Snyder’s-Lance: Reports Results for Q2 of Fiscal 2016

Charlotte / NC. (sli) Snyder’s-Lance Inc. reported financial results for the second quarter ended July 2, 2016 and narrowed its full-year 2016 earnings per diluted share* and adjusted Ebitda* outlook. Total net revenue in the second quarter of 2016 increased 41.3 percent including the contribution of Diamond Foods. GAAP net income attributable to Snyder’s-Lance, Inc. in the second quarter of 2016 was 19.7 million USD, or 0.20 USD per diluted share, as compared to 17.3 million USD, or 0.24 USD per diluted share, in the second quarter of 2015. Net income attributable to Snyder’s-Lance, Inc. excluding special items* for the second quarter of 2016 increased 43.7 percent to 27.5 million USD as compared to 19.1 million USD in the second quarter of 2015. Earnings per diluted share excluding special items* was 0.28 USD in the second quarter of 2016 compared to 0.27 USD in the second 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.

«In the second quarter we continued to focus on our margin expansion initiatives, the integration of Diamond Foods, and improving performance in our legacy Snyder’s-Lance branded business. I’m pleased to report that we’ve made good progress across all three fronts», said Carl E. Lee, Jr., President and Chief Executive Officer. «We increased operating margin by expanding gross margin and reducing SG+amp;A expenses. The gross margin performance was driven by manufacturing efficiencies, as well as improved capacity utilization and procurement savings. Our legacy branded net revenue increased year over year as trends in Snyder’s of Hanover® improved, and Lance®, Snack Factory® and Cape Cod® all outperformed their respective categories. The integration of Diamond Foods is progressing as planned with key milestones achieved in the quarter, and we are on track to deliver the expected cost synergies over time as well as revenue synergies as a result of this strategic combination».

Lee continued, «Our second quarter results have led us to narrow our full-year EPS and adjusted Ebitda guidance ranges, raising the lower-end of our expectations. We have momentum as we move into the back-half of the year, and I’m confident that we will continue to execute our strategies as a leading provider of premium and differentiated snacks. We are fortunate to have a hard working and dedicated team, and we have the right strategic plan in place to drive sustainable growth and shareholder value».

Second Quarter 2016 Results

Second-Quarter Net Revenue by Product Category

(in millions)

Q2 2016 Net Revenue

Q2 2015 Net Revenue

percent Change

Q2 2016 Net Revenue

Incremental Diamond Net Revenue

Q2 2016 Net Revenue Excluding Diamond Foods*

Q2 2015 Net Revenue

percent Change

Branded

USD 444’156

USD 309’302

43.6 percent

USD 444’156

USD 133’724

USD 310’432

USD 309’302

0.4 percent

Partner Brand

78’958

77’649

1.7 percent

78’958

–

78’958

77’649

1.7 percent

Other

39’971

44’477

-10.1 percent

39’971

3’655

36’316

44’477

-18.3 percent

Culinary

46’415

–

–

46’415

46’415

–

–

–

Total

USD 609’500

USD 431’428

41.3 percent

USD 609’500

USD 183’794

USD 425’706

USD 431’428

-1.3 percent

*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 second quarter of 2015 the Company has reclassified 9.6 million USD 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 second quarter of 2016 was 609.5 million USD, an increase of 41.3 percent compared to net revenue of 431.4 million USD in the second quarter of 2015. Net revenue in the second quarter of 2016, excluding Diamond Foods, included Branded category growth of 0.4 percent driven by a 3.1 percent increase in volume, Partner Brand category growth of 1.7 percent, and a decline in net revenue for the Other category of 18.3 percent. The decline in Other net revenue was consistent with the Company’s expectations, and was primarily due to the planned exit of certain contract manufacturing agreements. Excluding the contribution fromDiamond Foods, net revenue in the second quarter of 2016 decreased 1.3 percent compared to the second quarter of 2015, due to the decline in Other revenue.

Operating income in the second quarter of 2016 increased 33.9 percent to 39.8 million USD as compared to 29.7 million USD in the second quarter of 2015. Excluding special items, operating income in the second quarter of 2016 increased 57.9 percent to 51.2 million USD, or 8.4 percent of net revenue, as compared to 32.4 million USD, or 7.5 percent percent of net revenue, in the second quarter of 2015. The improvement in operating margin was primarily the result of higher gross margin and lower administrative expenses, as a percentage of net revenue, partially offset by the planned higher marketing and advertising expenses to support the Company’s pretzel brands, Snyder’s of Hanover® and Snack Factory® Pretzel Crisps®.

Adjusted Ebitda in the second quarter of 2016 increased 56.6 percent to 78.6 million USD, or 12.9 percent of revenue, as compared to adjusted Ebitda of 50.2 million USD, or 11.6 percent of revenue, in the second quarter of 2015.

Net interest expense in the second quarter of 2016 increased to 9.4 million USD as compared to 2.7 million USD in the second 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 35.3 percent in the second quarter of 2016 as compared to 35.8 percent in the second quarter of 2015.

Outlook*

For the full-year of fiscal 2016, the Company now expects earnings per diluted share to be in the range of 1.22 USD to 1.30 USD (previously 1.20 USD to 1.30 USD). The Company’s fiscal 2016 outlook excludes special items and charges associated with the acquisition of Diamond Foods, and includes an estimated negative impact of 0.10 USD to 0.12 USD per diluted share, from purchase accounting adjustments. For the third quarter of fiscal 2016, the Company expects earnings per diluted share, excluding special items, to be in the range of 0.28 USD to 0.31 USD. The Company’s 2016 full-year outlook also includes the following assumptions:

• Net revenue of 2’290 million USD to 2’330 million USD, an increase of approximately 39 percent to 41 percent;
  • Excluding the contribution from Diamond Foods net revenue growth is expected to be approximately flat to up 2 percent;
  • Net revenue contribution from Diamond Foods for the 10 months beginning February 29, 2016, of approximately 630 million USD to 650 million USD, net of the impact of intercompany eliminations and reflecting the negative impact of net price realization from lower commodity costs and unfavorable foreign currency;
• Adjusted Ebitda of 313 million USD to 325 million USD (previously 310 million USD to 325 million USD); and
• Capital expenditures of 80 million USD to 85 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 33 million USD to 35 million USD;
• Effective tax rate of 34 percent to 35 percent; and
• Weighted average diluted share count of approximately 93 million to 94 million shares.

*Third-quarter and 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.