Inventure Foods' (SNAK) CEO Terry McDaniel on Q1 2016 Results - Earnings Call Transcript

| About: Inventure Foods, (SNAK)

Inventure Foods Inc. (NASDAQ:SNAK)

Q1 2016 Earnings Conference Call

April 28, 2016, 11:00 AM ET

Executives

Katie Turner - Investor Relations

Terry McDaniel - President and Chief Executive Officer

Steve Weinberger - Chief Financial Officer

Analysts

Jon Andersen - William Blair & Company, LLC

Phil Terpolilli - Wedbush Securities Inc.

Anton Brenner - Roth Capital Partners, LLC

Mitch Pinheiro - Wunderlich Securities, Inc.

Operator

Good day ladies and gentlemen and welcome to the Q1 2016 Inventure Foods Inc. Earnings Release. At this time, all participants are in a listen-only mode. Later, we will host a question-and-answer session and instructions will follow at that time [Operator Instructions] As a reminder, this conference is being recorded.

Now, I will hand the call over to, Katie Turner, with ICR, please proceed Ma'am.

Katie Turner

Thanks, good morning. Welcome to Inventure Foods' first quarter 2016 earnings conference call. On the call with me today are Terry McDaniel, Chief Executive Officer, and Steve Weinberger, Chief Financial Officer.

By now everyone should have access to the earnings release for the period ending March 26, 2016 that went out this morning at approximately 7:00 AM Eastern Time. If you have not received a release, it's available on Inventure's web site at www.inventurefoods.com. The call is being webcast and a replay will be available on the Company's website.

During the course of this call, Inventure will make projections or other forward-looking statements regarding future events or the Company's beliefs about its sales and earnings. We caution you that such statements are predictions and involve risks and uncertainties. Actual results may differ materially, factors which may affect actual results are detailed in the Company's filings with the SEC. Also, please note that the Company undertakes no obligation to update or revise these forward-looking statements.

The Company will reference EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings, which are non-GAAP financial measures. These non-GAAP financial measures should not be considered in isolation, and please reference the Company's press release issued today for a reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures.

And with that, I would like to turn the call over to Inventure Foods' CEO, Terry McDaniel.

Terry McDaniel

Thanks Katie and good morning everyone. I will begin today's discussion with an update of the progress we have made in key areas of our business. Next, I will turn the call over to CFO, Steve Weinberger, to discuss our first quarter financial results in more detail. And finally, we will open up the call to take your questions.

We are pleased with our start to 2016 and feel we have made strong steps toward recovery. Our key brands remain strong and we have shown sequential improvements in gross margin and earnings as well as $2.3 million of sequential improvement in EBITDA as compared to fourth quarter of 2015. We are making progress on our key initiatives and this help drive sequential improvement across many financial metrics compared to the fourth quarter of 2015.

As we progress through the year we continue to believe that each quarter will show improved growth as we work towards returning the company to profitability. For the first quarter of 2016 we reported consolidated net revenue of $69.9 million as its highlights of our key brands include net revenue with Boulder Canyon up 5%, Radar Farms brand up 105%, Jamba up 2.3% and Private label fruit up 32.6%.

First, focusing on Boulder Canyon. As we mentioned on the fourth quarter earnings call, we proactively reduced promotions for Boulder Canyon as a result of manufacturing capacity constraints. Boulder Canyon net revenue increased 5% for the quarter, we are pleased with our team’s success in getting the brand back on a positive track, we continue to use third-party manufacturers to meet demand in the first quarter. Importantly it was a reduced way than we used in 2015.

SNAK segment gross margin expanded 370 basis points to 18.1 compare to 14.4 in the first quarter and fourth quarters of 2015. As a reminder, we still have a small negative impact of SNAK segment gross margins in the second quarter as we continue to reduce the use of our co-packers. We expect gross margin to improve as we ramp up our total capacity throughout the year. Going forward, this will help us support continues velocity momentum in 2016.

From the consumption prospective the Boulder Canyon brand remains strong, according to most recently twelve-weeks stems data and that the stems measures natural customers. Boulder Canyon with that 15.8% compared to the potato chip category of 14% and according to IRI data which measures the grocery channel, Boulder Canyon remains the fastest growing potato chip of 19.6% compared to the potato chip category which is relatively flat.

