Snyder-Lance's (LNCE) CEO Carl Lee on Q1 2014 Results - Earnings Call Transcript

| About: Snyder's-Lance, Inc. (LNCE)
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First Midwest Bancorp, Inc. (NASDAQ:FMBI) Q1 2014 Earnings Conference Call January 22, 2014 10:00 AM ET


Carl Lee – President & Chief Executive Officer

Rick Puckett – Executive Vice President & Chief Financial Officer

Mark Carter – Vice President, Strategic Initiatives & Investor Relations Officer


Bill Chappelle – SunTrust, Robinson, Humphrey

Omar Mejias – BB&T Capital Markets

Michael Gallo – C.L. King & Associates


Welcome to the Synders-Lance, Inc. Q1 2014 Earnings Call. I will now turn the call over to Mr. Mark Cater, Vice President and Investor Relations Officer.

Mark Carter

Thank you very much, Jonathon, and good morning everyone. With me today are Carl Lee, our President and Chief Executive Officer, and Rick Puckett, our Executive Vice President and Chief Financial Officer.

During today’s call we’re going to be discussing Q1 results as well as estimates for 2014. As a reminder we are webcasting this conference call along with the supporting slide documentation on our website at

Before we begin I would like to point out that during today’s presentation management may make forward-looking statements about our company’s performance. Please refer to the Safe Harbor language that’s included in each of our presentations and also to the language that’s included in our most recent press releases.

I will now turn the call over to Carl Lee, Chief Executive Officer, to begin management’s comments.

Carl Lee

Thank you, Mark. Good morning, everyone, and we really appreciate you joining us on this call. If you’re following along in the deck I would suggest you turn to Page 4 and we’ll cover the topics for the day. We’ll give you some overview of Q1 performance. We’ll talk to you about these transformative steps we’re taking as a corporation, and we’re going to give you a little bit more of a look forward in where we’re taking our business. Then also with Rick’s help we’re going to dig into our Q1 financial results.

If I can ask you now to turn to Page 5 we’ll begin to give you some highlights from Q1. Starting at the very top, revenue was up 4.4% versus last year. We’re very pleased with our overall revenue growth and we’ll give you some more color around what drove that, and we’ll also share with you a few areas that we’re going to be keen to work on to improve. We did see both volume growth and revenue growth for the quarter.

Now, moving on to our investments during Q1, if you’ll recall on our last call Rick was very clear that we were going to invest $0.10 of EPS to be able to put more against our marketing and new products during the quarter. This was a very strategic move to begin to balance our marketing spend throughout the year, because traditionally we spend in Q2 and Q3 and we’re not able to spend in Q1.

This positions us in a much better shape for years that are forthcoming when we’ve got marketing funds to roll out at the very beginning of the year. And they were put to good use and we saw good progress in support of our new items.

EPS was ahead of expectations and in light of the fact that we did have a tax benefit that was offset by some extra healthcare costs that Rick will share with you in a few minutes. Our new product rollouts, we’re very pleased with the progress. We like the performance we’re seeing.

The Snyder’s of Hanover Sweet-n-Salty has exceeded expectations. Our gluten-free pretzels are also performing extremely well, and what makes us the most pleased with our performance is in the gluten-free example we’re truly building overall category performance. It’s expanding the category. We are not trading out sales with other people in the industry. We’re helping our retailers reach more consumers in this important new segment.

Our Lance bowls, again, performing extremely well and exceeding expectations has really helped to lift our overall sandwich cracker performance. We are very pleased with Cape Cod as we worked on some expansion plans this last quarter and we also launched some exciting new flavors, and we are very pleased with the initial read on our popcorn that was rolled out during Q1.

Our Pretzel Crisp launched Minis and we’re beginning to expand our ACV coverage on that. There you have again another opportunity to expand the overall reach of our category and our product line to the benefit of our retailers and our consumers, and we are not swapping out revenue. We’re trying again to reach more opportunities to sell our products.

Cape Cod, we’ve expanded out west and we’ve been rolling out our ATV coverage, and we’re very pleased with what we’re seeing with performance in California and throughout the West Coast. We saw once again double-digit growth on Snack Factory Pretzel Crisp and we’re very pleased with not only the innovation but our ongoing opportunity to expand ACV and again, to be able to draw additional distribution to that very profitable and fast-growing item.

