Company Delivers 41% Reported & 11%
Organic Net Sales Growth in the Quarter;
Organic Cash Operating Income Increases
23% to $15.1 Million;
Reiterates 2012 & 2013
Outlook
Smart Balance, Inc. (Nasdaq:SMBL) today announced its financial
results for the third quarter ended September 30, 2012. For the
third quarter of 2012, net sales increased 41.4% to $101.3 million,
and cash operating income increased 55.7% to $15.1 million. Organic
net sales increased 11.1% and organic cash operating income
increased 22.5%. Earnings per share were $0.03, versus $0.06 last
year, excluding certain items. Earnings per share were impacted by
higher interest, depreciation, amortization and stock-based
compensation expense, when compared to last year.
The Company reiterated its outlook for 2012 and 2013. For 2012,
the Company continues to expect net sales in the $360 million to
$370 million range, gross margins in the 42% to 44% range, and cash
operating income in the $53 million to $55 million range. For 2013,
the Company continues to expect net sales to be in the range of
$440 million to $450 million and cash operating income to be in the
range of $70 million to $75 million.
Commenting on the results, Chairman and Chief Executive Officer
Stephen Hughes stated, "Beginning with our third quarter report we
established two business segments – Natural and Smart Balance.
Overall, our results were in-line with our expectations. In
the quarter, our Natural segment, which includes the Udi's, Glutino
and Earth Balance brands, represented more than half of our total
net sales and reported strong organic net sales increases of 42.0%,
consistent with our consumption growth of 44.5% across these
brands. While our Smart Balance segment, which includes
spreads, milk and grocery, reported a net sales decline, we managed
to increase brand profit margin for this segment. Excluding
the expenses related to the launch of our Smart Balance Spreadable
Butter, Smart Balance delivered slightly higher profitability as
compared to last year."
Commenting further on the recent Udi's acquisition, Mr. Hughes
said, "We are well on our way to integrating Udi's with our other
Natural brands – Glutino & Earth Balance. Since the
acquisition on July 2nd, our teams have been working
extraordinarily well together and have made great strides in
combining our sales and marketing efforts. The growth in the
gluten-free market and the potential for the combination of Udi's
and Glutino is a very powerful proposition in our efforts to make
gluten-free products more available on retail shelves. Since
adding these brands to our portfolio, retailers have accepted an
incremental 400 Udi's & Glutino items and it is clear that they
are highly motivated to address the needs of gluten-free
consumers."
2012 Third Quarter Results
Total Company net sales in the third quarter of 2012 increased
41.4% to $101.3 million, compared to net sales of $71.7 million in
the third quarter of 2011. This performance primarily
reflected the impact from the acquisitions of Udi's and Glutino,
which closed on July 2, 2012 and August 3, 2011,
respectively. As a result, while Glutino and Udi's are
included in the results for the third quarter of 2012, only Glutino
is included for two months in the third quarter of 2011.
Organic net sales, which assumes the Company owned Udi's and
Glutino for the entire third quarter of 2011, increased 11.1% in
the third quarter of 2012 compared to the third quarter of
2011.
The chart below highlights net sales, gross profit, and brand
profit (calculated as gross profit less marketing, selling and
royalty expense (income)) for the third quarters of 2012 and 2011,
by segment:
Segment Results – Third
Quarter |
|
$ in Millions |
2012 |
Margin |
2011 |
Margin |
Net Sales: |
|
|
|
|
Natural |
$52.4 |
|
$17.4 |
|
Smart Balance |
48.9 |
|
54.3 |
|
|
$101.3 |
|
$71.7 |
|
Gross Profit (ex-Purchase Accounting²) |
|
|
|
|
Natural |
$21.3 |
40.6% |
$6.9 |
39.7% |
Smart Balance |
22.0 |
45.0% |
24.1 |
44.4% |
|
$43.3 |
42.7% |
$31.0 |
43.2% |
Brand Profit (ex-Purchase Accounting²) |
|
|
|
|
Natural |
$13.6 |
26.0% |
$5.0 |
28.7% |
Smart Balance |
12.7 |
26.0% |
13.2 |
24.3% |
|
$26.3 |
26.0% |
$18.2 |
25.4% |
Net sales for the Company's Natural segment (Udi's, Glutino and
Earth Balance brands) increased 201.6% to $52.4 million in the
third quarter of 2012 compared to $17.4 million in the third
quarter of 2011. Organic net sales for the Natural
segment increased 42.0% in the quarter. The Company's
gluten-free brands – Udi's and Glutino – reported organic net sales
growth over 50% in total in the quarter, which was driven by an
acceleration in distribution gains from both Udi's and Glutino and
continued strength in gluten-free category growth. The
Company's Earth Balance portfolio registered a net sales gain of
11.5% versus a year-ago. Earth Balance growth in the quarter
was negatively impacted by the timing of promotions.
