Dive Brief:
- Snyder's-Lance reported a 41.3% increase in net revenue to $609.5 million, including the contribution of its Diamond Foods acquisition, in its fiscal second-quarter earnings Tuesday.
- Without Diamond Foods' contribution, total net revenue dipped 1.3%, driven primarily by an 18.3% decrease in sales in the Other segment. The Branded category sales grew 0.4%, driven by a 3.1% increase in volume, and Partner Brand category sales saw a 1.7% uptick.
- GAAP net income attributable to Snyder's-Lance excluding special items increased 43.7% to $27.5 million, or $0.28 per diluted share, which beat analysts' estimates by $0.02. Operating income excluding special items rose 57.9% to $51.2 million, or 8.4% of net revenue.
Dive Insight:
Snyder's-Lance has kept its portfolio focused on snacks, particularly salty snacks, as other processed food and beverage companies have considered more diversification. While sales of its core and partner brand segments remain relatively flat, the company saw a growth opportunity in better-for-you snacks like those that comprise Diamond Foods' portfolio.
Snyder's-Lance's acquisition of Diamond Foods, completed earlier this year, has since proven to be a healthy and well-timed addition to its snacks portfolio. The acquisition is boosting total revenue at a time when Snyder's-Lance's own brands aren't producing strong growth, with sales falling 1.3% this quarter compared to a 0.7% decline last quarter. But with acquisitions comes more than just a new set of brands, including relationships with ingredients suppliers and a built-in consumer base, which Snyder's-Lance may be able to leverage.
Analysts have also mentioned Snyder's-Lance as a potential acquisition target for companies like Mondelez, PepsiCo or Kellogg. Mondelez has pursued better-for-you snacks under its own banner of brands, such as Good Thins, but the company proved its interest in finding the right strategic acquisition after its rejected takeover bid for Hershey last quarter. PepsiCo and Kellogg have been more focused on their own internal operations in terms of innovation and cost-cutting, so they may be too busy to consider Snyder's-Lance at this time. Although, with Kellogg being a recently speculated takeover target itself, the company may be looking for ways to improve its snacks portfolio.
For now, boosting profitability remains one of Snyder's-Lance's key growth strategies, with management expressing a goal of double-digit operating margins. The company isn't quite there yet with an 8.4% margin reported this past quarter, just under the 8.7% Deutsche Bank predicted the company would hit this year. As Snyder's-Lance continues to envelop Diamond Foods' brands into its portfolio, the company could reach that double-digit margin goal in the future if it can realize enough additional synergies and retool its own better-for-you brands, like Late July, to be more profitable.