During the quarter, Boulder Canyon reached a 42.3% ACV up 8.8 points versus the year ago within retail super markets. Prevention Magazine awarded our Boulder Canyon Coconut Oil Chips one of their Cleanest Packaged Foods, this past March resulting in some very positive press. In both measured and non measured sales channels, we’re still not back to historical level of trade promotions.

We expect as that as our kettle capacity increases with inflation of our new kettles in Bluffton, Indiana that our trade promotion and intern sales will be more in line with historical growth rates. It was nice to see many of you at the Natural Products Expo West in early March. Response to the Boulder Canyon new product line up was very positive at the event. We introduced and taste tested our first new Boulder Canyon frozen product with tremendous response and we will look forward to beginning to distribute the product later this summer.

In addition we are pleased with the commanding strength of the Boulder Canyon’s new products and we will continue to build distribution across the natural and grocery channels. This positive moment was offset by decreased sales of licensed products and to a lesser extent premium private label, which contribute to the overall snacks segment decline in the quarter.

TGI Fridays was down 8.7% and contribute to an overall licensed brands sell decrease of 12.2% and premium private label was relatively flat to last year, primarily due to loss distribution of our lowest margin customer.

Turning now to our Frozen segment, net revenues in the quarter decreased 12.4% excluding Fresh Frozen, Frozen Segment net revenues decrease 8.6 in the first quarter primarily as a result of reduce distribution largely related to the loss of the Canada business first quarter of last quarter and a price decrease for our most significantly frozen dairy product.

On a sequential basis, we’re pleased with our initial improvement, frozen segment net revenues for the first quarter of 2016 increased 11.1% 45 million from 40.5 million in the fourth quarter of 2015 and Frozen segment gross profit margin increased to 160 basis points from 8% in Q4. Now I would like to review the Frozen segment in greater detail, Frozen Berry sales were down 9.4% in the first quarter adjusting for the net effect of pricing and previously discussed loss Canada business. Frozen Berry sales would been up 7.1% in the quarter.

Sales of our Radar Farms’ branded product increased a 105% in the quarter, our Radar Farms’ Fresh Start, which combines a helpful bled of frozen fruit and vegetables continues to demonstrates strong early success. Fresh Start sale are on a record phase and demonstrates the continued strength of our innovation team. We continue to ramp up distribution across sales channels including Club, Mass and several key retail supermarket. We were remaining focused on ways to grow our branded frozen berry business to support our long-term strategy to convert our frozen berry business to a more profitable branded business.

Jamba’s sales were up 2.3% for the quarter and this is in line with our expectations for the brand growth in 2016. They help fuel the sales momentum we have added new Jamba protein products, which contain approximately 300 more protein then our core Jamba items and are also made ancient running including Q1.

The planned manufacturing expansion of our existing company owned on berry processing in packaging facility in Lynden, Washington is progressing and on plans. Operations will efficiently start at the beginning of the May; in fact we’re hoping to start as early as next Monday. We expect to begin the realized as multiple cost efficiencies from that single move including lowering freight cost and enhancing our capacity or productivity of our IQF operations. The Frozen Fruit category continues to be a strong growth category with sales up 11.7% and our branded sales up 76.9% according to the latest 12-week IRI Data.

Turning to our Fresh Frozen business, our first goal is to return fresh frozen brand back to profitability as we mentioned last quarter we decided to proactively adjust the brands retail packaging to better match competitor retail sizes as we work to improve the margin profile in 2016. We also started to realize greater plan efficiency as a result of operation improvement

We were also able to reduce our Frozen vegetable inventories for the quarter, resulting in less outside storage cost and improved cash management. On the product side, we will be introducing a new line of microwaveable seasons southern vegetables. Our teams remains positive about strengthen the brand and the future of Fresh Frozen.

In addition, we are excited about the strategic opportunities we have brought across our key brand within the Jefferson, Georgia manufacturing facilities. For example, we plan to move more of the later form in Jamba production to Jefferson in the back half of the year. We are also manufacturing Boulder Canyon new Frozen product in Jefferson and also added a new co-pack customer during the quarter.

For our team at Inventure Foods, Fresh Frozen and its manufacturing facility is always offered an avenue for product innovation and key product categories and additional manufacturing capacity. Both of which we are finally beginning to see early benefits in 2016 and look forward to further benefits across the next several years.

