Lance earnings higher in quarter; guidance raised

by Josh Sosland
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CHARLOTTE, N.C. — Seeming to have weathered the storm from a peanut recall that had significant, but indirect, effects on the company, Lance, Inc. announced higher earnings for the first quarter ended March 31 and raised earnings guidance for 2009.

Lance net income in the first quarter was $6,452,000, equal to 20c per share on the common stock, up dramatically from $645,000, or 2c, in the first quarter last year. Sales were $215,809,000, up 9% from $197,968,000.

Lance estimated the impact of the peanut recall on earnings at 5c per share (diluted). Integration costs associated with the December 2008 acquisition of Archway Cookies L.L.C. cut earnings by another 2c.

Results during the first quarter of 2008 were lowered by sharply higher prices for the company’s principal baking ingredients of flour and vegetable oil, which Lance said were not immediately passed along to customer.

Sales growth during the first quarter of 2009 was driven by subsequent price increases as well as the Archway acquisition.

While Lance manufactures its own peanut butter and was not directly affected by the Peanut Corporation of America recall, the company said its sales were hurt by "broad press coverage" which "amplified consumers’ fears."

Lance said demand for peanut butter sandwich crackers began to rebound by March but estimated that the incident cost the company $2.5 million in revenues in the quarter. This revenue reduction together with extra associated public relations expenses resulted in the 5c per share cost to earnings.

"We are very pleased with the underlying earnings momentum in the quarter," said David V. Singer, president and chief executive officer. "As we anticipated, sales of our most popular product, peanut butter sandwich crackers, were impacted by the January recall of peanut butter. Although we make our own peanut butter for our sandwich crackers and did not recall any of our sandwich cracker products, consumers reduced their consumption of all products containing peanut butter, including ours. Despite this pressure, and the initial costs associated with ramping up sales and production of the newly acquired Archway brand, we still delivered solid first-quarter results. In addition, we are very pleased with the continued growth of our private brands business."

In an April 24 conference call, Mr. Singer said Lance’s market share has increased significantly since February.

"We currently anticipate pretty well normal volume levels for the remainder of the year," he said.

Lance said its Archway integration was on track. The Ashland, Ohio, facility acquired in the Archway transaction was operating again before the end of 2008, initially producing private label cookies to reduce overtime at other Lance facilities. In early 2009, Lance relaunched Archway brand cookies, which had not been actively marketed since October 2008.

Non-branded product sales rose 16% in the first quarter from the same period in 2008, reflecting higher selling prices, volume growth from new and existing customers and new product introductions. Three percentage points of the non-branded revenue growth was attributed to the March 2008 acquisition of Brent & Sam’s.

Lance raised its full-year earnings guidance to $1.10 to $1.20 per share, up from $1 to $1.15 as its February guidance. Revenues in 2009 were projected at $910 million to $930 million, up from $900 million to $920 million.

"Throughout the remainder of the year, we will remain focused on mitigating the impact of the peanut butter recall, integrating and growing the Archway business, capturing the efficiencies driven by our operational improvements and driving continued sales growth," Mr. Singer said.

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