Humpty Dumpty Snack Foods Inc. (TSE: SNX), a leading North American marketer and distributor of high-quality salty snack food products, Friday (10 August) announced third quarter results for the period ended June 30, 2001.
Third Quarter Financial Review
Go deeper with GlobalData
Net earnings increased to $26,000 from $7,000 in the prior year, with earnings per share remaining consistent year over year. Net sales in the quarter decreased 4.0% to $42.0 million from $43.8 million in the prior year, mainly due to timing of feature activity in the current quarter compared with the previous year.
“Our fourth quarter should deliver sales growth and improvement in our bottom line, due in part to our Halloween program as well as stronger feature activity on both our branded products and our private label business”, said Gerald Schmalz, Chairman and Chief Executive Officer, Humpty Dumpty Snack Foods Inc. “Moreover, our balance sheet is sound, giving us flexibility to continue to invest in our branded strategy and pursue growth initiatives.”
Gross margin decreased slightly to 39.2% of net sales from 39.6% in the same period last year. Lower sales volumes coupled with increased fuel costs contributed to higher manufacturing costs in the quarter.
Selling and administrative costs, which include distribution and marketing costs, were 36.6% of net sales, consistent with the same quarter last year. In absolute dollars, these costs decreased by $658,000 in the quarter.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataEBITA for the quarter was $1.1 million compared with $1.3 million in the prior year due to lower net sales in the quarter. Amortization expense decreased by $134,000 in the quarter as certain capital assets reached full amortization.
Interest expense was $330,000 in the quarter, down by $70,000 compared to the same period last year, reflecting reduced indebtedness.
Cash flow provided by operations was $3.4 million compared with $3.7 million in the prior year, reflecting slightly higher working capital requirements in the quarter. Net cash used in financing and investing activities was $3.4 million, as the Company reduced its operating line by $2.8 million, repaid $420,000 of long-term debt and invested in $297,000 of capital assets. In the third quarter last year, the Company used $3.7 million in financing and investing activities, primarily for the $3.3-million acquisition of the Humpty Dumpty Potato Chip Co. in New England.
Nine-Month Financial Review
Net earnings were $390,000, or $0.04 per share, consistent with net earnings in the same period last year. Net sales increased 1.7% to $123.6 million from $121.6 million in the previous year.
Gross margin increased to 41.3% from 40.4% in the prior year. The improvement in margins was driven by improved sales mix, resulting from ongoing investment in the Humpty Dumpty brand. Margin improvement was partially mitigated by rising fuel costs.
Selling and administrative costs increased to 38.0% from 36.5% in the previous year, due to the Company’s investment in selling infrastructure in support of the strategic branded growth initiative.
EBITA was $4.0 million compared with $4.7 million in the prior year. Amortization expense decreased by $668,000 during this period, and interest expense increased slightly, by $19,000. The tax rate was 44.8% compared with 47.8% in the prior year, due to a lower than expected effective rate in fiscal 2001.
Cash flow provided by operations was $4.1 million, an improvement of $1.4 million over the prior year, due to a reduction in working capital required. Net cash used in financing and investing activities was $4.1 million compared with $2.7 million in the previous year, as the Company’s improved working capital position facilitated repayment of $5.4 million on the operating line.
Outlook
Sales growth in the quarter of (4%) and year to date of 1.7%, compared with previous year growth rates of 14.1% and 11.0% respectively, reflects the fact that sales from the New England business acquired in January 2000 are now included in both the current year and prior year results. Going forward, sales growth in the Company’s existing markets is expected to be consistent with market growth. The positive impact of our Halloween program and stronger feature activity will be slightly offset by the effect of the two-week labour disruption at the Company’s Quebec facility during July 2001.
Mr. Schmalz continued, “We remain focused on expanding branded sales through investing in the sales and marketing programs required to build equity in the Humpty Dumpty name. We are well positioned to achieve sales growth and profit improvement in the fourth quarter, and to deliver enhanced shareholder value in the years ahead.”
Humpty Dumpty Snack Foods Limited is a North American marketer and distributor of salty snack food products, operating primarily in eastern regions of Canada and the United States. Marketed under the well-known Humpty Dumpty brand, the Company also supplies a full line of private label products to leading retail chains.
HUMPTY DUMPTY SNACK FOODS INC.
