Headquartered in Charlotte, North Carolina, Snyder’s-Lance (LNCE) is the second largest salty snack maker in the USA behind PepsiCo’s Frito-Lay. LNCE
manufactures and markets snack foods throughout the USA and Canada, including pretzels, sandwich crackers, potato chips, cookies, tortilla chips, restaurant style crackers, nuts, and other snacks. LNCE brands include Snyder’s of Hanover, Lance, Krunchers!, Cape Cod, EatSmart Naturals, Jays, Tom’s, Archway, O-Ke-Doke, and Stella D’oro, along with a number of private label and third party brands. LNCE revenues for 2012 declined one percent to $1.618 billion, while the firm’s long-term debt doubled to over $500 million.
LNCE products are distributed widely through grocery and mass merchandisers, convenience stores, club stores, food service outlets, and other channels. LNCE has about 5,900 employees and over $1.6 billion in annual sales. No LNCE employees are covered by a collective bargaining agreement.
In fiscal 2013, LNCE completed its new 60,000 square foot R&D center in Hanover, Pennsylvania. The company reported revenue for Q2 of 2013 of $439 million, up 9.9 percent compared to prior year, and net income of $16.9 million, up from $15.0 million the prior year. The company declared a quarterly cash dividend of $0.16 per share on the company’s common stock, payable on August 30, 2013 to stockholders of record at the close of business on August 21, 2013. At that time, LNCE reported that its net revenue for the full year 2013 would be up 10 to 12 percent, with 2013 capital expenditures projected to be between $78 and $83 million.
LNCE has manufacturing operations in Charlotte, as well as in Hanover, Pennsylvania; Goodyear, Arizona; Burlington, Iowa; Columbus, Georgia; Jeffersonville, Indiana; Hyannis, Massachusetts; Perry, Florida; Ashland, Ohio; Cambridge, Ontario; and Guelph, Ontario. In late 2012, LNCE opened a new distribution facility in Southaven, Mississippi and acquired Snack Factory, LLC for $343 million. That company develops and markets snacks under the Pretzel Crisps brand name.
LNCE does not have a stated vision or mission statement, but on many LNCE packages, the following phrase appears and perhaps is the firm’s mission: “We make, sell, and deliver the most irresistible specialty snacks in the world.”
Copyright by Fred David Books LLC. (Written by Forest R. David)
Snyder’s of Hanover is a bit older than Lance, but both firms have a rich history dating back to the early 1900s.
Snyder’s of Hanover
Business began in 1909 when Harry Warehime, founder of Hanover Canning Company (the firm’s parent company until 1980), began producing OldeTyme Pretzels for the Hanover Pretzel Company. In the 1920s, Grandma Eda and Edward Snyder II began frying potato chips in a kettle at their home and selling the home cooked snack door-to-door and to fairs and farmers’ markets. William Snyder in 1940 constructed a new plant in Hanover, PA. To extend the shelf life of his product for distant markets, William began to use aluminum foil bags, becoming the first chipper to implement this creative, yet practical innovation. Eleven years later, William’s son, William “Billy” L. Snyder, sold the Hanover plant to Hanover Canning, headed by Alan R. Warehime. Company sales in 1961 were about $400,000.
In 1963, the Bechtel Pretzel Company, founded by Bill and Helen Bechtel in 1947, was purchased and incorporated into Snyder’s Bakery. Bill developed the original recipe for the Sourdough Hard Pretzel that is still enjoyed by consumers today. In 1980, nineteen years after Snyder’s was purchased, the Warehime family decided to “spin off” Snyder’s of Hanover Snack Operation from Hanover Brands, enabling the companies to focus on their respective industries of snacks and vegetables. Snyder’s sales in 1980 were $15.8 million. After the split, both companies began growing faster than industry averages.