Now to be careful and to also share with you some of the things that we need to do better from what we discovered in Q1. We saw extremely good growth across all of our salty franchise. We’re very pleased with all the initiative plans we put in place; very pleased with the results of the marketing investment that we put behind those.

We do however have an opportunity on our sandwich crackers and we just want to be clear – we have seen good progress with Bowls and with our initiatives to add innovation and expand the category are working, but our base business and the overall base category has been softer than we expected. So therefore we put together some stronger marketing plans and some development initiatives to help us improve progress there through the balance of the year.

Turning now to Page 6, we had the blessing of being able to share with you yesterday two very important transactions that we’ve entered into. We’ve signed two definitive agreements, the first being to sell our private label business to Shear’s. The second is to acquire Baptista which is a very innovative producer of very premium, better-for-you snacks. We’ve had a strong relationship with them through the Snack Factory business for some time and we are very pleased and very excited to have them joining our family.

If you look over to the right, this is indeed a transformation for our company. Before our branded business was roughly 61% of our overall revenue. After both of these transactions are closed in the pending 30 to 45 days, we will readjust our overall portfolio and now 73% of our sales will come from our branded business. Our partner brands, which is something we enjoy doing and is very beneficial to our company and to our partners, will be at 19% and the balance of our business will be roughly around 8% - two important moves going forward.

Page 7 will talk about our strategic focus and some of the benefits of these two transactions. First of all, the sale of the private brands. We are very complementary and very impressed with the buyer. The new owner can indeed improve the progress that we’ve been making over the past couple of years and be able to take this business to new heights. They are going to be able to focus on private brands and we’re going to be able to focus on our branded portfolio. I have to admit we found it very difficult to try to really focus on both brand and private brands and this is a good opportunity for our companies to be able to step forward in new directions.

With the transaction from our side comes a very, very strong management team that is excited about joining Shear’s and the vision and strategy that that company has for not only the business they’re acquiring but the great progress and success they’ve had already with their salty snack business. It provides financial resources for us to do additional M&A growth; it also comes at a very good time. We’ve been able to optimize the business and it’s available to grow much more profitably for the new owner; and the innovation that we’ve put into the pipeline will give them some new tools to work with as they look to expand the business.

Now talking about Baptista, clearly it solidifies our competitive position in Pretzel Crisp and ensures control of our product supply. As I mentioned earlier, that brand continues to grow double digits and we’re excited about the future growth and being able to work with Baptista as not only our manufacturer but now one of our businesses is going to be very important.

It fuels our innovative capabilities because they have a very strong R&D team which has a long, successful track record of creating very innovative, very premium items. It enhances our focus on premium, high-growth categories and one of the things that we find very attractive is recently their facility was certified for organic production. It clearly expands our better for you product portfolio beyond the day’s current level of 25%. It adds some very needed production capabilities. It also creates some real synergies from a purchasing standpoint for both of the companies to be much more efficient together.

Turning to page 8 and just talking a little bit about the Baptista facility and the great team and the great leadership that they have within that organization. It’s a 260,000 sq. ft. facility that’s very new strategically located in the Midwest. As you recall, both of our pretzel factories – one’s on the East Coast, one’s on the West Coast. This gives us an exciting location in the middle of the country.

They develop and produce again very premium, very specialized items with very flexible and very capable production equipment. The organic and gluten-free status are very important to our consumers and also to our ability to reach and expand our portfolio. Many of their products include wheat and rice, multigrain, corn, and potato – all leading ingredients for better-for-you items.

They also are able to enrich with calcium and fiber in other ways to again fortify and improve our product offering. They have a wide variety of packaging capabilities which are very important because you can indeed lead innovation with packaging by itself; and a very new and well-managed plant that was built within the last fifteen years.

Turning to Page 9, this indeed allows us to continue to improve our strategic direction and execute the strategic plan that we have rolled out over the last couple of years and that we continue to enhance every December. If we step back to 2012 and 2013, the strategic moves during the timeframe were to acquire Snack Factory Pretzel Crisp, to strengthen our overall ability to be an innovator and to drive great new products, enhance our marketing, and also build up a very talented and very qualified Innovations Team. And we also brought online something we’re very proud of at Hanover, and that’s our new R&D center.

