What’s Snyder’s-Lance’s Initiative to Drive Margin Expansion?



Margin improvement program

During the second half of 2014, Snyder’s-Lance (LNCE) announced a margin improvement plan through the “Drive for 10” program. This program mainly focuses on saving costs and improving productivity. It was implemented in 2015. The company made significant progress in 3Q15 and 4Q15 with respect to this initiative. This program is a company-wide, cross-functional effort supported by senior leaders along with talented associates.

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As part of its “Drive for 10” initiative, the company focused on improving its operating margin to reach 10%. However, the operating margins for 4Q15 fell to 4.07%—compared to 10.09% in 4Q14. For fiscal 2015, the margins also fell to 5.4%—compared to 6.4% in 2014. The net margin for the quarter and for fiscal 2015 also fell. However, the gross margin improved in 4Q15 and fiscal 2015. The gross margin was 36.0% for 4Q15 and 34.9% for fiscal 2015, respectively. Through this program, the company expects to deliver significant margin enhancement in 2016 from its base business.

Fiscal 2016 expectations

In its preliminary results announced in January, the company provided the outlook for 2016. The outlook didn’t include the impact of the Diamond Foods acquisition. For fiscal 2016, the company expects the revenue growth to be 2%–4%. It expects the diluted EPS (earnings per share) to be $1.24–$1.32. This excludes special items. It also projects capital expenditure to be $50 million–$55 million. The company expects to continue experiencing some of the headwinds in 2016 that it faced in 2015. It plans to build a successful integration with Diamond Foods. This would maximize shareholder value.

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However, in a recent press release for its 2015 results and the acquisition completion, the company mentioned that it can’t provide estimates for 2016 since the transaction closed recently. It expects to provide the fiscal 2016 estimates for the net revenue, EPS, and capital spending for the combined company during its 1Q16 earnings call. The earnings call will probably be held in early May.

Peers’ margins

Its peers in the industry include Hershey (HSY), Post Holdings (POST), and Mondelez (MDLZ). They delivered operating margins of 17.9%, 10.6%, and -7.5% for the last reported quarter, respectively. The Vanguard Consumer Staples ETF (VDC) and the Fidelity MSCI Consumer Staples Index ETF (FSTA) invest 3.8% and 3.5%, respectively, in Mondelez.

Next, we’ll discuss Snyder’s-Lance and its peers’ moving averages.


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