October 4, 2017 | 8:46 AM by Jay Kunstman | jkunstman@jaguaranalytics.com

Snyder’s Lance (LNCE) – Salty Snack Plan

Back in 2010, a merger occurred between Lance Inc. and Snyder’s of Hanover that would create a $1.6B snack food company. Presently, Snyder’s-Lance is a manufacturer, marketer, and distributor of branded and partner branded snack foods, with a leading market share in the pretzel, sandwich crackers, and kettle potato chips categories. Per their recent Investor Day, here is the company’s currently portfolio:

Within the processed and packaged goods industry, Snyder’s Lance seems to get lost in the shadows of the larger companies such as Campbell Soup (CPB), General Mills (GIS), Kellogg (K), and J.M Smucker (SJM). However, in the month of August, we saw some unusual option activity as well as insider activity that caught my attention. To be more specific:

Option Flow – On average, this stock trades less than 100 contracts per day. But, back on August 8th, there was a buyer of 700 March 40 Calls for 2.75, a $192,500 bullish bet.

Insider Activity – In the month of August, Patricia Warehime would acquire a total of 40,102 shares for a total value of $1,493,541 (As Shown Below). For reference, Ms. Warehime is currently a Director at Snyder’s Lance and served as a member of the Board of Directors of Snyder’s of Hanover until December 2010 when she was appointed to the Board of Directors in connection with the merger.

Turnaround Plan

On the company’s Q2 conference, CFO Alexander Pease reported that second quarter revenue increased 3.3%, total branded revenue increased 4.9%, contract manufacturing revenue increased 90 bps, while partner brand revenue decreased 4.5%. The stock would ultimately close higher by 12%.

However, CEO Brian Driscoll would provide his thoughts on the company’s outlook by saying, “While we’re encouraged by our brand sales — branded sales momentum, we are not satisfied with our aggregate financial performance and have finalized a broad-based performance transformation plan to sharply expand margins and unlock substantial value for shareholders. I have foreshadowed my early thinking of some of our most urgent priorities, and I’m prepared now to describe them in more detail.”

Some of these would include:

1. Recently announced a broad-based workforce realignment initiative
2. Announced the closure of an underutilized manufacturing plant
3. Announced the restructuring of our sales force and commercial efforts under a single Chief Customer Officer.
4. Formed a centralized R&D innovation and marketing service center of excellence as part of our realignment.
5. Planning to implement a new strategic business unit structure in fiscal 2018.

Then, at the company’s Analyst Day on September 28th, senior management would reiterate/provide a deep/detailed overview of the its cost structure/savings opportunities and organizational/operations/compensation changes. Specifically:

1. LNCE is targeting a 20-30% reduction on non-headcount indirect baseline spending of $260 million (roughly $65 million), as the company is well above the median benchmark spending in about 6 of 10 categories, including professional services, travel, utilities, IT, and People HR. The company is confident that it can capture the full opportunity set of cost savings over time.
2. The company has reduced salaried headcount by about 17%, or 250 people, this year as it did things like integrating two salesforces into one, and consolidating back office work. LNCE will continue to evaluate its organization size/structure as it begins to realize further efficiencies.
3. LNCE is targeting $75 million in cost savings across manufacturing efficiencies, procurement, network optimization, logistics, and end-to-end planning.

Finally, in a September 29th note, BMO Capital analyst Amit Sharma, who has an Outperform rating and $43 price target on shares, would say:

“Though the company’s past, repeated failures to deliver on promised margin expansion targets often invite investor skepticism, we believe that the new management team articulated a new operational philosophy to reorient internal focus from “sales growth at all costs” to profitable growth and margin expansion.”

The analyst also said that he believes LNCE’s market leading brands, significant channel/geographic white space, low household penetration, and attractive, growing snacking categories signal a top-line growth outlook of “in line with” and “above” that could prove to be conservative.

#CPB#GIS#K#LNCE#SJM

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