Earth Balance's consumption growth of 25.6%, however, remained
strong in the third quarter and sales in October were back in line
with consumption.
Net sales for the Company's Smart Balance segment declined 9.8%
to $48.9 million in the third quarter of 2012 compared to $54.3
million in the third quarter of 2011. This segment was
negatively impacted by the winding down of Bestlife® spreads and
Smart® Balance Butter Blends, as the Company repositioned its focus
on premium spreads and spreadable butter within the spreads
category. Despite the difficult environment for
spreads, the Company's premium spreads and spreadable butter
products outperformed the competition and gained share in its
category. Net sales of the Company's Smart Balance® Spreads
and Spreadable Butter businesses, when combined, declined 6.1% in
the quarter. The positive impact from the introduction of
Smart Balance® Spreadable Butter was offset by lower volume in its
core spreads business, caused by higher promotional activity from
competitors and an unfavorable price-gap to commodity
butter. Net sales of the Company's Smart Balance
grocery products decreased 6.1% versus the year-ago third quarter,
impacted by increased pricing and promotion pressure in the cooking
oil category.
Net sales of Smart Balance® milk increased 16.4% in the third
quarter. This increase was mainly attributable to an
improvement in efficiency and effectiveness of trade promotions
with retailers compared to the third quarter of 2011. In
addition, the Company reported lower slotting related to milk in
the third quarter of 2012, compared to the same period last year.
While the Natural segment and Smart Balance segment each
reported an increase in gross margins, the mix shift to Natural
resulted in lower gross margins, overall. Excluding
certain adjustments to cost of goods sold, gross profit in the
third quarter of 2012 was $43.3 million, or 42.7% of net sales,
compared to $31.0 million, or 43.2% of net sales in the third
quarter of 2011. Excluded in the aforementioned cost of goods
in the third quarter of 2012 was a $0.9 million charge related to
the Udi's acquisition to reflect the estimated fair value of
finished goods inventory acquired. Excluded in the
aforementioned cost of goods in the third quarter of 2011 was a
$0.8 million charge related to the Glutino acquisition to reflect
the estimated fair value of finished goods inventory
acquired.
Brand Profit, excluding the purchase accounting charges
mentioned above, for the Company's Natural segment, increased to
$13.6 million in the third quarter of 2012 from $5.0 million in
last year's quarter. The significant increase is primarily
related to the Udi's acquisition in the quarter, as it contributed
approximately $6.1 million to brand profit.
Brand Profit for the Company's Smart Balance segment decreased
modestly to $12.7 million in the third quarter of 2012 from $13.2
million in the previous year's quarter primarily due
to investment costs related to Spreadable Butter. Excluding
these investment costs, Smart Balance segment brand profit
increased modestly in the quarter.
