AdvancePierre Foods Reports Q2-2016 Financial Results

Cincinnati / OH. (apf) AdvancePierre Foods Foods Holdings Inc., a leading U.S. producer and distributor of sandwiches, sandwich components and other entrées and snacks, reported financial results for the second quarter and year-to-date period ended July 02, 2016.

Second Quarter Highlights

  • Second quarter GAAP net income of 64.1 million USD, or 0.96 USD per diluted share, and adjusted net income1 of 24.7 million USD, or 0.37 USD per diluted share
  • Second quarter net sales of 370.7 million USD and volume growth in AdvancePierre’s three core segments of 3.2 percent
  • Second quarter Adjusted Ebitda1 of 71.2 million USD
  • Reduction of net leverage to 4.5 times trailing twelve month Adjusted Ebitda and to 3.7 times pro forma for IPO

Year-to-Date Highlights

  • Year-to-date GAAP net income of 80.7 million USD, or 1.21 USD per diluted share, and adjusted net income1 of 47.7 million USD, or 0.71 USD per diluted share
  • Year-to-date net sales of 765.2 million USD and core volume growth of 2.4 percent
  • Year-to-date Adjusted Ebitda1 of 140.0 million USD
  • Year-to-date cash flow from operating activities of 57.6 million USD
  • Reduction of net leverage to 4.5 times trailing twelve month Adjusted Ebitda and to 3.7 times pro forma for IPO

Full Year 2016 Outlook

  • Net sales in the range of 1.54 billion USD to 1.59 billion USD, including core segment volume growth of 2.0-2.5 percent
  • Adjusted Ebitda in the range of 285 million USD to 290 million USD
  • Adjusted diluted net income per share in the range of 1.65 USD to 1.75 USD
  • Expect to pay quarterly dividend of 0.14 USD per share in the third quarter, subject to declaration by the board of directors

«As expected, we delivered strong financial performance in the second quarter, which reflected solid organic growth in our core business segments, continued realization of cost savings from execution of APF Way productivity initiatives and sequential margin expansion», said AdvancePierre President and Chief Executive Officer John Simons. «We expect continued solid performance in the second half, and to demonstrate our confidence we are pleased to share an outlook for full year operating results that anticipates significant year-over-year growth. With our strong current margin profile, as well as our balance sheet position and excellent operating cash flow conversion, we are committed to making investments in our core business to continue improving our portfolio mix, and additional accretive acquisitions to accelerate our future growth in the second half of the year and beyond».

Financial Results for the Second Quarter

Net sales for the second quarter of 2016 were 370.7 million USD compared to 391.9 million USD for the second quarter of 2015. The decline was primarily attributable to the Company’s elimination of lower margin business in its Industrial segment, which reduced net sales by 13.2 million USD, and to strategic price and trade spending investments to reflect lower raw material costs, which reduced net sales by 16.3 million USD. Excluding the impact of Industrial segment volume, volume and mix in the Company’s three core segments, including sales volume growth of 3.2 percent, increased net sales by 8.3 million USD.

Gross profit for the second quarter of 2016 increased by 17.1 million USD to 100.9 million USD, or 27.2 percent of net sales compared to 83.8 million USD, or 21.4 percent of net sales, for the second quarter of 2015, reflecting an increase of 580 basis points of margin. Gross profit increased primarily due to productivity improvements, positive price realization net of raw material cost movements, and contributions from volume, partially offset by other increases in costs of goods sold.

Selling, general and administrative expenses for the second quarter of 2016 were 55.0 million USD, or 14.8 percent of net sales, compared to 50.2 million USD, or 12.8 percent of net sales for the second quarter of 2015. The increase was primarily due to increased marketing and R+D investments and employee compensation expenses (including non-cash stock compensation), partially offset by lower sponsor management fees and expenses.

Interest expense for the second quarter of 2016 was 38.0 million USD, an increase of 11.8 million USD compared to 26.2 million USD for the second quarter of 2015. This increase was a result of the 15.3 million USD of charges related to the refinancing of the Company’s credit facilities in June 2016 including write-off of deferred loan fees and original issue discounts, payments of loan origination fees, and prepayment penalties, partially offset by the benefit of lower rates on the refinanced debt and lower average borrowings.