We remain very optimistic about our long term opportunities, here in Phoenix our team is intently focused on continuing to add to our strong portfolio healthy natural brand, by increasing distribution and launching new innovative products under Boulder Canyon brands as well as the strong roll out of our Rader Farms’ Fresh Start in other Frozen through products.

We also continue to focus on improving our bottom line through cost savings in capital market, such as the further consolidation of our Frozen berry business in initiatives that will enhance our IQF capacity as well as making our overall berry operations more efficient. We believe these key strategic initiatives will help to improve our performance throughout the year and better position us for increased growth over the next several years. We believe that a successful execution of these key strategies will drive revenue and profit growth as well as enhancing shareholder value.

With that overview, I would like to turn the call over to Steve. Steve.

Steve Weinberger

Thank you, Terry and good morning everyone. I will now review our first quarter financial results in more detail.

Reported EBITDA which does not include any adjustment was $2.5 million, a $2.3 million sequential improvement from the fourth quarter of 2015 compared to the adjusted EBITDA $4.6 million in the first quarter of last year. EBITDA for the first quarter of 2016, includes the $0.5 million free cash charge for higher kettle chip production cost.

We reported a net loss of $1 million a loss of $0.05 per share for the first quarter of 2016. Our first results includes the negative impact to earnings associated with higher kettle chip production cost of $0.5 million pre-tax, as a result of using outsourced production capabilities in order to meet demand.

I’ll now focus on the other components of the P&L with all comparison to the first quarter of 2015, adjusted to exclude the cost of the product recall. Gross profit was $8.8 million in the first quarter of this year. Gross profit decrease $2.7 million to $8.8 million compared to $11.5 million in the first quarter of 2015. And as a percentage of net revenue s decreased 230 basis points to 12.6% compared to 14.9%.

For the frozen segment gross profit was $4.3 million or 9.6% as a percentage of revenue compared to 8.0 in the fourth quarter of 2015 and 15.1 in the prior year period. The year-over-year decrease was attributable to the incremental cost added to the Fresh Frozen business to enhance product testing and improve the manufacturing operation as well as continued margin pressure in our frozen berry business as discussed on prior earnings calls.

The decline in the frozen segment was partially offset by $0.7 million improvement in the snacks segment. The snacks segment gross profit was $4.5 million compared to $3.8 million in the prior year period and as a percentage of revenues increase 370 basis points to 18.1% compared to 14.4% in both Q1 last year and Q4 last year, due to improved performance in product and general mix.

SG&A expenses were $8.1 million for the first quarter of 2016, compared to $8.9 million in the prior year period. SG&A expenses decrease 0.8 million and at the percentage of net revenue remain relatively consistent with the prior year quarter at 11.6%. Interest expense was $2.4 million in the first quarter of 2016, an increase of 1.6 million compared to 0.7 million in the prior year period as a result of the increase borrowings.

We continue to take steps to improve our balance sheet, as of March 2016, we reduced our total inventory position by $16 million in the yearend to $65.8 million. In addition, we reduced our accounts payable and accrued liabilities by 8.6 million compared to the yearend of 2016. We continue to believe that our credit facilities in conjunction with the company's cash flow from operation will adequately lead our capital requirements for future growth over the next several years, and we remain a complaint with all of our loan covenants.

This concludes our financial overview. Now I would like to turn the call back over to Terry.

Terry McDaniel

Thanks Steve. We are pleased with our start to the year and in 2016 we will remain focused on the key strategic initiatives then we believe we will improve both by operational and financial performance as we progress through the year. This includes further improving our overall possibility and balance sheet. Continuing the momentum on the Boulder Canyon brand with our newly added capacity and normalize promotional spending. Building the Rader Farms brand through innovative products and returning Fresh Frozen to profitability while rebuilding the brand, improving our consolidated margins through capital investment, cost savings, efficiencies and productivity projects. Extending our improved margins through higher mix of branded sales and continuing to drive innovation in all of our product launch.

We are well or in line with these initiatives on key projects. The first quarter 2016 was a step in the right direction for Inventure Foods and there is more to come. We are focused on improving the company's profitability and enhancing shareholder value, that concludes our prepared remarks, I'd now like to open up the line for questions.