|
|
|
Reconciliation of Operating
Income to Cash Operating Income – Third Quarter |
|
|
|
$ in Millions |
2012 |
2011 |
|
|
|
Operating Income (Loss) |
($0.5) |
$2.1 |
Less certain non-recurring items affecting
Operating Income (Loss) |
|
|
Stock-based compensation charge related
to restructuring |
1.8 |
-- |
Restructuring, acquisition and
integration-related costs |
5.7 |
2.6 |
Purchase accounting adjustment |
0.9 |
0.8 |
Class action lawsuit |
-- |
1.1 |
Non-GAAP Operating Income (Loss) |
7.9 |
6.6 |
|
|
|
Less non-cash items
affecting Operating Income (Loss): |
|
|
Depreciation and amortization |
3.9 |
2.2 |
Stock-based compensation expense |
3.3 |
0.9 |
|
|
|
Cash Operating Income |
$15.1 |
$9.7 |
Excluding certain costs, overall operating income increased to
$7.9 million in the third quarter compared to operating income of
$6.6 million in the third quarter of 2011. The charges
impacting operating income in the third quarter of 2012 include
restructuring, acquisition and integration-related costs of $5.7
million, the adjustment to Udi's finished goods inventory of $0.9
million and additional stock-based compensation charges of $1.8
million related to the restructuring. The charges impacting
operating income in the third quarter of 2011 include the
adjustment to Glutino's finished goods inventory of $0.8 million
and costs associated with the Glutino acquisition of $2.6 million.
In addition, the Company settled a class-action lawsuit
relating to the Company's Nucoa® stick margarine product, the sales
of which represented less than 1% of the Company's sales, for $1.1
million in 2011. Third quarter 2012 operating income
was impacted by higher depreciation, amortization and stock
compensation by approximately $4.1 million when compared to last
year's quarter.
Cash operating income increased 55.7% to $15.1 million in the
third quarter compared to $9.7 million in the prior year's quarter.
Organic cash operating income increased 22.5%. The table below
provides a reconciliation of GAAP operating income (loss) to cash
operating income, a non-GAAP measure.
Reconciliation of Certain
Items Affecting Net Income (Loss) and Earnings (Loss) Per
Share (EPS) – Third Quarter |
|
|
Net Income (Loss) ($
Millions) |
EPS (Loss) ($ Per
Share) |
|
2012 |
2011 |
2012 |
2011 |
Reported GAAP |
($3.7) |
$1.1 |
($0.06) |
$0.02 |
Add back certain items: |
|
|
|
|
Restructuring |
1.4 |
-- |
0.02 |
-- |
Stock-based compensation charge
related to restructuring |
0.9 |
-- |
0.01 |
-- |
Acquisition and integration-related
costs |
1.7 |
2.2 |
0.03 |
0.04 |
Purchase accounting adjustment |
0.5 |
0.7 |
0.01 |
0.01 |
Write-off of deferred loan
costs |
1.3 |
-- |
0.02 |
-- |
Class action lawsuit |
-- |
0.9 |
-- |
0.01 |
Tax rate adjustment |
-- |
(1.4) |
-- |
(0.02) |
|
|
|
|
|
Total certain items |
5.8 |
2.4 |
0.09 |
0.04 |
|
|
|
|
|
Excluding certain items (Non-GAAP) |
$2.1 |
$3.5 |
$0.03 |
$0.06 |
Excluding the items noted above, net income in the third quarter
of 2012 was $2.1 million, or $0.03 per share, compared with net
income of $3.5 million, or $0.06 per share, in the year-ago
quarter. In the third quarter of 2012, net income was impacted
by higher interest, depreciation, amortization and stock-based
compensation expense when compared to last year by approximately
$4.3 million, or $0.07 per share.
2012 Outlook
The Company reaffirmed its outlook for 2012. For 2012, the
Company continues to expect net sales in the range of $360 million
to $370 million, gross margin in the 42% to 44% range, and cash
operating income in the $53 million to $55 million range.
In addition, for 2012 the Company continues to expect interest
expense to be approximately $14 million and depreciation and
amortization to be approximately $14 million. Given the
increase in the Company's share price, however, the Company updated
its estimate for stock-based compensation expense to be
approximately $12.0 million, compared to its previous estimate of
$9 million.