Now looking at 2014, this past quarter we launched an aggressive slate of new items and we’re very pleased with the performance almost across the board with each of them. Now we’re acquiring the Baptista bakery and bringing that online. We’re executing the sale of our private brands which was again part of our strategic plan, and now going forward we’ll continue to reduce and optimize our costs. And I think we’ve got a track record of success there as has been proven through the integration of our two great companies.

As far as innovation-driven strategy, we’re focused on more on-trend products, we’ll have better leverage of our distribution system in allowing us to leverage our DSD or what you’ve heard me refer to as our “railroad tracks” as we put new, higher quality premium items out there for distribution by our IBOs. We’ll also be able to expand our margins by focusing on more premium items.

The benefit for the sale of the private brands and the purchasing of Baptista hopefully is very clear and we’re going to continue to add some more color around it. It allows us to be very strategically focused on what we see really as the bright spot of future growth for our company by focusing on high-growth categories more centered around health and nutritional benefits for consumers.

It enhances our manufacturing and innovation capabilities. I have to emphasize again the quality of the R&D Team at Baptista is something that is very exciting for us. It allows us to position ourselves for long-term growth with an exciting new product pipeline.

Turning to Page 10, a statistic that we want to share with you today is that 25% of our portfolio today is better-for-you. That’s a very important clarification. We’ve seen many companies refer to their goal of trying to get to 25%. We’re starting on that path at a very high level already.

I want to help you understand how we come to that 25% number. Again, it’s based on consumer input and consumers recognizing claim-based definitions. And when I refer to claim-based, it’s a product that has a reduced fat status, one that maybe has gluten-free or one that has whole grain as a key component. Those all would be claim-based, clearly defined nutritional benefits that allow it to be considered a better-for-you item.

What we are not including is equally as important. We are not including better-than items in our definition. Better-than would be to say that pretzels in general are better than potato chips. While that is very true that is not part of our definition of better-for-you products. It has to be a substantiated claim to be able to qualify for that status. Again, it’s items such as reduced fat, GMO-free and organic all provide for a clear definition of a better-for-you item.

Now starting with 25% is a great place to be starting, but with the Innovation Team that we have in place, the focus on the new products that we rolled out this year, the current pipeline that we have and now the exciting news of Baptista, we’re going to be able to focus even more on organic and gluten-free products, more around multigrain products and more around enrichment products to be able to expand our portfolio into the highly-profitable and desirable area of better-for-you.

Turning to Page 11, enhancing our manufacturing and innovation capabilities is something very important to us and we’ve been building that steadily. Over the past year we’ve really strengthened our team and our ability to innovate – again, we’re very pleased with what we’ve seen roll out in Q1 and even more pleased with the revenue results that we’re seeing from it.

The opening of our R&D Center was an absolutely important milestone in our corporation and we’re seeing very good progress and results there day in and day out. The expansion of our Innovation Team working hand-in-hand with our R&D Team is allowing us to focus on new better-for-you items.

The successful launch of our products in ’14 speaks for itself and all of this is geared towards building a strong pipeline of products to support our DSD system and our very important IBOs – clearly a partner of ours that we want to give more selling tools and more new products for our day-in and day-out. But it also helps us with our deli line and our direct sales force to once again be able to give them more ammunition for growing the top line.

You take that as a base. You add the acquisition of Baptista, it really expands our capabilities. Once again it brings another talented R&D team with proven innovation under their belt to work with our team day in and day out. It resonates especially well with our desire to focus on healthy snacks while we continue to develop our full portfolio of products as consumers continue to eat indulgent snacks as well as other items besides better-for-you.

It enables us to expand our usage occasion and be able to focus on snacks that are eaten throughout the day. It allows us again to clearly focus on differentiation and setting ourselves apart from others.

Turning to Page 12 as we look now through the balance of ’14 we have some key projects and objectives that we’ve got to work against. Clearly, we’re very proud of our Private Label Team and we’re excited about their progress. We also are excited about them moving on to a new opportunity with Shear’s and we’re going to support them day in and day out up until the closing; and we’re going to wish them the best as they’ve found a very good home for them to go and work.

