On Feb. 12 snack company Snyder's-Lance (NASDAQ: NASDAQ:LNCE) came out with its FY 2014 earnings announcement. At first glance the company did ok fundamentally last year. Its revenue and net income expanded 8% and 145% respectively year-over-year. However, reported free cash flow swung from a positive $75.6 million in FY 2013 to a negative $56.9 million in FY 2014. When adjusted for the gain on the sale of its private brands segment Snyder's-Lance's free cash flow came in at $70.5 million in FY 2014 representing a 6.8% year-over-year decline.
To the company's credit it worked on sprucing up its balance sheet in FY 2014. At the end of last year Snyder's-Lance possessed $35.3 million in cash which equated to 3.3% vs. 1.5% at the end of FY 2013. The company reduced its long-term debt 9% year-over-year. Snyder's-Lance's long-term debt to equity came in at 40.3% at the end of FY 2014 vs. 52.3% at the end of FY 2013. This lies below my personal threshold of 50%. Snyder's-Lance's interest expense was adequately covered with operating income exceeding interest expense by eight times in FY 2014 vs. seven times in FY 2013. The rule of thumb for safety lies at five times or more. Let's take a look to see how the company is doing.
Waking up to the healthy lifestyles movement
Consumers increasingly want food perceived to be healthier. According to Snyder's-Lance's earnings presentation, industrywide natural & organic retail food sales totaled $60 billion in 2014 which is triple the level in 2010. The company gave indication that "better for you" food comprises more and more of its revenue. In response to these trends the company made some strategic acquisitions in the organic sector last year. Snyder's-Lance also created a division called Clearview Foods.
Company direction seems hopeful
The potential of any publicly traded company vastly increases when it has a focus. Snyder's-Lance dumped its private brands division last year giving indication company management wants to focus more on catering to the new shifts in consumer preference. Clearview's purpose is to focus on changing consumer patterns, introducing new products, and sell "better for you" foods. Snyder's-Lance also released alternative versions of its older products such as Lance's Bold Cracker Sandwiches which should provide rejuvenation on that front as well.
The company definitely isn't resting on its laurels, outlining several new products for FY 2015 in its earnings presentation. Snyder's-Lance wants to expand its Cape Cod brand such as dipping shells and kettle corn. It also wants to release products such as Quick Starts designed for the increasing frequency of snacking among the consumer base especially at breakfast time.
I would like to see Snyder's-Lance get a little history of success in the "better for you" snack line before I would consider investing. According to Morningstar, Snyder's-Lance trades at a P/E ratio of 30 vs. 18 for the S&P 500. However, it trades at a forward P/E ratio of 23 vs. 17 for the S&P 500 reflecting positive sentiment among analysts' forecasts. Regardless, the company is overvalued on both fronts. My outlook for the company is neutral. However, this company might make a good investment for the enterprising investor if it executes well on its plans.