Milling & Baking News - September 18, 2012 - 12

Business 

Snyder’s-Lance looks to add to brand strength with Pretzel Crisps acquisition
CHARLOTTE, N.C. — When Snyder’s-Lance, Inc. outlined its new strategic plan in February, the highest priority for growth was assigned to the company’s three core brands: Snyder’s of Hanover pretzels, Lance sandwich crackers and Cape Cod potato chips. Company executives at that time said Snyder’s-Lance would focus most of its capital investment, trade spending and advertising against those core items. On Sept. 5 that core potentially broadened with the proposed acquisition of Snack Factory, L.L.C. and certain affiliates for $340 million in cash. Based in Princeton, N.J., Snack Factory makes Pretzel Crisps, thin, ﬂat crackers. Pretzel Crisps are available in original, garlic and Parmesan, Everything and sesame, and have a strong presence in club stores, as well as in the deli departments of supermarkets. David V. Singer, chief executive officer of Snyder’s-Lance, in a Sept. 6 conference call to discuss the acquisition said Pretzel Crisps will become Snyder’s-Lance’s fourth “core brand.” “Pretzel Crisps are exceptionally thin, all-natural flat crackers,” he said. “The brand is known for its portfolio of innovative flavors, and its commitment to providing the highest-quality natural ingredients. As a result, Pretzel Crisps has become the fastest-growing brand in premium snacking and has developed strong relationships with its retail partners. Pretzel Crisps are sold across the U.S. through leading retailers and through multiple channels. The brand has developed a passionate following with consumers looking for a unique snack that is great on its own, while also being perfect for dips, spreads and other toppings. “We believe this acquisition aligns perfectly with our strategy to grow through building a portfolio of core brands that are premium and differentiated with a national reach..” Expanding on the factors supporting the value of the acquisition, Carl Lee, president and chief operating officer of Snyder’s-Lance, said the brand’s high-growth potential and its high cash flow are “all-important.” “Despite its significant growth over the past year, we believe there is considerable growth potential on
12 / September 18, 2012 Milling & Baking News

the horizon,” Mr. Lee said. “Over the last three years, sales have almost tripled and are growing even faster over the last 12 months. Moreover, the business is quite profitable, and margins can expand as we grow our sales and distribution. Finally, the business is not asset intensive. So our capital spending will remain low

‘The (Pretzel Crisps) brand has developed a passionate following.’
— David V. Singer, Snyder’s-Lance, Inc.

even with our expected sales growth. With high margins and minimal capital spending, the business generates a very high level of free cash flow as a percentage of sales.” Mr. Lee said there are many avenues of growth still available for Snack Factory, and Snyder’s-Lance is committed to finding them. For instance, he said the direct selling capabilities that the acquisition brings will be complementary to Snyder’sLance’s D.S.D. operation. “I truly see this as a cracker-based product and a great innovation platform,” Mr. Lee said. “It opens the door to many new product ideas, exciting new distribution opportunities, and a chance to offer our retailers more selection, variety and value for their consumers.” The Snack Factory sales team is expected to be maintained, sharing their knowledge of selling direct with

Snyder’s-Lance’s sales team, he said. “Part of the success of this product is being able to work directly with those very important deli managers, providing them an incremental product that really ties in nicely with the cheese and the meats that they are selling,” Mr. Lee said. “So that direct model that they have there is very important and will be maintained.” Also viewed as an advantage by Mr. Lee is the fact Pretzel Crisps are co-packed. “I cannot say enough good things about our co-packer,” Mr. Lee said, though he declined to identify them. “We’re excited because I think that strategically that is one of the real advantages we have here. They make a great quality product. They have a great reputation in the marketplace. They’re people that we’ve worked with for a number of years. And they have been able to invest and keep up with the growth that we have seen with Snack Factory over the past couple of years. And they’ve got additional capacity to continue to accommodate the growth that we expect. It is a really value-added relationship that we want to expand and grow with this co-packer.” Mr. Lee also responded to an analyst’s question by noting he expects Pretzel Crisps to grow faster than its other three core brands. “We’re expecting some very strong organic growth on our three current core brands,” he said. “We’ve demonstrated that so far this year. We expect that to continue. But we also see this actually outpacing that with more significant growth. It has wide distribution, but there’s still distribution opportunities and distribution gains. And what we’re seeing is, as consumers try the product, the overall loyalty to the product continues to grow.” Rick Puckett, executive vice-president and chief financial officer of Snyder’s-Lance, said the acquisition will be immediately accretive, contributing approximately $35 million in net revenues in fiscal 2012 and approximately $160 million in fiscal 2013. EBITDA margins from the business are projected to be in the high teens, he said. Snack Factory is projected to add approximately 2c to Snyder’s-Lance earnings per share, excluding transaction related costs, in fiscal 2012 and approximately 10c to earnings in fiscal 2013, Mr. Puckett noted. MBN
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Milling & Baking News - September 18, 2012

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