Question-and-Answer Session

Operator

Thank you [Operator Instructions]. Our first question comes from the line of Jon Andersen of William Blair. Your line is open, please go ahead.

Jon Andersen

I wanted to ask first of all about Boulder Canyon, the brand was down in the fourth quarter but and as next recovery in Q1, what are you-- what are the major changes that are going on with respect to that particular product offering, that drove that reversal on the first quarter? And then if you look to the now to the year what are your expectations for the performance in that brand, if you move kind of sequentially into the year relative to the 5% growth you saw in Q1?

Terry McDaniel

Yes, it was good, and it's good to see the brand comeback on the positive side. You will recall during the fourth quarter I mean we were assuring quite a few customers and some of the customers took us out of the promotional SKEW period that we are coming up because of some of these shortages then the first quarter we eliminated almost all of that and we had some product shorts on specific items.

But we want moving weeks of shipments and all that things that we were during the fourth quarter. so first quarter we were in a much better position and we started putting our promotional schedule back together by July we should be completely with all our new kettles in Boulder the new kettles in good year will offer help during the second quarter as well, so we are in a much better position to promote.

And some of the things that impacted our volume and we were getting less in and out promotions and then some of our customers who are moving from our promotions. So that will sequentially get better as we move forward. We are also having still from great success, with some of the new items we introduce toward tail end 2015 and we have got some more new items coming in the second quarter and that’s been the life blood toward of the Boulder Canyon brand. I mean that has been where a lot of our volume has come from. So we expect in the second half to see- we are looking for a much better improved performance on Boulder Canyon.

During the quarter for example I'm our top four, five customers were all [locked] (Ph) it was just less promotion of certain customers and less in and out business that all of our SNAK businesses depend on. So we feel like we turned the corner we are back where we need to be from our production standpoint and we were looking for and particularly as we move in the third, fourth quarter much hopefully much even improved performance than what we saw in the first quarter.

Steve Weinberger

The other thing Jon that Terry mentioned that our ACV is up on Boulder as well in the first quarter, and that will help us out we go forward throughout this year.

Jon Andersen

Yes, that was my next question so ACV at 42.3% that I think you mentioned was up almost 9 points year-over-year, with the co-packing operations building away and your total capacity coming online I think by mi-year in Bluffton. Can we expect to see kind of an elimination of this - I guess it's already come down quite a bit to $0.5 million to quarter. does that go away at midyear and then number two are you able to resume your distribution expansion efforts that you have already talked about 12-months or so go primarily even the North East and some of the geographies you under indexed today with that brand.

Terry McDaniel

Yes, absolutely, I mean we will see more co-packing similar consistent co-packing cost during the second quarter, but sometime in July so that will lead a little bit into third, but not March. We should be completely out of the co-packing. Unless I mean we just do some crazy growth number, which we would love but we are not forecasting it, we should be in good shape by July and cost will go away.

And some of the going back after some of the new distribution work we are focused on that right now and just some other customers that we take that for just for example in February one was a pretty major [indiscernible], and so there is no question this brand has a lot of buzz people say it our retailers know it, they know the brand and those that are missing - its getting a little bit more easy to secure that distribution, but what we don’t want do is over expand and before, over expand and not be able to service anymore of our customers.

Jon Andersen

Fair point, the new capacity that’s going in to the Bluffton plant, you have not had kettle capacity in Bluffton historically. So as you get that in place as you begin the fill that out, and is there a reasonable thesis here that over time that helped you establish more distribution Easter domesticity and help you do it in a more cost effective fashion, I mean could see strong margins in snacks over time because of where you locating that in your capacity?

Steve Weinberger

Well absolutely , I mean a lot of our business for examples Kroger the natural customer and there is lot of Kroger divisions on the east coast that we do a lot of natural business on the east coast so we want to allow the natural distributors with companies like Sprout. And so having a facility in Bluffton where the potatoes come from Michigan and everything. So we’re going to pick up that fright benefit and that’s how we cost justified beyond our expansion, we couldn’t put this schedules in good year it makes more sense as we become a national business to have an east coast present and that should help our overall border margin.

We were pleased with the growth of the margin this quarter and we want see as much of this year just will be just giving up and going but going forward we should start to see some improvements because of that east cost production facility.