We’re going to support our Baptista associates as they begin to get ready to join our team. We’re going to pursue synergies with Baptista around purchasing, around revenue – clearly areas that we think are some opportunities for us to just be more efficient and more effective as we combine our scale. And then we’re also going to look across the entire company as we have been for the past couple of years for additional opportunities to just reduce our overall operating cost base.

Turning to Page 13, we wanted to give you a little bit more insight into the transactions themselves. First of all the purchase price for Baptista was $195 million. The sales price as we shared with you yesterday for Private Brands is about $430 million. Our after-tax proceeds will be over $300 million. At this point I’d like to invite Rick into the conversation and ask him to cover a little bit more of the summary of our transaction.

Rick Puckett

Yeah, as commented we were able to sell Private Brands for $430 million with after-tax proceeds approximating a little over $300 million. This has obviously been an impediment to a transaction but with the complexities of other structures we do believe that this is the right strategic direction for us. As part of this agreement we will have a supply agreement for some of the production that we’re producing in some of the plants that were not part of the transaction.

The planned transactions that we’ve talked about and announced yesterday will result in an annualized reduction in net revenue of approximately $250 million. Baptista obviously was doing a fair amount of revenue but since most of that or a big part of that was Snack Factory that gets eliminated in consolidation. There will be also an annualized reduction in EPS initially of $0.17 to $0.22. We do expect to close that gap with cost actions and additional M&A activity going forward.

Operating margins initially will decline by about twenty basis points but then will recover in the following year through reduction in the stranded cost left and created by the sale of Private Brands. The guidance for 2014 will be updated as we close the transactions later on in Q2.

We are also refinancing existing debt with changes in covenants and terms. In Q1 we negotiated a bank debt which we expect to close in early Q2, and the major items that we addressed here was the requirement to pay down some of the term loan which was eliminated in our previous term loan covenants. We also increased the capacity by approximately $100 million. We revised the rates; we revised the tenure. Now it goes through 2019 and even 2024 for part of that debt. The private placement is still in place which expires in 2017.

We also made other modifications or plan to make other modifications that will make it more flexible to actually support our growth plans in the future through M&A. We do expect to reinvest the net proceeds as well as the additional debt capacity on other strategic acquisitions going forward.

Carl Lee

Thank you, Rick. I appreciate the overview there.

Turning now to Page 14, just to give you a little bit more color around the future: I think we’re very proud of our team, and we’re blessed with a great organization and people that work day in and day out very hard to continue to build our company and take care of our customers and consumers.

Along with that we’ve got category-leading core brands that continue to perform quite well. We’ve also built and continue to build our innovation capabilities so we’ll strengthen our sales in that area. With Rick’s overview just a second ago we’re clearly strengthening our balance sheet, and we continue to focus on our distribution capabilities both with building out more and more our DSD system and supporting our IBOs, but also to our direct selling force.

Our objectives going forward is just to outpace the overall food category and provide leadership in our brands so that we support our retailers’ expectations, to address important market trends as they develop so that we support them and take advantage of those, and again provide consumers what they’re looking for. We will continue to reduce our cost base and once again, I think our track record of doing that through integration should give some comfort in the fact that we do have stranded costs that we’re going to go after. And we’re going to continue to reinvest in our overall capabilities as an organization and certainly we’re going to continue to reinvest in our people.

At this point I’d like to direct you to Page 15 and I’d like to once again turn it over to Rick to give you some more color on our financial results for Q1.

Rick Puckett

And on Page 16, I just wanted to make sure we’re on the right page – we talked about the Q1 revenue summary and you can see that banded revenue was up 0.4%. I will tell you that our branded volume was actually up 2%. We did spend additional trade as we mentioned before to support our new products’ rollout – of the difference there almost 1.6%.

Core branded revenue while up versus last year reflected very good growth in Cape and Snack Factory, both double-digit growth; and Snyder’s high-single digit growth. And as commented the sandwich crackers saw a decline from last year driven by category softness as well as the fact that we do need to spend more time and energy around driving in this space to grow this category in the future.

We are the category leader here so we will be taking that leadership responsibility seriously in driving this category. We do expect to see renewed growth in the sandwich cracker category from Q2 forward. We did have strong growth across the other parts of our business as well.

