Branded product sales, which represented approximately 63% of total 2007 Company sales, grew approximately 3%, driven by double digit growth in Lance branded Home Pack sandwich crackers, double digit growth in Cape Cod branded potato chips, and mid single digit growth in Tom's branded salty snacks, offset by declines in several product lines that the Company deemphasized in order to support growth in its more profitable product lines.
Driven by continued growth from existing and new customers, Lance's Non-Branded business, which represented approximately 27% of total Company sales, increased approximately 7% compared to the prior year.
The Company realized full year 2007 net income from continuing operations of $23.8 million, or $0.76 per diluted share, compared to full year 2006 net income from continuing operations, excluding special items, of $20.2 million, or $0.66 per diluted share. Special items in 2006 were related to the integration of the Tom's acquisition. Including these special items, full year 2006 net income from continuing operations was $18.4 million, or $0.60 per diluted share.
Net income in 2007 as compared to 2006 was adversely impacted by a $22 million pre-tax increase in the cost of ingredients, primarily flour and vegetable oils. As previously announced, the Company initiated price increases to its customers early in 2007 to offset the rise in ingredient costs that occurred in late 2006.
During 2007, Lance successfully completed the previously announced exit of its Company-owned vending business, which has been reported as a discontinued operation. The Company reported net income of less than $0.1 million from its discontinued vending business for the full year 2007. The Company received $3.6 million during 2007 from the sale of assets associated with this discontinued operation.
Comments from Management
Dave Singer, President and Chief Executive Officer, commented, "Despite the significant cost pressure we and the industry faced during the second half of 2007 from the unprecedented rise in the cost of flour and vegetable oils, we remained focused on executing our key initiatives aimed at strengthening the foundation of the Company to drive long-term profitable growth and margin enhancement. During the year, we completed the building of our management team and developed an organizational structure that will support our growth and profitability initiatives. We increased the efficiency of our supply chain with significant investments in more efficient assets and changes to our warehousing and shipping operation. We began the development and installation of an Enterprise Resource Planning information system. We also drove efficiency improvements in our Direct Store Delivery (DSD) organization as we re-engineered routes in conjunction with the exit of our vending business and implemented a more efficient and capable hand-held computer system. These operational improvements, combined with solid growth in our most profitable products and channels, drove profitability improvements throughout the year. The progress achieved in these important areas led to solid gains in profit margins in our branded business, which more than offset the lower profitability we experienced in our non-branded business. Due to a higher ratio of ingredient costs to sales and lower overall profit margins, our non-branded profit margins are much more susceptible to the cost pressures from the higher ingredients costs we experienced in the latter part of the year."
"Through the first three quarters of 2007, the Company's results reflected a much improved overall earnings power, driven by sales growth focused in our most profitable products and channels and operational efficiencies driven by improvements in our supply chain and DSD system. Unfortunately, these gains were somewhat offset by the sharp rise in the cost of flour and vegetable oils, primarily in the fourth quarter, which impacted the Company's non-branded profit margins significantly. In response to the increase in ingredient costs in late 2007, we have implemented price increases to our customers in first quarter of 2008. However, these price increases are not sufficient to cover the current cost of flour and vegetable oils. These two important ingredient costs have moved up significantly since our 2008 prices were established, and we are in the process of making additional price adjustments to offset the increases. We expect our earnings to be squeezed until our pricing has caught up with the higher level of ingredient costs. We anticipate that our earnings in the second half of 2008 will be significantly stronger than the first half of 2008, as we believe that higher pricing will be in place and ingredient costs will have stabilized."
Mr. Singer concluded, "During 2008, our focus will be on driving volume growth in our core product lines and channels, mitigating ingredient cost increases with pricing actions, and continuing to execute on our key initiatives to drive operational improvements and efficiency gains. We are confident that our operating margins will rebound in the second half, once pricing and commodity costs are aligned. We believe our ongoing focus on profitable growth and margin enhancement will drive meaningful long-term value for our shareholders."