Business began in 1913 when Phillip Lance, a food broker in Charlotte, obtained 500 pounds of raw peanuts for a customer. When the customer backed out of the deal, Mr. Lance kept the peanuts and began roasting them and selling them on the streets of Charlotte for a nickel a bag. Mr. Lance was later joined in business by his son-in-law, S. A. Van Every, and together they formed Lance Packing Company. Mr. Lance’s wife and daughter added to the product line when they developed a peanut butter sandwich cracker. It is believed that this was the first such combination sandwich cracker offered for sale. Incorporated in 1926, Lance continued to grow as better methods of preparing peanuts and making peanut butter candy were developed. In 1935, Lance reached one million dollars in sales, and then two million in 1939 when the company’s name was officially changed to Lance, Inc. By 1960, annual sales volume had grown to $26 million.
In 1979, Lance greatly expanded its product offerings with the acquisition of Midwest Biscuit Company in Burlington, Iowa. Midwest, the predecessor to Vista Bakery and Lance Private Brands, gave Lance a solid foothold in the rapidly growing private label cookie and cracker market. Lance continued to grow throughout the 1980s and 1990s and in 1999 made two acquisitions, Cape Cod Potato Chip Company and Tamming Foods. Based in Ontario, Canada, Tammong is a manufacturer of private label sugar wafers. Cape Cod is one of the nation’s leaders in kettle-cooked potato chips. Sales of Cape Cod snack products grew rapidly as Lance leveraged the power of its company-owned direct-store-delivery system to increase distribution.
Since 2005, Lance experienced rapid revenue growth as the Company augmented organic growth with a series of strategic acquisitions. In 2005, Lance acquired the assets of Tom’s Foods, a well-established company with a product line and distribution system very similar to Lance’s. In 2008, Lance acquired Brent and Sam’s Inc., a manufacturer of premium private label cookies. That same year the company acquired the Archway bakery in Ashland, Ohio. With Archway, Lance was able to add a well-known brand of cookies to its snack portfolio and increase its presence in the supermarket trade channel. In late 2009, Lance acquired the Stella D’oro brand. Stella D’oro is well-known in the Northeast and offers consumers a number of lightly sweet Italian-style cookies.
LNCE was formed in 2010 when Lance, Inc. and Snyder’s of Hanover merged. In late 2011, LNCE acquired George Greer Co., a snack food distributor, for $15.0 million in cash. Goodwill recorded as part of the purchase price allocation was $10.1 million, and identifiable intangible assets acquired as part of the acquisition were $8.4 million.
In late 2012, LNCE acquired the brand Pretzel Crisps, owned by Snack Factory, for $340 million and thus entered the fast growing deli-bakery section of grocery stores. Pretzel Crisps ( http://pretzelcrisps.com/ ) are a thin and crunchy pretzel cracker,
LNCE contracts with other branded food manufacturers to produce their products. However, LNCE branded products represent about 59 percent of total revenue and non-branded products about 41 percent. LNCE sales are almost all within the USA, with the largest customer being Walmart, which comprises about 18 percent of revenue.
LNCE has many famous brands of its own as described below:
· Snyder’s of Hanover ( www.snydersofhanover.com )—OldeTyme pretzels are made from wholesome ingredients, individually twisted and slow-baked to seal in the flavor.
· Lance ( www.lance.com )—Lance sandwich crackers are baked fresh with real peanut butter or cheese, and no preservatives, trans fat or high-fructose corn syrup.
· Cape Cod ( www.capecodchips.com )—Cape Cod Potato Chips are high quality, all natural, hand-stirred, kettle-cooked chips with a classic legendary, crisp, crunch.
· Krunchers! ( www.krunchers.net )—Krunchers is a kettle chip produced from hand picked premium potatoes, sliced to the ideal thickness, and seasoned with the finest spices.
· Tom’s ( www.toms-snacks.com )—Tom’s snacks come in unique shapes and textures, and offer exceptional freshness and quality.
· Archway ( www.archwaycookies.com )—Archway produces fresh-baked cookies made with high-quality ingredients.