If you look at the Q1 financial summary you will see that gross margin was 34.1% versus 34.6% last year – that’s down 50 basis points. The higher trade spend actually was about 140 to 150 basis points in the quarter and we saw continued manufacturing efficiencies and favorable mix in some of the branded categories that offset much of this higher trade spend investment in Q1.

Our operating margins were at 6.4% versus 8.1% last year, down 170 basis points. The higher marketing and advertising spend is the headline there. We supported new products with 120 basis points of new spend versus last year. We had talked about spending $0.10 in EPS in Q1; we actually spent $0.10 in EPS supporting these product launches in Q1.

We actually did have however a successful launch of our new products. About 85% of the new products are meeting or exceeding their initial targets. We are very pleased with that success of this year’s innovation and we are learning from the whole process so that we’ll continue to make that better going forward. We also had about 20 basis points of higher transportation costs driven by the weather issues that were experienced in Q1 across the country.

Carl mentioned a few minutes ago that we had a favorable tax benefit of about $0.02. That was actually offset by a $0.02 hit in higher medical costs, and we expect the medical costs to go back to norm going forward.

When we look at Page 18, the cash flow items, you can see that we in the trailing 12 months – and that’s what this represents – is $74 million. We continue to see increases in this metric as we moderate our capital spending and also drive working capital improvements in inventories and other parts of the working capital. This positive cash flow has been used to pay down our debt and our leverage is only 2.6x now at the end of Q1. You can see also CAPEX being down $12 million on a trailing 12-month basis relative to its comparison in 2013.

Let’s look at Page 19 now and talk about the estimates. As you can see I have not changed the estimates for 2014 at this point, anticipating the fact that we would be updating these estimates on the closing of the two transactions that we have out there. So even though we surpassed our Q1 expectations I’ve not reflected that in full-year guidance at this point, knowing that when we talk again we will be updating the guidance for 2014. So don’t read anything into that other than the fact that it’s going to change anyway, and I didn’t want to put another set of numbers out there that might be confusing.

So we will in fact change the guidance and update that as the two transactions close later on this quarter and we’ll adjust our guidance to reflect those transactions after they’re completed.

At this point we’ll turn it back over to Jonathan for questions.

Question-and-Answer Session


Thank you. (Operator instructions.) Our first question comes from the line of Bill Chappelle with SunTrust. Your question, please?

Bill Chappelle – SunTrust, Robinson, Humphrey

Just wanted to go back a little bit to Baptista and just kind of understand, were there any brands that came with that? And then maybe going back to that, was this ever in consideration when you originally bought Snack Factory of buying this at that time? And why now, and what else does it bring in terms of what else is Baptista doing right now other than making the Snack Factory products?

Carl Lee

Bill, I appreciate the question – this is Carl. I think that while we were aware of Baptista prior to the acquisition of Snack Factory we were able to really begin to understand their capabilities and the unique talent of their organization as we worked with them on expanding and growing the snack factory business. What we have there is a very highly innovative plant as far as the equipment and their ability from a packaging standpoint and from a production standpoint to make a lot of again very premium items.

So while no brands come with it other than you could possibly say Snack Factory, the ability to create a lot of other items is very important. They do produce some additional items today beyond Snack Factory and those partnerships will be very important for us going forward, but the ability to continue to develop and innovative items that are much in line with what consumers are expecting – that’s the excitement, that’s the draw of the Baptista operation.

So we’re very excited about this. We see it as accretive and we see it as a very important new component of our overall strategic plan that we continue to build out.

Bill Chappelle – SunTrust, Robinson, Humphrey

Got it. So I’m just trying to understand, what percentage of Baptista now is Snack Factory? And then do you have the ability to take over with your own brands the full business? Or would you eventually, you’ll keep those partnerships long-term?

Carl Lee

Good question. I think there’s several ways to answer that. I think the majority of their production today is for Snack Factory. The balance is for very important partners that have been part of that distribution, part of that company for a long time. In fact it’s very similar to what we’ve done and the way we’ve built our DSD system.

We built our DSD system by distributing partner brands. It’s been very beneficial for us. It’s allowed us to put more routes on the street, covering more customers, covering them more frequently. So we like the distribution of partner brands; we also like the manufacturing of what we would consider strong partners – very innovative, very value-added items.