Fourth Quarter Results
The Company reported net revenue from continuing operations for the fourth quarter ended December 29, 2007 of $185.2 million, an increase of over 7% compared with prior year fourth quarter net revenue from continuing operations of $172.4 million. The Company reported fourth quarter 2007 net income from continuing operations of $1.1 million, or $0.03 per diluted share, compared to fourth quarter 2006 net income from continuing operations, of $6.0 million, or $0.19 per diluted share.
Company Estimates Provided for 2008
The Company believes that its net sales for the full year 2008 will be $790 to $820 million and that earnings per diluted share will be $0.70 to $0.80. The Company believes that its earnings per share will be heavily weighted toward the second half of the year due to the timing of price increases needed to offset ingredient costs.
The Company's wide range of revenue and EPS estimates reflects uncertainty around the timing and amount of anticipated price increases to its customers, the potential impact of price increases on sales volume and the continued volatility of wheat and soy oil markets.
Capital expenditures are expected to be $45 and $50 million for the year as the Company continues to invest in its supply chain, DSD system and information system initiatives.
On February 12, 2008, the Company announced the declaration of a regular quarterly cash dividend of $0.16 per share on the Company's common stock. The dividend is payable on February 29, 2008 to stockholders of record at the close of business on February 22, 2008.
Lance, Inc. has scheduled a conference call and presentation with investors at 9:00 am eastern time on Thursday, February 14, 2008 to discuss fourth quarter and full year financial results. To participate in the conference call, the dial-in number is (800) 789-3681 for U.S. callers, (706) 634-1425 for international callers. The access code is "LANCE." A continuous telephone replay of the call will be available beginning at 12:00 pm on February 14th and running through February 21st at midnight. The replay telephone number is (800) 642-1687. The international number is (706) 645-9291. The replay access code is 30569997. Investors may also access a web-based replay of the conference call at Lance's web site, www.lance.com.
The conference call and accompanying slide presentation will be webcast live through the Investor Relations section of Lance Inc.'s website www.lance.com. In addition, the slide presentation will be available to download and print approximately 30 minutes before the webcast at Lance's Investor Relations home page.
About Lance, Inc.
Lance, Inc., headquartered in Charlotte, NC, manufactures and markets snack foods throughout much of the United States and other parts of North America. The Company's products include sandwich crackers and cookies, potato chips, crackers, cookies, other snacks, sugar wafers, nuts, restaurant style crackers and candy. Lance has manufacturing facilities in North Carolina, Iowa, Georgia, Massachusetts, Texas, Florida and Ontario, Canada. Products are sold under the Lance, Cape Cod and Tom's brand names along with a number of private label and third party brands. The Company's products are distributed through a direct-store-delivery system of approximately 1,400 sales routes, a network of independent distributors and direct shipments to customer locations. Products are distributed widely through grocery and mass merchant stores, convenience stores, mass merchants, food service outlets and other channels.
This news release contains statements which may be forward looking within the meaning of applicable securities laws. The statements may include projections regarding future earnings and results which are based upon the Company's current expectations and assumptions, which are subject to a number of risks and uncertainties. Factors that could cause actual results to differ, including price competition, industry consolidation, changes in consumer preferences, product recalls, safety concerns, natural disasters, catastrophic events, raw material costs, food industry and regulatory factors, risks from large customers, interest rate, foreign exchange rate, and credit risks, acquisition integration and divestitures are discussed in the Company's most recent Form 10-K filed with the Securities and Exchange Commission.
This press release presents measures not derived in accordance with generally accepted accounting principles ("GAAP"). Such measures should not be considered substitutes for any measures derived in accordance with GAAP and may also be inconsistent with similar measures presented by other companies. Reconciliation of these non-GAAP measures to the most nearly comparable GAAP measures, if applicable, is presented in the attached pages.
LANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per-share amounts) (unaudited) Quarter Ended December 29, 2007 December 30, 2006 Revenue $185,222 $172,402 Cost of sales 116,384 98,282 Gross margin 68,838 74,120 Selling, marketing and delivery 56,030 54,191 General and administrative 9,951 10,389 Other expense/(income), net 985 (245) Income from continuing operations before interest and taxes 1,872 9,785 Interest expense, net 454 758 Income tax expense 337 3,014 Net income from continuing operations $1,081 $6,013 Loss from discontinued operations - (644) Income tax benefit - (236) Net loss from discontinued operations - (408) Net Income $1,081 $5,605 Basic earnings/(loss) per share: From continuing operations $0.03 $0.19 From discontinued operations - (0.01) Basic earnings per share $0.04 $0.18 Weighted average shares outstanding - basic 31,082,000 30,756,000 Diluted earnings/(loss) per share: From continuing operations $0.03 $0.19 From discontinued operations - (0.01) Diluted earnings per share $0.03 $0.18 Weighted average shares outstanding - diluted 31,514,000 31,033,000 LANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per-share amounts) (unaudited) Fiscal Years Ended December 29, 2007 December 30, 2006 Revenue $762,736 $730,116 Cost of sales 444,487 415,576 Gross margin 318,249 314,540 Selling, marketing and delivery 231,358 240,092 General and administrative 45,959 42,914 Other expense, net 2,390 191 Income from continuing operations before interest and taxes 38,542 31,343 Interest expense, net 2,222 3,156 Income tax expense 12,511 9,809 Net income from continuing operations $23,809 $18,378 Income from discontinued operations 44 153 Income tax expense 15 53 Net income from discontinued operations 29 100 Net Income $23,838 $18,478 Basic earnings per share: From continuing operations $0.77 $0.61 From discontinued operations - - Basic earnings per share $0.77 $0.61 Weighted average shares outstanding - basic 30,961,000 30,467,000 Diluted earnings per share: From continuing operations $0.76 $0.60 From discontinued operations - - Diluted earnings per share $0.76 $0.60 Weighted average shares outstanding - diluted 31,373,000 30,844,000 LANCE, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) December 29, 2007 December 30, 2006 Assets: Cash and cash equivalents $8,647 $5,504 Accounts receivable, net 64,081 61,690 Inventories 38,659 36,838 Deferred income taxes 9,335 8,811 Assets held for sale 505 6,552 Prepaid expenses and other current assets 11,862 6,298 Total Current Assets 133,089 125,693 Fixed Assets, net 205,075 193,009 Goodwill and other intangibles, net 69,127 62,300 Other assets 5,712 4,450 Total Assets $413,003 $385,452 Liabilities and Equity: Accounts payable $21,169 18,194 Other current liabilities 53,468 53,426 Total Current Liabilities 74,637 71,620 Long-term debt 50,000 50,000 Other liabilities 41,269 41,432 Stockholders' equity 247,097 222,400 Total Liabilities and Stockholders' Equity $413,003 $385,452 LANCE, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW (in thousands) (unaudited) Fiscal Year Ended December 29, 2007 December 30, 2006 Operating Activities: Net income $23,838 $18,478 Fixed asset depreciation and intangible amortization 29,307 26,897 Equity-based incentive expense 3,294 4,896 Loss on sale of fixed assets, net 818 591 Other non-cash expenses, net 827 (739) Changes in other operating assets and liabilities (5,734) (11,026) Net cash flow from operating activities 52,350 39,097 Investing Activities: Purchases of fixed assets (39,476) (46,965) Proceeds from sale of property 7,277 7,340 Purchase of investment (2,090) - Net cash used in investing activities (34,289) (39,625) Financing Activities: Dividends paid (19,872) (19,556) Issuances of common stock 4,732 18,128 Proceeds from long-term debt - 50,000 Net repayments of revolving debt - (46,238) Net cash (used in)/from financing activities (15,140) 2,334 Effect of exchange rate changes on cash 222 155 Increase in cash and cash equivalents 3,143 1,961 Cash and cash equivalents at beginning of period 5,504 3,543 Cash and cash equivalents at end of period $8,647 $5,504 LANCE, INC. RECONCILIATION OF NON-GAAP MEASURES (in thousands, except per-share amounts) (unaudited) Year Ended December 30, 2006 Net of Per Tax diluted share Net Income from Continuing Operations $18,378 $0.60 Tom's integration related charges 1,795 0.06 Net Income from Continuing Operations, excluding special charges $20,173 $0.66
SOURCE Lance, Inc.
Russell Allen, Director of Planning & IR
or Joe Calabrese
Financial Relations Board
both for Lance, Inc.