2013 Outlook
The Company reiterated its 2013 outlook initially provided on
August 2, 2012. For 2013, the Company continues to expect net
sales to be in the range of $440 million to $450 million and cash
operating income to be in the range of $70 million to $75
million.
Commenting on the outlook for 2013, Mr. Hughes stated, "Our
priorities for 2013 are to continue on our path of strong sales and
profitable growth in our Natural segment, while maintaining strong
profitability in the Smart Balance segment."
The Company provided the following specifics regarding its
outlook for 2013:
- The Company expects overall net sales growth in 2013 in the 20%
to 25% percentage range versus 2012. The Company expects growth to
be driven by the inclusion of Udi's on a full year basis and
continued growth in Glutino and Earth Balance. Total net sales
growth in Natural is estimated to be 45% to 50%. Organic net
sales growth in Natural is estimated to be 15% to 20%. In
addition, the Company expects the Smart Balance segment to grow in
the low single digit range, driven by the benefit of Spreadable
Butter.
- Gross profit margin for the year is expected to be in the 42%
to 44% range as strong growth in the Natural segment will impact
overall gross margin.
- Stock-based compensation expense is expected to be
approximately $7 million in 2013.
- Capital expenditures in 2013 are expected to be approximately
$13 million. Total depreciation & amortization is expected to
be approximately $18 million.
- Interest expense is estimated to be $19 million, reflecting a
full year of increased debt, related interest rates and the
amortization of deferred loan costs.
- The Company's tax rate is expected to be approximately 40% in
2013.
Footnotes
1 All references to consumption & market share are based on
U.S. mass-market dollar volume according to The Nielsen Company (an
independent research entity) and SPINS for the 12-week period
ending September 29, 2012, unless otherwise noted.
² Purchase accounting adjustment to reflect the estimated fair
value of finished goods inventory acquired. In 2012 the impact from
Udi's was $0.9 million and in 2011 the impact from Glutino was $0.8
million.
Forward-looking Statements
Statements made in this press release that are not historical
facts, including statements about the Company's plans, strategies,
beliefs and expectations, are forward-looking and subject to the
safe harbor provisions of the Private Securities Litigation Reform
Act of 1995. These statements may include use of the words
"expect", "anticipate", "plan", "intend", "project", "may",
"believe" and similar expressions. Forward-looking statements
speak only as of the date they are made, and, except for the
Company's ongoing obligations under the U.S. federal securities
laws, the Company undertakes no obligation to publicly update any
forward-looking statement, whether to reflect actual results of
operations, changes in financial condition, changes in general
economic or business conditions, changes in estimates, expectations
or assumptions, or circumstances or events arising after the
issuance of this press release. Actual results may differ
materially from such forward-looking statements for a number of
reasons, including (i) the Company's ability to: maintain and grow
those revenues derived from our Smart Balance® buttery spread
products from which we generate a substantial portion of our
revenues; maintain margins during periods of commodity cost
fluctuations; introduce and expand distribution of our new
products; meet marketing and infrastructure needs; respond to
changes in consumer demand; respond to adverse publicity affecting
the Company or industry; maintain our performance during difficult
economic conditions; comply with regulatory requirements; maintain
existing relationships with and secure new customers; continue to
rely on third party distributors, manufacturers and suppliers;
successfully integrate and operate the Glutino business and realize
the expected growth benefits of the Glutino acquisition; operate
outside of the U.S.; successfully maintain relationships with the
co-packers for our Glutino® and Gluten-Free Pantry® products; grow
net sales in a competitive environment and with increasingly price
sensitive consumers; and maintain volume in light of price
increases stemming from rises in commodity costs; (ii) the
Company's ability to successfully integrate and operate the Udi's
business and realize the expected growth benefits of the Udi's
acquisition; potential changes to future tax rates; unexpected
costs, charges, liabilities, or expenses resulting from the
transaction; potential adverse reactions or changes in business
relationships resulting from the transaction; and the possibility
that Udi's growth may occur at a rate less than the Company
anticipates; and (iii) those other risks and uncertainties set
forth in the Company's filings with the SEC.