· EatSmart Naturals ( www.eatsmartnaturals.com )—EatSmart Naturals are unique interesting snacks packed with wholesome ingredients made without artificial preservatives and additives.
LNCE appears to operate using a functional structure since the company’s Form 10K lists only six top executives, as indicated in Exhibit 1 . Apparently COO Carl Lee, Jr. oversees all the company’s brands and operations. Most analysts contend that LNCE is too large to operate from a functional design. Thus, in the design given in Exhibit 1 , note that a strategic business unit (SBU) executive is proposed for the Snyder’s-Lance Brands and another for Private Brands—but certainly other alternative designs could be utilized.
Code of Ethics
Snyder’s Lance has an elaborate code of ethics posted on its website. An excerpt from the code is given below:
“It is up to each of us no matter what our position or length of service with the Company to be responsible for ensuring that we operate with integrity and treat one another with professionalism and respect. Our Code of Ethics will provide clarity about what is expected from each of us.” (Source: Corporate website)
LNCE was recently recognized as one of the top 20 companies in the USA for utilizing solar energy capacity at their facilities. LNCE ranked No. 17 with 3.5 megawatts of installed solar capacity, anchored by a 26-acre solar farm in Pennsylvania that supplies energy for its manufacturing facility in nearby.
EXHIBIT 1 The Synder’s-Lance Organizational Structure
LNCE’s Cape Cod Potato Chips, Snyder’s of Hanover Pretzels, and EatSmart Naturals recently received the following awards for being healthy.
· • Cape Cod’s newest variety, Waffle Cut Sea Salt, was selected as the potato chip winner for the 2012 SHAPE Snack Awards in the “Best for Parties” category. The SHAPE Snack Awards recognizes the best low-calorie snacks of the year and products must meet strict nutritional guidelines to be considered by editors. The awards are listed in the July 2012 issue of SHAPE magazine, which reaches more than 2 million readers through its print and online editions.
· • Snyder’s of Hanover Organic Honey Whole Wheat Pretzel Sticks were selected as a better-for-you snack option in Rodale’s “Eat This, Not That!” list of the 21 Best Organic Snacks. Rodale is a publisher of health and wellness magazines, books, and digital properties, including Men’s Health, Women’s Health, Prevention, and Runner’s World. The publisher reaches more than 70 million people around the world.
· • Snyder’s of Hanover Bacon Cheddar Pretzel Pieces and EatSmart Naturals Potato Crisps were selected by Progressive Grocer for the 2012 “Editors’ Picks.” Both snacks were recognized, out of a pool of more than 300 entries, as two of the best new consumer products introduced in 2012. They were honored as “Editors’ Picks” in the August 2012 print issue of Progressive Grocer as well as on the Progressive Grocer website. The supermarket industry publication reaches more than 50,000 people each month through its print and online versions.
LNCE strives to reduce, reuse, and recycle extensively. The company recycles corrugated cardboard, shipping cartons, metal and plastic drums, office paper, stretch film, plastic jugs and buckets, meal bags, dry waste, salt, pretzel pieces, burnt chips, oil, petroleum, scrap metal, iron, potato starch, and potato peels. The company website gives the following information:
· • We use low wattage high efficiency light bulbs.
· • Motion sensors have been added to areas with low traffic.
· • Meters have been installed on our ovens to control gas usage.
· • We’ve reduced the size and thickness of our cartons.
· • Water meters have been installed to control usage.
· • Our delivery system has been optimized to use less fuel.
· • Bulk material is delivered in reusable bags.
· • Office printer paper is used for scrap paper or recycled.
· • We now use 100% renewable corn based film for our new Variety Packs.
· • Our shipping cartons contain up to 50% recycled materials.
· • We use 100% recycled paperboard in our Lunch Packs.
· • Plastic drums and barrels are recyclable plastic.
· • We repair and recycle damaged shipping pallets.
· • Office and printer paper is recycled or reused.