Terry McDaniel

And the other upside in Bluffton plan Jon at the Bluffton plant and you know that story bit an under use like plan that does has a fixed overhead absorption that you would. So we’re putting the whole lot more pounds in that plan, to cover more the less the same it’s big process, we’re going to get a nice bump for products that all made of the as a bluff in plan so, so again over the next few quarter and years to come that is going to benefits our margins for sure.

Jon Andersen

Okay on the fresh frozen what is your initial read on this packaging resized in terms of accomplishing what you want to do accomplish from a profitability prospective it’s been a you know kind of volume trade of one may have you kind of handicapping this success that I think it’s too early and where are you in terms of the low asset program?

Terry McDaniel

Yes it’s absolutely to early this point but I’ll give you in the month of March we started shipping and we had some customers were using for the two pan roll out so only shift probably a little over 50% of what the potential would have been and we saw nice pickup in our gross margin and we are anxiously letting April as far as execution the team did an excellent job we’re not sitting around the lot of inventory we that get to a there executing here on the show. And so far volume is low so I mean but it’s way to a really the determined in our will that stay at that level, I mean we’re projecting the volume will go down a little bit but right now I’ve been very pleased with the response and how our sales and operation organization has managed this and it’s too early to tell falling on the consumer.

Jon Andersen

So the shipment starting in March to 30, wouldn’t a material impact on the first quarter so we should be looking more to Q2, Q3 for may be the margin impact of that initiatives to it?

Steve Weinberger

Yes we’re still shipping to right now from the two panel but you should see some improvement sequentially on fresh frozen and in the second quarter and then a little bit more and in the third. And John we had a nice bump in our frozen margin almost two full points from December, you know from Q4 2015 to Q1 2016 and as Terry mentioned we only started shipping to new side as beginning of March so again what willing cautiously optimistic that the margin before that the plan is start to turn around.

Jon Andersen

One just a kind of clarification last question I’ll pass it on, in the press release you talk about frozen business, ex-fresh frozen being down 8.6% I guess that froze fruit but there are also I think you indicated that Rader Farms that the branded is up a 105 in the fright of label fruit business is up 33 so how does that how do you score that Rader Farms branded up 105 private fruit up 33 but frozen fruit in aggregate down the 8.6?

Terry McDaniel

Yes we have some industrial and then we have one large customer in which if you look at this entire quarter first quarter last year, we had our record quarter was our one customer that also have Canada we loss that and as we tell people that was on some previous calls that was about a May in a month in Canada. So we are going again the biggest year with the Canadian business and a price that was 20% higher. So we back all that out it was the great quarter mainly driven by product label and the branded product.

In the branded product one of the reasons that still come out how frozen margin the branded product is a higher margin product that enables other category and so it has been up it’s a positive move because we can move more and more to the fresh rose and in and what we would rather to become to decline honest is another boulder. And that’s what we’re focused on and you make items and we didn’t mentioned in the partially it’s a little bit smaller items that the fruit plus items that we saw growth on that and we seeing growth across entire later brand that’s because that our future with some private label and yes we do have some deeply industrial business and then flow based on the quarter and when customer is needed.

Jon Andersen

Excellent, thanks for all the color, you are really helpful guys. Appreciated.

Operator

Thank you. Our next question comes from the line of Philip Terpolilli from Wedbush. Your line is now open. Please go ahead.

Philip Terpolilli

Just a couple a quick ones, going back to the, you mentioned Boulder Canyon and walk through that a little sort of think about it from a bigger picture is set up for Q2 for margin, we should expect service sequential improvement again for Boulder Canyon, is that the right way to think about it?

Steve Weinberger

No Boulder Canyon will have roughly about the same amount of CapEx cost that we had in the first quarter and the remaining 500,000 should go away, sometime early in the third quarter.

Philip Terpolilli

Got you. Okay, so that benefit starts in kind of July timeframe?

Steve Weinberger

Yes.

Philip Terpolilli

Okay, I just wanted to make sure. Okay so if we look at the frozen sides, you have the facility sounds that coming on line in the next week or so - two weeks. If that sort of the benefit there, is it kind of on-off switch as a peak time to see the benefits from that or how do we think about that potential impact to the upcoming quarter?