Non-GAAP Financial Measures
The Company reports its financial results in accordance with
accounting principles generally accepted in the United States
("GAAP").
The Company uses the terms "cash operating income" and "net
income and earnings per share (EPS) excluding certain items" as
non-GAAP measures. The Company believes that these measures
better explain its profitability and performance consistent with
the way the investor and securities analysts evaluate our Company
in the competitive environment in which we operate. Cash
operating income is defined as operating income excluding
stock-based compensation expense, depreciation, amortization,
purchase accounting adjustments, restructuring, acquisition and
integration-related costs and certain other
items. The Company believes that the
exclusion of certain items, provide a better reflection of
the operating profitability of the Company, and strongly compliment
the Company's planning and forecasting models used in providing
investors and securities analysts with important supplemental
information regarding the Company's underlying profitability and
operating performance. However, non-GAAP financial measures
should be viewed in addition to, and not as an alternative for, the
Company's results prepared in accordance with GAAP. In
addition, the non-GAAP measures the Company uses may differ from
non-GAAP measures used by other companies. We have included in this
press release reconciliations of cash operating income to operating
income and of net income and EPS excluding certain items to net
income and EPS, in each case as calculated in accordance with
GAAP.
About Smart Balance, Inc.
Smart Balance, Inc. (Nasdaq:SMBL) is committed to providing
superior tasting, solution-driven products in every category it
enters. The Company's health and wellness platform consists
of four brands that target specific consumer needs: Smart
Balance for heart healthier diets; Glutino and Udi's for
gluten-free diets; Earth Balance for plant-based diets; and
Bestlife for weight management. The Company markets the Smart
Balance line of products, which avoids trans-fats naturally and
balances fats and/or reduces saturated fats, such as Smart Balance®
Buttery Spreads and Enhanced Milks. The Company's Glutino and
Udi's brands are trusted pioneers and leaders in the gluten-free
category, with a wide variety of great-tasting gluten-free foods
consumers trust across a number of product categories, such as
Glutino® Pretzel Twists and Breakfast Bars and Udi's® Gluten Free
Breads. The Company markets the Earth Balance line
of non-GMO plant-based products, which include Earth Balance®
Buttery Spreads, Nut Butters and Soy Milks. The Company also
markets weight management products under
the Bestlife brand, which include Bestlife™ Buttery
Spreads and Sticks. For more information about Smart Balance,
Inc., please visit www.smartbalance.com.
The Smart Balance, Inc. logo is available at
http://www.globenewswire.com/newsroom/prs/?pkgid=13800
|
SMART BALANCE, INC. AND
SUBSIDIARIES |
Condensed Consolidated
Balance Sheets |
(In thousands, except share and
per share data) |
|
|
September 30,
2012 |
December 31,
2011 |
|
(unaudited) |
|
Assets |
|
|
Current assets: |
|
|
Cash and cash equivalents |
$4,680 |
$7,959 |
Accounts receivable, net of allowance of:
$574 (2012) and $343 (2011) |
28,573 |
20,030 |
Accounts receivable - other |
2,481 |
1,124 |
Inventories |
22,975 |
15,698 |
Prepaid taxes |
7,282 |
981 |
