442 2.6 %
Operating Margin 8.1 % 5.9 % 220 bps
Operating Margin, Excluding Special Items 9.1 % 7.0 % 210 bps
GAAP EPS USD 0.30 USD 0.22 36.4 %
EPS, Excluding Special Items USD 0.35 USD 0.26 34.6 %
Adjusted Ebitda USD 81’837 USD 47’247 73.2 %

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«Growth of our core brands accelerated during the third quarter, and when combined with our cost savings initiatives, operating margin improved 210 basis points reaching 9.1 percent for the quarter», said Carl E. Lee, Jr., President and Chief Executive Officer. «Our Legacy Snyder’s-Lance brands delivered 2.6 percent year over year growth, driven by core brand growth of 3.7 percent led by Snack Factory, Cape Cod and Lance. Despite incremental investments in advertising and consumer promotions, productivity and sales growth delivered the margin expansion we expected. The integration of Diamond Foods is on target with cost and revenue synergies being achieved on schedule. Our early revenue synergies include wins in the club, drug and small format channels, as retailers expand their distribution of our premium brands».

Lee continued, «We have assembled a portfolio of brands on trend with the growing consumer demand for organic, gluten free, non-GMO certified, and reduced fat. Our ‘Better-For-You’ brands now represent over 33 percent of our sales and will continue to grow with innovation and focus on better ingredients and great taste. We remain focused on driving growth of our core brands, delivering synergy targets and maximizing the benefits of the strategic combination with Diamond that has positioned us as a leading provider of premium and differentiated snacks centered on nutrition, quality and variety. Our full-year performance is tracking in line with our expected ranges, and we continue to anticipate strong sales in the fourth quarter primarily due to the seasonal nature of Diamond of California culinary nuts and other holiday product offerings. I want to thank all of our associates for their early integration success, solid growth on core brands and new distribution gains».

Third Quarter 2016 Results

(in thousands) Q3/2016 Net Revenue Q3/2015 Net Revenue Change Incremental Diamond Net Revenue Q3/2016 Net Revenue Excluding Diamond Foods* Q3/2015 Net Revenue Change
Branded USD 428’868 USD 298’442 43.7 % USD 122’540 USD 306’328 USD 298’442 2.6 %
Partner Brand 73’821 75’396 -2.1 % 73’821 75’396 -2.1 %
Other 43’251 42’935 0.7 % 3’527 39’724 42’935 -7.5 %
Culinary 42’861 42’861
Total USD 588’801 USD 416’773 41.3 % USD 168’928 USD 419’873 USD 416’773 0.7 %

*The non-GAAP measure and related comparisons in the table above should be considered in addition to, not as a substitute for, our net revenue disclosure, as well as other measures of financial performance reported in accordance with GAAP, and may not be comparable to similarly titled measures used by other companies. Company management believes the presentation of 2016 Net Revenue Excluding Diamond Foods is useful for providing increased transparency and assisting investors in understanding our ongoing operating performance. Note: Due to the acquisition of Diamond, prior year Partner brand revenues from the sale of Kettle Brand® potato chips are now classified as Branded revenues. For the third quarter of 2015 the Company has reclassified USD8.8 million of Partner brand revenue associated with Kettle Brand® potato chips to Branded revenue to be consistent with current year presentation.

Total net revenue in the third quarter of 2016 was 588.8 million USD, an increase of 41.3 percent compared to net revenue of 416.8 million USD in the third quarter of 2015. Net revenue in the third quarter of 2016, excluding the contribution of the acquired Diamond Foods brands, included Branded category growth of 2.6 percent driven by an approximately 6 percent increase in volume. The increase in Branded net revenue was partially offset as Partner brand net revenue declined 2.1 percent and Other net revenue declined 7.5 percent. Excluding the contribution from Diamond Foods, net revenue in the third quarter of 2016 increased 0.7 percent compared to the third quarter of 2015.

Operating income in the third quarter of 2016 increased 93.6 percent to 47.9 million USD, as compared to 24.8 million USD in the third quarter of 2015. Excluding special items, operating income in the third quarter of 2016 increased 82.8 percent to 53.6 million USD, or 9.1 percent of net revenue, as compared to 29.3 million USD, or 7.0 percent percent of net revenue, in the third quarter of 2015. The improvement in operating margin was due to strong gross margin performance driven by manufacturing efficiencies and procurement savings as a result of the Company’s margin expansion initiatives and early synergy realization from the Diamond Foodscombination. The gross margin improvement was partially offset by the planned higher marketing, advertising and trade expenses to support growth of the Company’s core brands.

Other income, net, increased 3.6 million USD in the third quarter of 2016 compared to the third quarter of 2015. The increase was primarily due to income of 3.8 million USD associated with the settlement of a business interruption claim.

Adjusted Ebitda in the third quarter of 2016 increased 73.2 percent to 81.8 million USD, or 13.9 percent of revenue, as compared to adjusted Ebitda of 47.2 million USD, or 11.3 percent of revenue, in the third quarter of 2015. Adjusted Ebitda is a non-GAAP measure.

Net interest expense in the third quarter of 2016 increased to 9.2 million USD as compared to 2.9 million USD in the third quarter of 2015. The increase in net interest expense was the result of additional debt utilized to finance the acquisition of Diamond Foods.

The effective tax rate, excluding special items, was 29.2 percent in the third quarter of 2016 as compared to 30.6 percent in the third quarter of 2015. The effective tax rate for the third quarter of 2016 was favorably impacted by a reduction in the United Kingdom’s statutory income tax rate.

Outlook

For the full-year of fiscal 2016, the Company now expects earnings per diluted share to be in the range of 1.24 USD to 1.30 USD from 1.22 USD to 1.30 USD previously. The implied fourth quarter guidance range reflects the historically strong seasonal contribution of the Diamond of California culinary nut business. The Company’s fiscal 2016 outlook excludes special items and charges associated with the acquisition of Diamond Foods. In addition, the full-year outlook also includes an estimated negative impact from purchase accounting adjustments. The Company has fine-tuned this estimate to approximately 0.08 USD to 0.10 USD from 0.10 USD to 0.12 USD previously. The Company’s 2016 full-year outlook also includes the following assumptions:

  • Net revenue of 2’290 million USD to 2’310 million USD;
    • Excluding the contribution from Diamond Foods net revenue growth is expected to be approximately flat to up 1.5 percent;
    • Net revenue contribution from Diamond Foods for the 10 months beginning February 29, 2016, of approximately 630 million USD to 640 million USD, net of the impact of inter-company eliminations and reflecting the negative impact of net price realization from lower walnut costs and unfavorable foreign currency;
  • Adjusted Ebitda of 310 million USD to 320 million USD; and
  • Capital expenditures of 75 million USD to 80 million USD.

The Company’s 2016 full-year outlook is also based on the following assumptions, reflecting the acquisition of Diamond Foods:

  • Net interest expense of 32.5 million USD to 33.5 million USD;
  • Effective tax rate of 33.5 percent to 34.0 percent; and
  • Weighted average diluted share count of approximately 93 million to 94 million shares.

*Full-year 2016 GAAP guidance are not provided in this release due to the likely occurrence of one or more of the following items where the Company is unable to reliably forecast the timing and magnitude: Continued transaction and integration related costs associated with the acquisition of Diamond Foods, other potential transactions and their related costs, settlements of contingent liabilities, possible gains or losses on the sale of businesses or other assets, restructuring costs, impairment charges, and the income tax effects of these.

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