Terry McDaniel

I think you will see more of it starting really third quarter and reason I say that there is some start up cost, we have shutdown our facility for the last two weeks removing. We build up a lot of additional inventory to make sure we would show customers that we going to start out slow one line at a time. So I think you will see it more in the third and fourth quarters. And one of the other benefits that we are hoping to see, Phil is I think it will make us more efficient in our IQF production and our target is to get more berry to those canal this year. And now that we have again it will only be an IQF facility at Lynden that should help us hopefully with a efficiency in getting more berry through that facility.

And as you know we do our hardest, we will start to see the change in berry margin sometime in fourth quarter that will run for the next three quarter. So getting this done ahead of all those, we should see some improvement in our bagging operations as I said particularly in third and fourth quarter and then we should see some benefit hopefully. And this is - I don’t like to talk about the crop or anything at this point because that’s deadlock. You don’t talk about your crop ahead of them but I am hopeful that we will have a much better harvest both outside berry and in our own berry coming this year. This will benefit us more fourth quarter to [indiscernible].

Philip Terpolilli

Okay, that’s helpful. And just one more thing and I’ll pass it on. Innovations, you reveled quite a few number of new products at Expo West, can you walk us through some of the feedback you gotten from some of those new items you have introduced. There could be maybe a potential benefits from some of those in the back half of the year, I don’t think about those because you certainly saw some interesting products.

Steve Weinberger

Well, thank you. And we had a great time at Expo West throughout the several days and customer and for example, the Boulder products which - for those who haven't - who were not at Expo West, they say a product that is vegetables that look like rise and they are vegetables. So I cauliflower that is make to look like a vegetable and as people look at and particularly families try to get there that to eat more vegetables and less starches, this is right on trend it's one of the hard items interest and will be the first to really get it out there in a big way.

And there response was - I mean in its way it relates I mean we are just now presuming, we don’t start shipping to lead over this number but that’s been very, very positive. And we have already got several pretty decent commitments for an customers, and because it is, it's not something you can just do, you just can take your plan and we have been working on this for over a year. And then one of the benefit of Fresh Frozen, I mean to be honest we are using the Boulder name because that’s the brand, but it's really coming out of our Frozen vegetables operations. So we are pretty excited about that.

Some of the other product continue to build on our coconut oil and we also have some other products there that are looking at natural which the Jamba protein, we had to Boulder popcorn on the sweet and salty and we have been flow out against with that, but we have got some pretty good commitment coming out starting early summer throughout the back half.

And so it was great, I mean obviously you guys know it's following our company for last eight or nine years. It's all about innovation, coming out with something unique and different, having a different [indiscernible] appealing to consumers. And Boulder is leading that way and Rader Farm, the first start to most of it successful new product we have ever introduced. And we are looking at other things to do with Fresh Start going in the back half of the year in early 2017.

So the same innovation team as always is been here is continues to focus on you know that’s a big part of our future. So we are pretty excited about the introductions, it’s probably one the best natural expose we've had particular as it relates to new product. Just one - we had one customer who I won’t mention the name they don’t like to mention their name but [indiscernible] and they called us and said and they never see anybody and asked us to be in their office and at the next week they wanted to talk about this [indiscernible] very early no comment, don’t know how it's going to sell through on the shelf, but early lot of great interest in some of hat – some of the new products and some of the innovation we shared with both you guys as well as a lot of our customers at Natural Expo.

Philip Terpolilli

That’s great. Good luck to summer. Thanks.

Operator

Thank you. Our next question comes from line of Tony Brenner with Roth Capital Partners. Your line is now open, please go ahead.

Anton Brenner

The Rader Farms brand I think you mentioned that revenues were $45 million in the quarter is that correct?

Steve Weinberger

No. That was total frozen. Total frozen was $45 million for the quarter versus that in the $40 million in Q4 last year.

Anton Brenner

What were Rader Farms? Is there portion of that?

Steve Weinberger

We don’t break that out Tony, but sufficed to say the Rader Farms brand as Terry said is becoming more and more relevant as we go for the [indiscernible] by our Rader Farms fresh start product.

Terry McDaniel

Yes, and as the percentage of various sales I mean not only brand was [indiscernible] but the overall percentage of our sales. it is becoming a significant portion and I think we will be talking more about it as you go through the year [indiscernible] we will give a number how big this brand has become because it is-- its now [indiscernible] as we relate to our various business.

Anton Brenner

And you mentioned that margins are higher I presume you were talking about gross margins right?