But there’s additional capacity, there’s additional innovation there in Baptista that we will be able to use to expand some of the current brands. It will be very much a feeder for new items for Pretzel Crisp. It’ll be a feeder for new items for our pretzels under Snyder’s of Hanover. We believe it’ll even be a feeder for items possibly under Cape Cod and other places.

So using their additional capacity and capacity that we can help them to expand would open up the opportunity for lots of other new products to be created there. But we want to protect and continue to build the relationships we have with some very strategic partners there which also have their production. But again, very similar to what we’ve done with a long, long time with the distribution partner brands on DSD. We’ll just do more of it now with manufacturing.

Bill Chappelle – SunTrust, Robinson, Humphrey

Okay. And then switching to the base snack cracker business, is there a point where additional marketing and advertising is just not moving the needle? It sounds like Bowls has done very well but the base just can’t get off the ground. Is there anything different in that category or how should we look at that through the remainder of the year?

Carl Lee

I think what we’re seeing is just the category is soft in general. It’s had an incredibly strong run for over five years, and I think the offset commodities pricing moved a little bit ahead of it. And we also saw in the past 24 months, really in the last 12, innovation outside of Bowls was almost next to none where there’d been a lot of innovation in the category prior to that.

We also saw a lot less overall advertising and consumer communication, and when you have prices moving up slightly for commodities, you have overall communications to consumers going down, and then you also have a lack of innovation the category does have a tendency to slow down. And that’s what we’ve seen.

So we’re busy building it back up and feel very comfortable with where we’ll be able to go with sandwich crackers. But we’re very honest – it’s an opportunity for us now. Outside of that though, Bowls again is expanding the category and expanding our reach and it’s adding new consumers.

Bill Chappelle – SunTrust, Robinson, Humphrey

Great. And then one last one from me: just in general and I might have missed this, was there a meaningful impact on the quarter from either weather or the Easter shift that we should look at as we look into Q2?

Rick Puckett

Bill, I think the only thing that we’ve identified as anything material was kind of the 20 basis points on op. inc. on the shipping and distribution as we were trying to move goods around the country amongst all the snowstorms. But other than that we didn’t see really any drain on the top line or anything.

Bill Chappelle – SunTrust, Robinson, Humphrey

Okay, and then actually I have one more. When I look at the $0.17 to $0.22 issue on EPS, the divestiture, is that including kind of dis-synergies from excluding that business?

Rick Puckett

It does, and we refer to them as stranded costs basically, which is the same thing. And keep in mind also that that is essentially net of the transactions. So it’s got a little bit of synergy in that number for Baptista but not very much.

Bill Chappelle – SunTrust, Robinson, Humphrey

Got it, thanks, and congratulations on the transactions.

Carl Lee

Thank you, Bill.


Thank you. Our next question comes from the line of Brett Hundley with BB&T. Your question, please?

Omar Mejias – BB&T Capital Markets

Good morning, guys, this is actually Omar on for Brett. I guess my first question is related to the growth on the branded sales side and whether you feel that you’re seeing some type of sales lift given the level of innovation and advertising spend year-to-date? Also I guess if you can provide any additional color on which brands are doing better than expected and which ones could be performing better in relation to the level of spending, thanks.

Carl Lee

I’ll deal with that, taking a look at our core brand portfolio. While we don’t give a lot of details around it I think if we can share with you that we were very pleased with Cape Cod throughout the quarter. The base business grew very well; the new markets also performed very well, and then the addition of innovation on the flavors and the popcorn all kind of continue to allow us to expand that overall consumer franchise.

We really like the positioning of Cape Cod, the reduced fat positioning – we were the first in the category with that. We were the very first with the waffle cut so those both benefited us, along with the things I mentioned. So Cape Cod performed well through the quarter.

Pretzel Crisp continues to perform well quarter after quarter, and then we also saw good results with SOH or Snyder’s of Hanover. So those three core brands in particular, we’re pleased with what we’re seeing and we’re going to continue to strive to do even more.

Sandwich crackers – good news on innovation; a little bit of opportunity on base business. And we’ve got a lot of plans in place to address that that are starting in Q2.