LNCE owns four core brands: 1) Snyder’s of Hanover Pretzels, 2) Lance Sandwich Crackers, 3) Cape Cod Potato Chips, and 4) Pretzel Crisps. The company provides of revenue breakdown of its brands versus its revenues from other brands, as indicated in Exhibit 2 . Note that LNCE revenues are increasing nicely. Exhibit 3 provides a geographic breakdown of LNCE revenues. Note that almost all LNCE sales are in the USA.
LNCE has consistently paid dividends of 16 cents per quarter to its shareholders since 2000. LNCE stock offers a healthy dividend yield of 2.52 percent, compared to a snacks industry average dividend yield of only 1.55 percent.
EXHIBIT 2 LNCE Revenues by Brand Category (in millions)
|Branded Products||$ 955.5||943.2||569.5||533.6|
Source: 2012 Form 10K, p. 28.
EXHIBIT 3 LNCE Revenues by Region (in thousands)
Source: 2012 Form 10K, p. 45.
Michael Warehime and his wife Patricia, own about 16 percent of the outstanding common stock of LNCE. Mr. and Mrs. Warehime serve as directors of LNCE, with Mr. Warehime serving as the Chairman of the Board.
LNCE’s recent income statements and balance sheets are provided in Exhibits 4 and 5 respectively. Note in Exhibit 4 the company’s dramatic increase in both revenues and net income in 2011. Note in Exhibit 5 the dramatic increase in number of shares outstanding in 2011.
Major competitors of LNCE in the snack foods industry include Frito-Lay North America, a subsidiary of PepsiCo, and the U.S. Snacks Division of Kellogg. Other LNCE competitors include General Mills and Mondelez International. A summary of key competitive information is given in Exhibit 6. Note that LNCE has the least revenue per employee among the four firms featured.
EXHIBIT 4 LNCE’s Income Statements (in millions)
|Net revenue||$ 1,618.6||$ 1,635.0||$ 979.8|
|Cost of sales||1,079.7||1,065.1||601.0|
|Selling, general and administrative||440.6||495.2||359.6|
|Gain on sale of route businesses, net||(22.3)||(9.4)||—|
|Other (income)/expense, net||(0.4)||1.0||6.5|
|Income before interest and income taxes||109.1||70.4||12.1|
|Interest expense, net||9.5||10.6||3.9|
|Income tax expense||40.1||21.1||5.6|
|Net income||$ 59.5||$ 38.7||$ 2.6|
Source: 2012 Form 10K, p. 28.
Frito-Lay North America (FLNA), as PepsiCo refers to this business they own, produces Lay’s potato chips, Cheetos, Quaker-brand cereals, Doritos, Tostitos, Ruffles, Fritos, SunChips, and Santitas. For the second quarter of 2012, Frito-Lay recorded revenue growth of 2.5 percent to $5.77 billion—obviously a huge company compared to LNCE. A global company in all respects, Frito-Lay’s operating profit declined 1 percent to $1.33 billion in a recent quarter. FLNA’s revenue was $13.3 billion in 2011, up from $12.6 billion the prior year.