Unidentified Company Representative

Gross margins, yes.

Anton Brenner

Can you scale that a little bit? Are they 50% higher than many total frozen berry business?

Terry McDaniel

We don’t, lot of reasons, we have some retailers [indiscernible] we don’t want [indiscernible] all of that to our competitors and we have margin it, but it is from the rest of our business whether its Private label on the fruit side now snack side it’s the little bit different story but on this brand its significant an improvement over margin overall based business and that based business as you know the two years has gone down.

And so it's important that replace it we can't necessarily build our margin on some existing business but if we have value added products that the consumer see as a true value add then we got a good chance to get our margins back up in going in the right direction again on our frozen fruit business and that’s what this brand is helping us [indiscernible].

Steve Weinberger

[indiscernible] the lack of the better term from the commodity berry product to more value added branded product and [indiscernible] the branded margins that typical some of that so in the course of time we will see-- what happens going for the [indiscernible] we are very excited about the prospect and then we will see how that one goes.

Anton Brenner

Sure but, I presumed, is that the Rader Farms brand will also carry promotional marketing support that you don’t have to stunt on much of that [indiscernible] so in terms of in operating profit is supposed gross margin [indiscernible], still significant step up?

Terry McDaniel

Yes, absolutely no question in history promotion just like our Jamba does. I mean at Jamba we don’t talk about it but our Jamba margins are better and then our Private label and our base commodity driven business so it's going to be similar actually better than we [indiscernible] Jamba but in overall whether its gross margin or contribution to the bottom line its helping.

Anton Brenner

And second, SG&A spending was percentage wise almost flat in dollars it was down than most 10% but your promotional spend doing was also significantly lower so is there run rate as we go through the year and year promotions pick up what is recent [indiscernible] look for in SG&A, it’s the percentage [indiscernible] going forward?

Terry McDaniel

I think at the end of the day, I think Q1 could be fairly represented of how we, we are really focused on a number of things we only wanted to make more money in our bottom line. Clearly our focus is to make money and targeting spending appropriately so we are trying to do both at the same time increase our profit and make sure that we spend appropriately for our key brand. So I think our run rate going forward, should be pretty much in the bulk part of Q1 maybe a little bit more, for the balance of the year as our growth margin improves we are going to spend some of that back in SG&A.

Anton Brenner

Reductions take up the little bit SG&A, [indiscernible] we are helping that obviously our volume, some of the volume takes that In our margin and we’ll reinvest on that back into growing, so that the plan.

Operator

Thank you. Our next question comes from Mitch Pinheiro with Wonderland Securities. Your line is now open go ahead.

Mitch Pinheiro

so just one follow up to Tony’s question and so of the decline is the SG&A, it’s mostly in it is that credit consolidating expense this is the G&A part relatively to the?

Terry McDaniel

The decline will be mostly in the G&A and everyone invest in the SM and AM. right.

Mitch Pinheiro

And the S right now the selling, I mean that the $800,000 year-over-year delta the decline is that how do you did it that is that is selling expense mostly selling or?

U Terry McDaniel

It’s mostly, work I’m over head it’s mostly a over head. If the G 90 it in this.

Mitch Pinheiro

And your pull back on promotion obviously is a above the line production and then.

Terry McDaniel

And then we hope of as we get our margins back.

Mitch Pinheiro

Question on the snack margin to gross margin approve nicely but it’s still included in 0.5 million, co-pack cost so if I find sort of added back in 0.5 million this quarter your gross margin is over 20%, is there any reason to thank, I mean a sort of 20% gross margin in snack with your new and this is really before you get a little volume in busting and some reserve assumption as you kind a, if you going to run towards is that fair?

Terry McDaniel

It is reasonable assumption we said our goal ultimately by the end of this year is to get back to our snack historical gross and well we’re going to do sort of way margin with investment in our boulder right now, to the extended if we can get north of 20 we will reinvest some of that back into boulder. But 20 is not an unreasonable assumption.

Mitch Pinheiro

Okay then I’m right so on the trillion private label a flattish in the quarter and I realize losing a low margin customer doesn’t heart but is not that is that losing a high margin customer but it’s still it’s incremental gross profit dollar loss is that correct?

