The business – which completed its acquisition of Kettle owner Diamond Foods at the end of February – this week reported net revenue (excluding Diamond Foods) for the first quarter down 0.7% year on year, and a net loss of $25.4m. Net revenue including Diamond was up 15% year-on-year.
Adjusted EBITDA increased 45% to $55.7m, and Synder’s-Lance president and chief executive officer Carl E Lee, Jr said the business’s ‘legacy’ brands had performed well, with Lance, Cape Cod and Late July all experiencing revenue growth and market share gains.
"While our top-line remains pressured by the same challenges facing the food industry, our team managed costs and drove operational efficiencies to deliver strong earnings growth for our legacy business,” he added.
Brand renovation process
Lee said Lance sandwich crackers had continued to benefit from the renovation process that had completed last year and included improved product formulation, packaging design, and new products including gluten-free crackers.
The business was now aiming to “renovate and energize” the pretzel category and its Snyder's of Hanover pretzels by growing retail distribution and display support for the brand. Activity had included the recent launch of marketing and advertising campaign Pretzels Baby, which the company said had delivered “encouraging” early results.
Pretzel category flat
IRI data showed overall sales in the pretzel category were flat in 2015 at $1.2bn, with sales of number one brand Snyder’s of Hanover down 3.3% year on year to $415.6m [52w/e 27 December 2015].
Speaking to analysts after announcing the results, Lee described the pretzel category as under pressure.
“Snacking is growing but the number of snacking options is also growing,” he said. “You have to stay top-of-mind with consumers. You have to make sure you stay relevant and need to maintain frequency of consumption.”
Lee added he had “a lot of confidence” in the Snyder’s of Hanover brand, which he said had already benefited from improved display coverage and innovation around pretzel pieces. There were a lot of parallels with the sandwich crackers market, he said, and the company will apply learnings from the Lance renovation activity to Snyder’s of Hanover.
'Obligation to our retailers'
“As the leading brand in pretzels, we really have an obligation not only to our brand but also to our retailers,” said Lee.
“We take a long-term view of that and are willing to invest, and are willing to do the heavy lifting. We’re willing to go through an extended packaging change like we did on sandwich crackers, to make sure we provide sustainable growth for the future,” he said.
“We expect to achieve the same results with Snyder’s that we have with other brands.”
The company pointed out that, as consumer demand for better-for-you snacks increased, it had increased its offering of better-for-you products organically, from 25% of net revenue in January 2014 to 29% by January this year. The combination of Snyder’s-Lance and Diamond brands took this proportion to 32%, it added.
How the Diamond Foods integration is progressing
Snyder's-Lance said it was already benefiting from the acquisition of Diamond Foods – a $1.9bn deal that completed on February 29 this year.
The company this week said it was now better positioned in the growing snack food industry, and expected to realize “significant cost and revenue synergies that will deliver earnings accretion and support further investment behind our brands.”
In a presentation to analysts, Synder’s-Lance predicted $75m in annual cost synergies, with half this to be realized by the end of Q1 2017, and the remainder over the following 12 months. It will be reinvesting $10m of this back into its brands.
The company plans to deliver this through activity in three areas of the business:
Selling and administrative
- Combine sales teams to leverage customer relationships
- Streamline back-office operations
- Cost improvement through leveraging scale
Shipping and distribution
- Optimize freight lane costs
- Unlock warehouse efficiencies
- Lower reliance on LTL shipments
Manufacturing and procurement
- Leverage volume to create value
- Collaborate deeply with suppliers
- Enhance plant productivity
“We have quickly begun to execute our integration plan, and we are already benefiting from the combination of these two great companies,” said Synder’s-Lance president and chief executive officer Carl E Lee, Jr. “The combination gives Snyder's-Lance an enhanced portfolio of brands across key snack food categories with a deeper, stronger combined team ready to unlock new distribution opportunities.”
Snyder’s-Lance said it would look to leverage the better-for-you positioning of the Kettle brand by focusing on flavor and cooking oil innovation; and that it had plans to renovate the Pop Secret brand to position it better in the competitive microwave popcorn category.
Lee added that the Diamond acquisition would also open up opportunities beyond the US as it gave a platform for growth in the European market, citing the business’ acquisition of a stake in UK popcorn supplier Metcalfe’s Skinny earlier this year.
“This is a great foundation as we think of building a snacks business in the European marketplace because of the significantly talented people they have in the UK,” he added.