The CEO of US salty snacks manufacturer Snyder’s-Lance said today (18 February) that the recently-merged business is looking forward “to a very bright future” but cautioned the company will face a “challenging 2011”.
CEO David Singer said the integration of former snack makers Snyder’s of Hanover and Lance would be “front-and-centre” this year. He noted that the company’s shift to an independent operator direct store delivery (DSD) network would be the “most complex and important” part of the integration.
Speaking to analysts after the publication of the company’s 2010 results, Singer said he expects “several key benefits” as the companies’ operations are consolidated including accelerated growth, wider margins and greater asset productivity”.
President and COO Carl Lee said that Snyder’s-Lance expects to see the strongest synergies around purchasing, logistics, G&A and the DSD switch.
The company announced yesterday (17 February) that it would shift to an independent-operator direct store delivery structure over the next 12-18 months. Currently around 45% of the routes are company-owned and 55% are independent operator-based routes.
Lee expects to see significant savings through the planned DSD changes in terms of “reduced operating costs, lower overheads and an improvement in service”.
Lee said the shift to an independent-operator system has benefits both for the company and for the employees. According to Lee, changing its DSD structure will drive higher weekly store sales, larger drop sizes and fewer stores per route, giving the operator more time to sell. He added that the independent-operator system is less capital intense, delivers better margins and will drive higher returns.
He adds that from the independent operator’s perspective, growth drives their income and drives up equity for their route.
The company said it expects these plans to release an extra 200-280 basis points in improved margins, with a further 50 basis point improvement as the company’s new DSD model allows the company to sell more products through the organisation, which will come over the next 18 months.
Singer, however, highlighted concerns around high unemployment rates and rising commodity costs, which he said poses “challenges to pricing and promotional strategies and pressures profit margins for everyone”.
Lee said the best way to monitor commodity costs is “very carefully” and “day by day” so the company can plan accordingly. He said Snyder’s-Lance is using a three-step model to manage commodity costs. The company is buying forward, implementing pricing actions quickly and as needed, as well as continuously monitoring commodity prices and its competition.
He said the combined team had analysed Snyder’s-Lance’s spending on commodities, packaging as well as goods and services, and had built a “detailed action plan” to generate significant savings by leveraging its larger scale. The company is already seeing some of these savings trickle through to the bottom line, Lee said, although he noted the “majority will come through in the second half of this year and into 2012”.
He added that Snyder’s-Lance is buying two quarters ahead on all key ingredients and has taken major pricing moves in January and February. Snyder’s-Lance, he said, is finalising its plans for the remainder of the year and will take the “appropriate action where necessary to manage increased commodity costs”.
However, shares in the company were down 8% at 12:25 ET to US$18.69 a share.