Terry McDaniel

Yes there is one customer that we get on and realized a bright which are lower margin private label business in the house and by the way when you’re not been able to meet your orders we had customers that have great margins it’s sometime it’s good to lock a way percentage business and even in inventing in new equipment we want to make sure we don’t utilize that equipment in low margin business. And one I left out match and I forgot along our customers are also in that business and the west coast and in this if I could it, everyone so that that also one customer that is going to be that based customers that we have are doing well and we’re going after more of them.

Mitch Pinheiro

So what is that?

Terry McDaniel

Which we are really focuses well on our margins and making money as we said you know core and core firing customers that are unprofitable so we really focused on getting back to earnings.

Mitch Pinheiro

So what kind of gross rate do your solid premium private label customers, what kind of growth they generally think your?

Terry McDaniel

In very so once that is opening may new stores and won’t give you specific but there is natural change that continues sell into our stores, they are going to be in the double digit rage and then your basements that are so now in a base customers they are growing that low bit single digits, okay right.

Mitch Pinheiro

Very helpful thank you and then last question is just seen on Steve on the balance sheet. You know sir you made good progress not in down inventory but you know obviously in pay down some you kept payables down but you know over that result net debt result just under 3 million sequentially, what are your thought on what other progress you can make besides the obvious EBITDA you know catch for improvement are there any other balance sheet move some in this inventory still going in your favor how should we think about like what a year end that level might look like?

Terry McDaniel

So a great question, so we paid a lot of bill, I man we continually repaid a lot of bills in the first quarter and I think we spend a roughly about 16 million in the quarter between paying bills an spending on capital and increased our line versus Q4 and it was a 100,000 so you know that’s the step in the right direction we sort of we clean how a little bit we clean up the backlog and we’re back in shape and we feel very focused on inventory management, we got team of people.

So we need weekly to get those inventory down type and sweep. Managing our CapEx spending, I mean there is the line show the CapEx spending will be behind us in July - certainly early second quarter going forward. And we are always looking at options I mean with the end of the day I mean that’s top of our list all the time to manage our balance sheet, to manage our debt levels in covenants [Multiple speaker] on the capital, if you guys think about it we had all the good year ahead of all, we were being installed in first quarter plus in June or July, we have a little bit of extents in moving in London and that we added a bag in Jefferson.

The back half of the year, most of that capital was spending for the year is all going to be - it is note that it will large not a 100% because we have maintenance capital and everything. But most of our big projects are behind this, our earnings is better in second half hopefully. And we continue to manage inventory , I mean Fresh Frozen we build up a lot of stuff while we are out of business and that’s going down each month, so now inventory will go back as we start [flaking food] which will begin in the July, August we will see it go back ever. The rest of at what we are working on should improve and that will be part of almost cycle. But I think the back half should be better.

Mitch Pinheiro

Okay, that was helpful. Just two more questions. What is your - what was your CapEx spending in the quarter?

Terry McDaniel

4 million.

Mitch Pinheiro

4 million, okay. And then on the berry business, when back of the [indiscernible] you had said that your frozen berry business was down 9.4% but it was up 7.1% if you exclude some of the pricing loss in Canada. Is that combine the pricing loss in Canada about $5 million?

Terry McDaniel

For the quarter?

Mitch Pinheiro

Yes.

Terry McDaniel

It will be more than that actually.

Steve Weinberger

Yes. Little more, it's a big number.

Mitch Pinheiro

And if I split it, it's about half and half, if Canada was about $1 million a month, is it about half and half?

Terry McDaniel

Yes, sir.

Mitch Pinheiro

Okay. So I had, thanks for your help.

Operator

Thank you. Ladies and gentleman this does conclude our question-and-answer session for today. I’ll now hand the call back to Terry and Steve for closing comments.

Terry McDaniel

Okay, thanks. We are well on our way with these initiatives and deep projects. The first quarter 2016 was a step in the right direction for Inventure Foods and there is more to come. We are focused on improving the company's profitability and enhancing the shareholder value.

Thank you today for your interest. Thank you for all the shareholder, the analyst and everyone who has interest. And also I would like thank the Inventure Food's team, they have been working hard, they have been our persistent, committed and making great strides and I appreciate all they are doing to get us back where we need to be. And have a great day and I’ll talk to you in the next quarter.

Operator

Ladies and gentlemen this does conclude today's program. You may all disconnect. Everybody have a wonderful day.

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