Shares in Snyder’s-Lance fell yesterday (4 November) after the US snack group’s third-quarter results missed Wall Street’s expectations and the company revised its 2014 forecasts. However, analysts, looking into next year and beyond, believe the prospects look bright for the business.
Alongside its third-quarter numbers, Snyder’s-Lance announced plans to set up a “better-for-you” snacks division and it is this venture that caught of the eye of industry watchers.
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The company has already made some moves in this area. This summer, Snyder’s-Lance acquired US baked snacks firm Baptista’s Bakery, a move it said “sharpens its focus” on growth categories like healthier snacks.
However, the formation underlined the emphasis Snyder’s-Lance is placing on the emerging parts of the snacks sector, not least because it came with news of further investment in organic firm Late July Snacks.
Synder’s-Lance has had an interest in Late July for seven years but last week acquired majority ownership of the business. The company now owns 80% of Late July, set up in 2003 and producer of snacks including organic tortilla chips and crackers. And Late July will be at the centre of the new Snyder’s-Lance division, which will also house the Snack Factory and EastSmart brands.
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“Snyder’s-Lance reported a disappointing Q3 miss yesterday, while guiding down on 2014 expectations. The stock sold off, as a result,” BB&T Capital Markets analyst Brett Hundley said.
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By GlobalDataHowever, he added: “Importantly, we think that Q3 issues were transitory; we see no reason to lower our Q4 number, and believe that the company could even see upside during the quarter. Further, we are beginning to see the puzzle develop for this company: core brands getting on stable footing, continued pursuit of natural/healthy/organic (Late July), and solid margin improvement potential.”
Carl Lee, the president and CEO of Snyder’s-Lance, said yesterday a quarter of the company’s portfolio had a “better-for-you positioning”, which he believed the company could continue to expand. Lee claimed the investment in Late July would improve the group’s ability to penetrate the category. “Now with the expertise that we have with Late July, we’ll be able to move even faster,” he said.
On the flip side, Lee said Snyder’s-Lance’s direct store distribution system (DSD) could help expand Late July’s presence in the wider US market. “You have the all-natural channel that’s got very strong distribution for Late July, but there is the opportunity to leverage our DSD and take it to some new customers and we have leveraged it already to expand distribution in a number of national retailers.”
Jonathan Feeney, principal at Athlos Research, says the company’s distribution network is a positive for the business, pointing to its strategy of carrying other companies’ brands through the network. “It would seem there’s a lot more than $350m or so in partner revenue opportunities, with $35bn in category sales, about $18bn of which aren’t in the hands of [PepsiCo arm] Frito-Lay, Kellogg, or Mondelez International,” he wrote in a note to clients today. “We think there’s a much bigger opportunity here, especially in the better-for-you segment, which Snyder’s-Lance’s newly-created better-for-you company division seems to emphasise.”
That said, Snyder’s-Lance is not the only company to pursue the natural and organic snacks category. One cloud on the horizon could be the competition in the space and Hundley asked management how they planned to use strategies beyond innovation – marketing and promotions for example – to win custom.
“The overall brand positioning, the packaging, the quality, the overall value and what you represent as your overall consumer proposition, all have to come together for a total equation of making sure you match with that consumer’s expectations,” Lee said. “And so with Late July or Cape Cod, we’ve been very successful with those items, being able to really cater to what consumers are looking for.”
However, he said the company recognised it had to focus on “renovating” its underlying business. “Here I think most food companies are struggling today is what I call the base business. And with base business, you need continuous renovation, is the word we’re using, and you’ve got to stay very relevant and it goes way beyond a short-term discount or promotion. You’ve got to really make sure you’re staying on top of everything the consumers are looking for when they make a packaging or a product decision,” Lee said.
The reshaping of Snyder’s-Lance this year has also involved the disposal of its private-label business to fellow US snacks manufacturer Shearer’s Foods. And, Lee indicated, that deal has strengthend the company’s ability to look at adding more assets to its portfolio. “We have a very strong balance sheet that actually improved quite significantly with the sale of private brands. That allows us to use our strategic filter to very carefully look for other possible acquisitions that we will evaluate to add to our portfolio over time.”
Above all, Lee said yesterday he believed 2014 would “go down as a very important year in our company’s history”. He said: “We have taken the careful time and attention to really execute our strategic transformation, have become a very nimble and branded company focused on creating shareholder value by really focusing on creating outstanding brands that have created great consumer reason and rationale for existing.”
In a note to clients yesterday, Hundley said: “Alongside the sale of private label, the acquisition of Baptista’s, and investment in Late July, we continue to see the company turn its portfolio towards healthier snacking. A very engaged management team is intent on innovating and messaging to win. It is the combination of these factors that makes for an upcoming catalyst stream, we believe.”
However, he added: “We also think that Snyder’s-Lance represents an attractive takeout candidate, given its branded, healthier-for-you mix and DSD system.”