EXHIBIT 5 LNCE’s Balance Sheets
|(in thousands, except share data)||2012||2011|
|Cash and cash equivalents||$ 9,276||$ 20,841|
|Accounts receivable, net of allowances of $2,159 and $1,884, respectively||141,862||143,238|
|Income tax receivable||—||18,119|
|Deferred income taxes||11,625||21,042|
|Assets held for sale||11,038||57,822|
|Prepaid expenses and other current assets||28,676||20,705|
|Total current assets||320,733||388,028|
|Fixed assets, net||331,385||313,043|
|Other intangible assets, net||531,735||376,062|
|Other noncurrent assets||22,490||21,804|
|Total assets||$ 1,746,732||$ 1,466,790|
|LIABILITIES AND STOCKHOLDERS’ EQUITY|
|Current portion of long-term debt||$ 20,462||$ 4,256|
|Accrued profit-sharing and retirement plans||354||9,249|
|Accrual for casualty insurance claims||4,779||6,957|
|Accrued selling and promotional costs||16,240||21,465|
|Income tax payable||1,263||—|
|Other payables and accrued liabilities||27,735||31,041|
|Total current liabilities||154,623||155,146|
|Deferred income taxes||176,037||196,244|
|Accrual for casualty insurance claims||9,759||7,724|
|Other noncurrent liabilities||19,551||15,146|
|Common stock, $0.83 1/3 par value. Authorized 75,000,000 shares; 68,863,974 and 67,820,798 shares outstanding, respectively||57,384||56,515|
|Preferred stock, $1.00 par value. Authorized 5,000,000 shares; no shares outstanding||—||—|
|Additional paid-in capital||746,155||730,338|
|Accumulated other comprehensive income||15,118||13,719|
|Total Snyder’s-Lance, Inc. stockholders’ equity||869,504||836,111|
|Total stockholders’ equity||872,175||838,591|
|Total liabilities and stockholders’ equity||$ 1,746,732||$ 1,466,790|
Source: 2012 Form 10K, p. 45–46.
EXHIBIT 6 Comparative Information for Various Snack Food Companies
|# of Employees||6.1K||126K||35K||31K|
|$ Net Income||41.6M||3.59B||1.71B||1.19B|
|$ EPS Ratio||0.61||2.01||2.56||3.31|
Source: Company documents.
$5.77 billion—obviously a huge company compared to LNCE. A global company in all respects, Frito-Lay’s operating profit declined 1 percent to $1.33 billion in a recent quarter. FLNA’s revenue was $13.3 billion in 2011, up from $12.6 billion the prior year.
Kellogg, the world’s largest cereal maker well known for Frosted Flakes, Pop-Tarts, and Eggo waffles, acquired Pringles chips in 2012. The deal instantly made Kellogg the world’s second-biggest salty snack food maker, behind only Frito-Lay. Based in Battle Creek, Michigan, Kellogg said Pringles sales rose by 10 percent in a recent quarter. A major competitor to LNCE, Pringles has only two major manufacturing plants in the world. Those plants—in Tennessee and Belgium—are running around the clock at full capacity, and Kellogg plans to expand Pringles’ production capacity. Because Pringles derives two-thirds of its revenue from overseas, Kellogg is also hoping Pringles can give it inroads into the emerging markets where the number of people with disposable income is growing. Kellogg’s stable of other salty snacks include Cheez-Its and Special K crackers.
In October 2012, the former Kraft Foods Inc. changed its name to Mondelez International and spun-off some brands into a new company called Kraft Foods Group. Kraft Foods Group focuses on the North American foods business. Mondelez International focuses on the global snacks business, including the former Cadbury businesses, plus global brands including Dairylea and Philadelphia. Mondelez makes some of the best-known snacks brands around the globe, including cookies and crackers such as Oreo, Nabisco, Chips Ahoy!, TUC, Belvita, Club Social, and Barni. Headquartered in Deerfield Township, Illinois, near Chicago, Mondelez also produces chocolate, biscuits, gum, confectionery, coffee, and powdered beverages. Mondelez has operations in more than 80 countries. Based in Mississauga, Ontario with primary operations in Scarborough, Mondelez Canada controls the rights to Christie Brown and Company, which consists of brands like Mr. Christie and Dad’s Cookies.
Headquartered in Golden Valley, Minnesota, General Mills produces and markets many well-known brands, such as Betty Crocker, Yoplait, Colombo, Totinos, Jeno’s, Pillsbury, Green Giant, Old El Paso, Haagen-Dazs, Cheerios, and Lucky Charms. The company’s grain-snack brands that compete more with LNCE products include Bugles, Cascadian Farms, Chex Mix, Gardetto’s, Nature Valley, and Fiber One bars. General Mills’ brand portfolio includes more than 100 leading brands in the USA and more around the world.