Omar Mejias – BB&T Capital Markets

Great, that’s very helpful. And I guess just a follow-up: I think you mentioned something about excess capacity on Baptista. I just wanted to know if you could quantify that, how much is excess capacity there and if there are any plans to continue to expand in the Franklin, Wisconsin, area or any expectations on that front? Thanks.

Carl Lee

It’s a little early to get into a lot of details about Baptista. I think that they’ve been very good about adding capacity, expanding capacity and driving efficiency to support their business-owned Snack Factory and some of their other items. So we do see some additional growth opportunity with the current capacity that’s in place. We’re pleased again with the team and their capabilities and see some additional growth coming out of it in addition to our ability to expand Snack Factory.

Omar Mejias – BB&T Capital Markets

Great, guys, thanks for taking my questions.


(Operator instructions.) Our next question comes from the line of Michael Gallo of C.L. King. Your question, please?

Michael Gallo – C.L. King & Associates

Hi, good morning. My question is on the stranded costs. How much is there in stranded costs from the Private Brands sale and how much of that do you think you’ll be able to cut versus how much you think you’ll need to add volume growth back through either acquisition or organically in order to offset? And also how long do you think it’ll take to get those stranded costs out? Thank you.

Rick Puckett

Michael, I think I’ll start with the third part of that question first because the rest of it I probably won’t disclose too much at this point. But we do expect over the next twelve months to get most of that back either through the reduction in costs or the expansion through some M&A activity. I think as you look at our cost structure over the last three years we’ve actually reduced our G&A costs by 50% over the last three years.

So we’ve already been at reducing a lot of costs and I think that we will focus still on optimizing things where we need to optimize it. But we do expect to continue to beat down the path of M&A, and we’ve set ourselves up with a new bank line and some other things to help us accommodate that activity.

Michael Gallo – C.L. King & Associates

And then just a follow-up question, what drove the sales growth in partner brands?

Carl Lee

It was primarily around expanded distribution. Working with some of our key retailers, we picked up some distribution with them and provided some more partnerships with some of our key partners.

Michael Gallo – C.L. King & Associates

Do you expect that to recur going forward?

Carl Lee

I think we’ll continue to see some of this for some time because again we’re pleased with the ability to distribute and retailers are asking us to do a little bit more of it, so we’ll continue to see it. It’s a way to again buoy up our routes so that we’re getting to the stores more frequently. It’s also a way for us to have fewer stores per route, so while it’s beneficial to the partner it’s also very beneficial to us.

Michael Gallo – C.L. King & Associates

Okay, great, thanks very much.


Thank you. This does conclude the question-and-answer session of today’s program. I will now turn the call over to Mr. Carl Lee, President and CEO, for closing remarks.

Carl Lee

Thank you very much and again, thanks to everyone for joining us. Just in summary I think a couple of key points I want to share with you: again, you’ve heard me allude to the quality and the talent of the team that we have here at Snyder’s-Lance and we’re just absolutely impressed with them and very much appreciative.

We’re very appreciative in particular for our Private Brands team who’s done a phenomenal job of really building and strengthening that business and we wish them the very best as we feel that we found a great home for them to go and join and continue to be successful.

Also in addition to that I think you see us clearly kind of step-by-step, brick-by-brick executing our strategic plan. The exit of Private Brands and the entry into expanding our better-for-you offerings through Baptista were part of our strategic plan for some time and thanks to the quality of our team we’ve been able to execute that.

One thing I’m impressed with and pleased with is most of the work or a lot of the work for both of these transactions was done internally and it takes a lot of time and energy to handle a carve-out at the same exact time you’re handling a major acquisition. And while we did have some help and we’re pleased with the help from external, the majority of the work went on right here inside and it just shows again our capability. So we have a very strong team to be able to do two transactions at the same time.

I think also we’re willing to make some very important decisions when it comes to building our business for the long term. The bold move of investing about $0.10 of EPS in Q1 to be able to reposition our marketing so that we have marketing dollars to launch new items in Q1 this year but also Q1 going forward was another important move, and one that we think was well justified and we’re pleased with the results.

So we are thankful for you for joining us today. We’re grateful for your time. We’re very grateful for our results. We consider ourselves blessed as we get ready to move into Q2 and continue to execute our strategy, execute the things that are shareholders are expecting us to do.

So we wish everybody a very good day and once again, thanks for joining us.


Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect, good day.

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