Income tax benefit was 57.8 million USD for the second quarter of 2016, as compared to an income tax provision of 0.6 million USD for the second quarter of 2015. Based on an assessment of the realizability of the Company’s deferred tax assets, management determined that a full valuation allowance should no longer be recorded against the deferred tax assets. As a result, the Company reversed 56.5 million USD of the existing valuation allowance during the second quarter of 2016 representing a decrease to income tax expense during the period.

AdvancePierre’s reported GAAP net income was 64.1 million USD, or 0.96 USD per diluted share, for the second quarter of 2016, as compared to reported net income of 2.3 million USD, or 0.03 USD per diluted share, for the second quarter of 2015. Adjusted net income for the second quarter of 2016 was 24.7 million USD, or 0.37 USD per diluted share. Adjusted net income for the second quarter of 2015 was 11.5 million USD, or 0.17 USD per adjusted diluted share.

For the second quarter of 2016, Adjusted Ebitda increased 16.3 percent to 71.2 million USD from 61.2 million USD for the second quarter of 2015.

Financial Results for the First Half

Net sales for the first half of 2016 were 765.2 million USD compared to 818.4 million USD for the first half of 2015. The decline was primarily attributable to elimination of lower margin business in the Company’s Industrial segment, which reduced net sales by 32.5 million USD, and strategic price and trade spending investments to reflect lower raw material costs, which reduced net sales by 25.4 million USD. Excluding the impact of Industrial segment volume, volume and mix in the Company’s three core segments, including sales volume growth of 2.4 percent, increased net sales by 4.7 million USD.

Gross profit for the first half of 2016 increased by 30.1 million USD to 201.1 million USD, or 26.3 percent of net sales compared to 171.0 million USD, or 20.9 percent of net sales, for the first half of 2015, reflecting an increase of 540 basis points of margin. Gross profit increased primarily due to productivity improvements, positive price realization net of raw material cost movements, and contributions from volume, partially offset by other increases in costs of goods sold.

Selling, general and administrative expenses for the first half of 2016 were 109.4 million USD, or 14.3 percent of net sales, compared to 96.4 million USD, or 11.8 percent of net sales for the first half of 2015. The increase was primarily due to increased marketing and R+D investments and employee compensation expenses (including non-cash stock compensation), partially offset by lower sponsor management fees and expenses.

Interest expense for the first half of 2016 was 63.8 million USD, an increase of 11.1 million USD compared to 52.7 million USD for the first half of 2015. This increase was a result of the 15.3 million USD of charges related to the refinancing of the Company’s credit facilities in June 2016 including write-off of deferred loan fees and original issue discounts, payments of loan origination fees, and prepayment penalties, partially offset by the benefit of lower rates on the refinanced debt and lower average borrowings.

Income tax benefit was 56.3 million USD for the first half of 2016, as compared to an income tax provision of 3.1 million USD for the first half of 2015. Based on an assessment of the realizability of the Company’s deferred tax assets, management determined that a full valuation allowance should no longer be recorded against the deferred tax assets. As a result, the Company reversed 56.5 million USD of the existing valuation allowance during the second quarter of 2016 representing a decrease to income tax expense during the period.

AdvancePierre’s reported net income under GAAP was 80.7 million USD, or 1.21 USD per diluted share, for the first half of 2016, as compared to reported net income of 12.8 million USD, or 0.19 USD per diluted share, for the first half of 2015. Adjusted net income for the first half of 2016 was 47.7 million USD, or 0.71 USD per diluted share. Adjusted net income for the first half of 2015 was 29.4 million USD, or 0.44 USD per adjusted diluted share.

For the first half of 2016, Adjusted Ebitda increased 13.9 percent to 140.0 million USD from 122.9 million USD for the first half of 2015.

Outlook

For full year 2016, AdvancePierre expects net sales in the range of 1.54 billion USD to 1.59 billion USD, including volume growth of 2.0-2.5 percent in AdvancePierre’s three core segments. The Company expects Adjusted Ebitda in the range of 285 million USD to 290 million USD and adjusted diluted net income per share in the range of 1.65 USD to 1.75 USD.

AdvancePierre provides earnings guidance only on a non-GAAP basis and does not provide a reconciliation of forward-looking Adjusted Ebitda and adjusted diluted net income per share guidance to the most directly comparable GAAP financial measures because of the inherent difficulty in forecasting and quantifying certain amounts that are necessary for such reconciliations, including adjustments that could be made for deferred taxes; merger and acquisition-related expenses; non-cash stock based compensation; and other charges reflected in the Company’s reconciliation of historic non-GAAP financial measures, the amounts of which based on past experience could be material.