Snyder’s-Lance feels bite of 79% profit drop due to severance and other charges

Kettle Chips maker Snyder's-Lance has felt the effects of paying out severance and impairment charges related to its transformation plan in Q2 2017. Pic: Snyder's-Lance

The CEO of Kettle Chips maker Snyder’s Lance says he is ‘not satisfied’ with the company’s H1 2017 performance despite a 3% revenue increase in the second quarter.

Snyder’s-Lance reported a plummet in operating income from $41.9m to $22.4m in Q2, incurred by $29.8m in costs in relocating its Emerald production from the Stockton facility to a new manufacturing plant in Charlotte, as well as severance and impairment charges.

Earlier this month, this site reported that Snyder’s-Lance plans to close a plant in Florida and cut 250 people from its global workforce as part of its plans to streamline its processes.

Conversely, the snack maker posted a 3% rise in revenue to $579.6m for the three months to July 1, versus $565.9m a year prior.

‘We have not delivered on expectations’

Brian Driscoll, CEO of Snyder’s-Lance, said he was “not satisfied with the company’s aggregate financial performance” and has “spent significant time diagnosing the root causes underlying our below-average margin performance.  and constructing an expansive profitability improvement plan designed to substantially improve operating margins and profitability over time.”

Driscoll outlined his plan to increase profitability by 2020, which is targeting a 14% operating margin and earnings per share to grow at a CAGR of 11% -13% (currently, 9% of net revenue).

“We have constructed an expansive profitability improvement program we believe will unlock operating profit improvement of approximately $175m over the next three plus years,” he added.

Snyder’s-Lance six-point transformation plan

•             Greater efficiency in selling, general and administrative (SG&A) expenses.

•             Addressing manufacturing and supply chain productivity

•             Optimising products and portfolio

•             Price realisation

•             Marketing investment

According to Driscoll, the company has identified approximately 750 SKUs of its total 2,000 branded product portfolio that can be eliminated in the three-year timeframe.

Earnings highlights

  • Earnings: $26.84m in Q2 vs $26.66m YA.
  • EPS: $0.27 in Q2 vs $0.28 YA.
  • Analysts projected $0.28 per share.
  • Revenue: $579.60m in Q2 vs. $561.29m YA.

Guidance

  • Full year EPS guidance: $1.10-$1.20.
  • Full year revenue guidance: $2,20bn-$2,25bn.

•             Improving the performance of the “existing independent, business-owner, direct-store delivery partnership.

“We are targeting full plan completion by 2019, which will allow us to achieve the full benefits of the plan in 2020,”

said Driscoll.

Q2 financial results

On a positive note, branded net revenue increased 4.9% as a result of a 6.6% increase in the company’s Allied Brands and a 4.7% increase in Core Brands.

Core Brand’s growth was led by Late July, Snack Factory Pretzel Crisps, Lance, Snyder’s of Hanover, Cape Cod, Pop Secret and Kettle Brand. Kettle Chips.

Allied Brands include Krunchers!, Tom's, Archway, Jays, Stella D'oro, Eatsmart Snacks, O-Ke-Doke and Metcalfe's skinny.

Revised full year outlook

Alex Pease, executive VP and CFO reported that FY 2017 capital expenditure is expected to rise from $75m to $85m.

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