US snack group Snyder’s-Lance has said its acquisition of Snack Factory for US$340m will significantly boost sales, cash flow and profit margins.
Snyder’s-Lance, which has agreed to purchase Snack Factory from private-equity firm VMG Partners, said that the firm’s Pretzel Crisps range will become an “immediate core brand in our portfolio”.
Carl Lee, Snyder-Lance’s president and COO, told analysts on a conference call that Pretzel Crisps has high growth potential. “We believe there is significant growth on the horizon” he said. “Over the last three years, sales almost tripled and they’re growing even faster over the past 12 months.”
At the same time, Snack Factory’s level of penetration will enable Snyder’s-Lance to expand the reach of its existing brands, like Cape Cod and Archway.
At the bottom line, Snyder’s-Lance CEO David Singer said Snack Factory has an “unusually strong free cashflow”, which will improve the firm’s profitability.
He said the acquisition is consistent with the company’s strategy to develop and acquire national, premium brands in the US, as outlined in February this year. Many analysts were enthusiastic about the deal. “Snyder’s-Lance is paying approximately 9.5 times [Snack Factory forward earnings], which seems reasonable given strong sales growth and cash flow generation, ample runway for continued strong sales gains, and a lofty margin structure,” said Heather Jones, analyst at BB&T Capital Markets. “Cost synergies are fairly limited, but the sales synergy opportunity is sizable, in our view,” she said in a note yesterday (6 September).
BB&T raised is earnings per share forecast for Snyder-Lance to $0.96 from $0.94 for 2012, and to $1.34 from $1.25 for 2013.
“It is unlikely that Snack Factory will continue to generate 30%+ sales growth, but we believe 15-20% is feasible over the next few years,” Jones added.