Diamond looks to leverage Pringles brand

Diamond looks to leverage Pringles brand

Diamond Foods, which today (5 April) agreed to buy global snacks business Pringles, said it plans to leverage the brand's distribution channels to extend the reach of its other products, such as Kettle Chips and Pop Secret.

The US snack maker announced earlier today that it will acquire the Pringles brand from consumer goods giant Procter and Gamble, creating a combined business that will generate US$2.4bn in annual revenue and earnings of up to $410m.

Speaking during a conference call following the announcement, Diamond said that the $2.35bn acquisition will be immediately accreditive to earnings. The company raised its EPS forecast for fiscal 2012 by 15-20% to a range of $3.00-3.10 per share.

According to Steve Neil, Diamond's chief financial and administrative officer, the costs of the merger, spread over two years and including a combination of transition expenses as Pringles moves to stand-alone operations, are expected to total $100m. However, the group anticipates generating $25m in integration synergies as the company strips out overlapping corporate services.

Neil said that Diamond also anticipates additional "leverage" in gross margin and operating expenses resulting from the "added scale" of "delivering multiple brands". Revenue synergies would be invested back in the brand, he added.

Diamond emphasised that it expects to manage Pringles as a "long-term investment" and revealed that it will reinvest in the region of 7-8% of sales back into marketing the brand.

Chairman, president and CEO Michael Mendes said that Diamond also intends to drive top-line growth by expanding the brand into new markets.

"We feel that this is a business that has real potential to grow the top line... This brand is a thoroughbred... Procter and Gamble have crafted the design of this product and built a brand around this product in a way that we feel is marketable in more markets," he suggested.

Additionally, Diamond's other brands - including Kettle, Pop Secret and Emerald - will benefit from the opportunity to expand distribution as a result of the deal, management suggested.

The acquisition will expand the international scope of Diamond's operations, with 49% of sales coming from outside the US. The company said that it would gain a "broader global manufacturing and supply chain platform".

"Pringles provides scale in the markets that matter," Mendes emphasised. The acquisition will provide Diamond with access to developing markets including Asia, Latin America and central Europe, the company added.

Within the US, Diamond will also look to capitalise on Pringles' higher penetration in the convenience, club, mass, drug and value channels, Mendes said.

"[Looking at] their development in the c-store area, the percentage would be low compared to other salty snacks, but compared to our portfolio the [percentage] penetration would be high," Mendes said. He suggested that when offered to retail customers alongside Kettle, both brands would have a greater change of increasing their convenience listings.

Meanwhile, in other retail formats Mendes said: "They have penetration where we don't, where we perhaps should or could be, so we are going to look to leverage that."