Consolidated Balance Sheets
(In thousands of dollars)
————————————————————————-
————————————————————————-
June 30 June 30
2001 2000
————————————————————————-
(Unaudited) (Unaudited)
(Restated)
(Note 1)
Assets
Current Assets:
Trade accounts receivable $ 17,322 $ 19,731
Inventories 5,873 5,858
Prepaids 1,064 1,521
————————————————————————-
24,259 27,110
Capital assets 32,652 33,891
Other assets (Note 1) 13,809 14,057
————————————————————————-
$ 70,720 $ 75,058
————————————————————————-
————————————————————————-
Liabilities and Shareholders’ Equity
Current Liabilities:
Bank indebtedness $ 3,500 $ 9,640
Accounts payable and accrued liabilities 26,825 27,818
Income taxes payable 563 360
Provision for restructuring costs – 89
Current portion of long-term debt 3,368 2,780
————————————————————————-
34,256 40,687
Long-term debt 2,098 4,878
Future income taxes (Note 1) 4,997 4,105
Subordinated loans 8,385 5,000
Non-controlling interest – 300
Shareholders’ equity
Share capital 21,032 21,032
Contributed surplus 519 519
Retained earnings (deficit) (Note 1) (567) (1,463)
————————————————————————-
20,984 20,088
————————————————————————-
$ 70,720 $ 75,058
————————————————————————-
————————————————————————-
See accompanying notes to consolidated financial statements.
HUMPTY DUMPTY SNACK FOODS INC.
Consolidated Statements of Earnings and Retained Earnings (Deficit)
(In thousands of dollars)
————————————————————————-
————————————————————————-
Three months ended Nine months ended
June 30 June 30 June 30 June 30
2001 2000 2001 2000
————————————————————————-
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated)
(Note 1) (Note 1)
Net sales $ 41,995 $ 43,753 $ 123,630 $ 121,589
Cost of sales 25,512 26,416 72,575 72,460
————————————————————————-
Gross margin 16,483 17,337 51,055 49,129
Selling and administrative
expenses 15,377 16,034 47,032 44,428
————————————————————————-
Earnings before interest,
income taxes and
amortization (EBITA) 1,106 1,303 4,023 4,701
Amortization of capital
assets 597 695 1,796 2,232
Amortization of other
assets 135 171 411 643
Interest on long term debt 177 193 565 588
Other interest 153 207 545 503
————————————————————————-
1,062 1,266 3,317 3,966
————————————————————————-
Earnings before income
taxes 44 37 706 735
Income taxes 18 30 316 351
————————————————————————-
Net earnings $ 26 $ 7 $ 390 $ 384
————————————————————————-
Deficit, beginning of
period as previously
reported $ (593) $ (1,470) $ (381) $ (1,367)
Adjustment to Deficit,
beginning of period as
a result of changes in
accounting policies
(Note 1) $ – $ – (576) (480)
————————————————————————-
Deficit, beginning of
period, restated $ (593) $ (1,470) (957) (1,847)
Retained earnings
(deficit), end of
period $ (567) $ (1,463) $ (567) $ (1,463)
————————————————————————-
————————————————————————-
Basic earnings per
share $ 0.00 $ 0.00 $ 0.04 $ 0.04
————————————————————————-
See accompanying notes to consolidated financial statements.
HUMPTY DUMPTY SNACK FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of dollars)
————————————————————————-
————————————————————————-
Three months ended Nine months ended
June 30 June 30 June 30 June 30
2001 2000 2001 2000
————————————————————————-
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Restated) (Restated)
(Note 1) (Note 1)
Cash flows from operating
activities:
Net earnings 26 7 390 384
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Amortization 732 867 2,207 2,875
Future income taxes (100) (20) (300) (60)
Loss on disposal of
capital assets 1 – 16 2
Changes in assets and
liabilities:
Receivables (1,030) (1,286) 1,850 (1,048)
Inventories (66) (279) 803 1,149
Prepaid expenses 360 (78) (168) (810)
Deferred costs (109) – (109) –
Net pension assets – (522) – (522)
Accounts payable and
accrued liabilities 3,519 5,263 (929) 1,773
Income taxes 51 (11) 407 (3)
Provision for
restructuring costs – (246) (20) (1,001)
————————————————————————-
3,384 3,695 4,147 2,739
Cash flows from
financing activities:
Short term borrowings
(repayments) (2,770) (2,818) (5,356) 3,745
Increase in subordinated
loans 103 – 3,607 –
Repayment of long-term
debt (420) (695) (1,810) (2,085)
————————————————————————-
(3,087) (3,513) (3,559) 1,660
Cash flows from
investing activities:
Business acquisition – – – (3,331)
Additions to capital
assets (299) (182) (593) (1,316)
Proceeds from sale of
capital assets 2 – 5 248
————————————————————————-
(297) (182) (588) (4,399)
————————————————————————-
Net change in cash
and cash equivalents – – – –
Cash and cash equivalents,
beginning of period – – – –
————————————————————————-
Cash and cash equivalents,
end of period – – – –
————————————————————————-
————————————————————————-
Supplemental cash
flow information:
Cash paid for:
Interest 308 407 1,058 1,109
Income taxes 64 61 195 414
————————————————————————-
————————————————————————-
See accompanying notes to consolidated financial statements.
