Boulder Brands, restaurant chains have gluten-free talks

by Jeff Gelski
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BOULDER, COLO. – Gluten-free products at such large fast-food chains as McDonald’s and Burger King might be a couple years out, but retail outlets right now have the opportunity to create gluten-free sections, said Steve Hughes, chairman and chief executive officer of Boulder Brands, Inc., Boulder.

He spoke Aug. 1 in an earnings conference call for the second quarter, which saw sales increases for the company’s gluten-free brands Udi’s (45%) and Glutino (36%).

“In North America we are engaged with one of the largest coffee chains who’s looking at a muffin, bagel, brownie,” Mr. Hughes said. “We’ve got one of the largest donut chains engaging us on bagels and muffins. We’re getting good placement in, what I would call, the regional specialty burger chains, Smashburger, Red Robin, TGI Friday’s.

“We’ve had hot and cold conversations with the big ones, Burger King and McDonald’s. It could be 24 months for them.”

Retail research shows the gluten-free consumer wants a destination section at such outlets as supermarkets, he said.

“One, they don’t really trust having a gluten-free product next to a gluten-full product because these packages are not hermetically sealed,” Mr. Hughes said. “Two, they just don’t want to go on a treasure hunt. I mean, you think about the mom who’s got one gluten-sensitive child. She’s shopping through the whole store. She wants to be able to go one place to just buy the five or six products she needs.”

As part of the company’s Project Gluten Freedom, Boulder Brands seeks three retail placements: 4-foot to 12-foot grocery shelf set, half-door or full-door in the frozen foods aisle, and a frozen or shelf-stable rack in bakery.

“I think the next 12 to 24 months is going to be pretty remarkable here,” Mr. Hughes said. “I think you’re going to see ubiquity of gluten-free sections, and I think you’re going to see these three sections.”
Boulder Brands continues its work to get gluten-free products in club stores, but Mr. Hughes compared that effort to baseball’s spring training.

“That’s not going to be a huge business this year for us,” he said. “We’re going to work that out and figure that out, but by 2014 it could be fairly significant.”

Boulder Brands’ presence in Canada is growing overall.

“While we have gained 400 incremental warehouse items accepted in conventional grocers in the U.S. year to-date, we have gained another 243 incremental warehouse acceptances in Canada year-to-date,” Mr. Hughes said. “Also in Canada this quarter, we began selling Glutino bagel chips and Glutino pretzels in Costco.”

In the second quarter ended June 30, Boulder Brands had net income of $3,098,000, equal to 5c per share on the common stock, which compared with $484,000, or 1c per share, in the previous year’s second quarter. Second-quarter net sales of $110,669,000 compared with $75,989,000 in the previous year’s second quarter.

Boulder Brands changed its full-year fiscal outlook on Aug. 1. The company now expects net sales in the range of $455 million to $460 million, compared with previous expectations of $450 million to $460 million; EBITDA in the range of $69 million to $71 million, compared with previous expectations of $64 million to $69 million; and adjusted EBITDA in the range of $77 million to $79 million, compared with previous expectations of $72 million to $77 million. Boulder Brands expects earnings per share for the year to be in the range of 29c to 31c.

Mr. Hughes said he expects increased competition in the gluten-free category.

“I personally believe that, over the next three to five years, 10% of all gluten-full categories are either going to go away or they’re going to go gluten-free,” he said. “I think you’re going to see a lot of innovation here. We’re committed to continuing to obsolete ourselves, in terms of improving our products constantly. We have our eyes wide open for anything new.”

The second quarter of 2013 received a boost from the acquisition of Udi’s, which Boulder Brands completed in July 2012. Udi’s, Glutino and Earth Balance are in the company’s Natural segment, which saw second-quarter sales increase to $65.3 million from $24.3 million in the previous year’s second quarter.

The acquisition and integration-related costs associated with Udi’s impacted the second quarter of 2012 unfavorably. In the second quarter of 2013, higher depreciation and amortization had an impact of about $1.7 million when compared to the second quarter of 2012.

In the company’s Smart Balance segment, sales in the second quarter dropped to $45.4 million from $51.7 million as Bestlife spreads and Smart Balance butter blends were discontinued. According to Nielsen data, the premium spreads and butter category industrywide declined by 5.5% in the 12-week period ended July 6, 2013. Boulder Brands’ premium spreads and butter declined by 2.7% in the same period, Mr. Hughes said.
Net sales of Smart Balance milk decreased 4.4% in the second quarter. Beginning in the third quarter, Byrne Dairy, Lafayette, N.Y., exclusively will distribute and market Smart Balance milk. Boulder Brands will receive royalty payments.

“With the transition of milk to licensing, net sales will be reduced by approximately $10 million in the back half of 2013,” said Chris Sacco, chief financial officer and treasurer of Boulder Brands, in the Aug. 1 earnings conference call. “And we will have approximately $1.5 million in transition costs impacting our brand profit.
“Beginning in Q1 2014, however, we will benefit from royalty income, and the milk business will become a profit contributor compared to what we expect to be a $3 million loss within 2013.”

For the six months ended June 30, Boulder Brands had net income of $7,059,000, or 12c per share, up from $4,187,000, or 7c per share, in the same period a year ago. Net sales totaled $217,322,000, which was up from $155,280,000 in the same time period of the previous year.

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