Charlotte, N.C., July 25 - Lance, Inc. today reported net revenue for the second quarter ended June 28, 2008 of $213.6 million, an increase of 8.4% over the prior year second quarter net revenue of $197.0 million. Excluding revenue from the March 2008 acquisition of premium cookie manufacturer Brent & Sam's, net revenue for the second quarter increased 6.6% over the prior year second quarter.
The Company's branded product sales, which represented 63% of total sales in the quarter, grew 6%, driven by higher selling prices, continued strong volume growth in Lance branded home-pack sandwich crackers and Cape Cod branded potato chips, and incremental branded sales from the Brent & Sam's acquisition, which added approximately 1%. Quarterly sales gains were partially offset by the continued planned decline in certain trade channels and product lines that the Company has deemphasized as part of its focused growth strategy.
The Company's non-branded product sales, which represented 37% of total sales in the quarter, increased approximately 12% from the prior year, driven by higher selling prices, continued volume growth from existing private brand customers, new product introductions and incremental private brand sales from the Brent & Sam's acquisition, which added approximately 4%. These increases were partially offset by a decline in sales to certain contract manufacturing customers.
Lance realized second quarter 2008 net income from continuing operations of $2.7 million, or $0.09 per diluted share, compared to second quarter 2007 net income from continuing operations of $9.3 million, or $0.30 per diluted share.
Net income in the second quarter of 2008 as compared to the second quarter of 2007 was adversely impacted by an approximate $18 million pre-tax increase in the cost of ingredients and higher energy costs of approximately $3 million. The Company increased prices to its customers during the first and second quarters of 2008 in an effort to offset rising ingredient costs; however, the timing and amount of these price increases was not sufficient to offset the increased ingredient and energy costs, resulting in a decline in operating profit during both the first and second quarters of 2008. In addition, during the second quarter the Company incurred incremental expenses related to operational inefficiencies from the consolidation of its Canadian manufacturing facilities. The Company expects these operational inefficiencies to be eliminated during the third quarter of 2008.
Net revenue from continuing operations for the six months ended June 28, 2008 was $411.6 million, an increase of approximately 9% compared with the same period in the prior year, and 7% excluding the impact of the Brent & Sam's acquisition. For the first six months of 2008, net income from continuing operations was $3.4 million, or $0.11 per diluted share, compared to net income from continuing operations of $15.1 million, or $0.49 per diluted share, in the first six months of the prior year.
Comments from Management
"We anticipated our ingredient costs to be higher in the second quarter, therefore we implemented price increases," commented David V. Singer, President and Chief Executive Officer. "However, our costs for ingredients and energy escalated beyond our expectations; therefore our price increases were not sufficient to restore our profit margins. We are in the process of taking additional pricing actions during the third quarter which will restore our profit margins once these new prices are implemented."
Mr. Singer continued, "In addition to pressure from input costs during the quarter, we experienced higher than expected costs associated with the consolidation of our Canadian sugar wafer facilities. The consolidation of our facilities from three locations to two required the relocation and setup of multiple manufacturing lines across both remaining locations. The consolidation resulted in some anticipated one-time costs; however initial productivity of the consolidated operation has not met our expectations, resulting in unanticipated additional costs. We are aggressively addressing the issues and are confident that we will have the process running smoothly during the third quarter."
Mr. Singer added, "We continued to drive improvements with our supply chain and DSD efficiency initiatives during the quarter. We drove lower shipping costs, excluding rising fuel costs, with the realignment of our internal and external freight networks, and we increased the leverage of our DSD system with higher sales per route. We are confident our planned price increases during the second half will fully offset the level of ingredient and energy costs we are experiencing as we move through the balance of 2008. Once these costs have been offset, we believe that continued top line growth combined with progress on our cost initiatives will put us back on the path of widening margins that we had established prior to the escalation of ingredient and energy costs."
Company Revises Revenue and EPS Estimates for 2008
The Company anticipates that the pricing actions it plans to implement during the second half of 2008 will fully restore its operating profit margins by the fourth quarter of 2008. However, until those price increases are fully implemented, it expects that earnings will continue to be negatively impacted. Based on this, the Company has lowered its 2008 full year earnings per diluted share estimate to a range of $0.62 to $0.70. Based on its assessment of the current sales volume trends and anticipated pricing actions for the remainder of the year, the Company raised its 2008 full year net sales estimate to a range of $830 to $850 million. The Company also revised its capital expenditure guidance to approximately $40 to $42 million for the year.
On April 25, 2008, the Company provided a full year net sales estimate range of $805 to $835 million, an earnings per diluted share range of $0.70 to $0.80, and a capital expenditure range of $45 to $50 million.
Dividend Declared
The Company also 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 August 20, 2008 to stockholders of record at the close of business on August 11, 2008.