HUMPTY DUMPTY SNACK FOODS INC.
Notes to Consolidated Financial Statements
For the 9 months ended June 30, 2001
(In thousands of dollars)
————————————————————————-
————————————————————————-
1. Changes in accounting policies:
(a) Income taxes:
On October 1, 2000, the Company adopted the Canadian Institute of
Chartered Accountants (CICA) handbook section 3465, Income Taxes,
which replaces the deferral method with the liability method of
tax allocation.
Under the new (liability) method, future tax assets and
liabilities are determined based on differences between the
accounting and tax bases of the assets and liabilities. The future
tax is measured using the substantively enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. A valuation allowance is recorded against any future
income tax asset if it is more likely than not that the asset will
not be realized. Income tax expense or benefit is the sum of the
company’s provision for current income taxes and the difference
between the opening and ending balances of the future income tax
assets and liabilities.
Under the old (deferral) method, future tax expense was determined
based on differences in the treatment of income and expenses
reported for financial statement purposes and those reported for
tax return purposes. Deferred taxes were measured using the rate
in effect at the time the differences originated.
The Company has applied the new accounting standards retroactively
to 1994. The cumulative effect is a reduction to retained earnings
of $576 as at October 1, 2000 ($480 as at October 1, 1999). This
reduction is reported separately as a restatement of the opening
balance of retained earnings for the nine months ended June 30th.
Due to the effects of adjustments for prior years purchase
business combinations there is also an increase in goodwill of
$3,362 at October 1, 2000 ($3,539 at October 1, 1999), and an
increase in future income taxes of $3,938 at October 1, 2000
($4,019 at October 1, 1999). The effect on pre-tax income for the
nine months ended June 30, 2001 is to report income that is
approximately $ 133 lower that it would have been under the
previous standard (for June, 30, 2000, $ 133 lower). Net income
reported is approximately $73 lower than would have been reported
under the previous standard for the nine months ended June 30,
2001 ($73 lower for 2000). Basic earnings (loss) per share amounts
remain unchanged at $0.04 per share for the nine months ended June
30, 2001 ($0.00 per share for the three months ended June 30,
2000).
(b) Pension and other post-retirement benefits
On October 1, 2000, the Company adopted CICA handbook section
3461, Employee Future Benefits, which requires that all employee
future benefits be accounted for on an accrual basis.
The new standard moves the accounting for non-pension post-
retirement benefits from the cash basis of accounting to the
accrual basis of accounting. Pension plans now require the use of
a current settlement discount rate to measure the accrued pension
benefit obligation. Previously, pensions were valued using a long-
term rate of return.
The Company has applied the new accounting standards
prospectively. The application of the recommendation results in
pre-tax earnings for the nine months ended June 30, 2001 that is
approximately $186 lower than it would have under the previous
accounting standards. Net income reported is approximately $102
lower than would have been reported for the nine months ending
June 30, 2001. Basic earnings (loss) per share amounts remain
unchanged at $0.00 per share for the three months ended June 30,
2001.
2. Segmented information:
Management has determined that the Company operates in one dominant
industry segment which involves the manufacture and distribution of
fresh and fragile salted snack foods. Foreign sales (the majority to
the United States) for the nine months ended June 30, 2001 were
approximately $20,684,000 (2000 – $15,164,000). Foreign sales (the
majority to the United States) for the three months ended June 30,
2001 were approximately $7,806,000 (2000 – $7,288,000). At June 30,
2001 foreign capital assets totalled $2,461,000 (2000 – $2,581,000)
and goodwill amounted to $523,000 (2000 – $551,000).
3. Share capital:
The number of voting common shares outstanding at June 30, 2001 was
9,550,000 (2000 – 9,550,000.)
%SEDAR: 00004759E