Prepaid expenses and other assets |
6,061 |
2,149 |
Deferred tax asset |
4,530 |
5,299 |
Total current assets |
76,582 |
53,240 |
Property and equipment, net |
30,687 |
13,804 |
Other assets: |
|
|
Goodwill |
322,254 |
266,598 |
Intangible assets, net |
234,704 |
183,822 |
Deferred costs, net |
12,456 |
2,690 |
Other assets |
1,804 |
1,478 |
Total other assets |
571,218 |
454,588 |
Total assets |
$678,487 |
$521,632 |
Liabilities and Stockholders'
Equity |
|
|
Current liabilities |
|
|
Accounts payable and accrued
expenses |
$49,366 |
$40,358 |
Income taxes payable |
224 |
217 |
Current portion of long-term debt |
2,418 |
9,150 |
Total current liabilities |
52,008 |
49,725 |
Long-term debt |
241,042 |
93,815 |
Deferred tax liability |
49,816 |
51,474 |
Contract payable |
2,750 |
4,125 |
Other liabilities |
1,178 |
877 |
Total liabilities |
346,794 |
200,016 |
Commitment and contingencies |
|
|
Stockholders' equity |
|
|
Common stock, $.0001 par value,
250,000,000 shares authorized; 62,926,611 and 62,630,683 issued in
2012 and 2011, respectively and 59,235,948 and 58,940,020
outstanding in 2012 and 2011, respectively |
6 |
6 |
Additional paid in capital |
548,078 |
539,432 |
Accumulated deficit |
(200,505) |
(200,967) |
Accumulated other comprehensive loss, net
of tax |
(291) |
(1,260) |
Treasury stock, at cost (3,690,663
shares) |
(15,595) |
(15,595) |
Total stockholders' equity |
331,693 |
321,616 |
Total liabilities and stockholders'
equity |
$678,487 |
$521,632 |
|
|
|
|
|
SMART BALANCE, INC. AND
SUBSIDIARIES |
Consolidated Statements
of Income (Loss) and Comprehensive Income (Loss) |
(Unaudited) |
(In thousands, except share and
per share data) |
|
|
|
|
|
|
Three Months
Ended |
Nine Months
Ended |
|
September
30, |
September
30, |
|
2012 |
2011 |
2012 |
2011 |
Net sales |
$ 101,334 |
$ 71,660 |
$ 256,614 |
$ 190,403 |
Cost of goods sold |
59,032 |
41,425 |
147,231 |
103,624 |
Gross profit |
42,302 |
30,235 |
109,383 |
86,779 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
Marketing |
8,416 |
6,947 |
21,707 |
18,337 |
Selling |
8,368 |
5,909 |
21,510 |
16,209 |
General and administrative |
20,324 |
12,651 |
47,335 |
32,495 |
Restructuring, acquisition and
integration-related costs |
5,708 |
2,617 |
7,262 |
2,617 |
Total operating expenses |
42,816 |
28,124 |
97,814 |
69,658 |
Operating income (loss) |
(514) |
2,111 |
11,569 |
17,121 |
|
|
|
|
|
Other income (expense): |
|
|
|
|
Interest expense |
(7,269) |
(910) |
(9,719) |
(2,384) |
Other income (expense), net |
877 |
156 |
696 |
622 |
Total other (expense) |
(6,392) |
(754) |
(9,023) |
(1,762) |
Income (loss) before income taxes |
(6,906) |
1,357 |
2,546 |
15,359 |
Provision (benefit) for income taxes |
(3,181) |
214 |
2,084 |
7,344 |
Net income (loss) |
$ (3,725) |
$ 1,143 |
$ 462 |
$ 8,015 |
|
|
|
|
|
Earnings (loss) per share: |
|
|
|
|
Basic |
$ (0.06) |
$ 0.02 |
$ 0.01 |
$ 0.14 |
Diluted |
$ (0.06) |
$ 0.02 |
$ 0.01 |
$ 0.14 |
|
|
|
|
|
Weighted average shares outstanding: |
|
|
|
|
Basic |
59,193,268 |
58,940,020 |
59,025,590 |
59,362,789 |
Diluted |
59,193,268 |
58,986,833 |
60,303,209 |
59,372,198 |
|
|
|
|
|
Net income (loss) |
$ (3,725) |
$ 1,143 |
$ 462 |
$ 8,015 |
Other comprehensive income (loss), net of
tax: |
|
|
|
|
Foreign currency translation
adjustment |
967 |
(1,429) |
969 |
(1,429) |
Other comprehensive income (loss) |
967 |
(1,429) |
969 |
(1,429) |
Comprehensive income (loss) |
$ (2,758) |
$ (286) |
$ 1,431 |
$ 6,586 |
CONTACT: Carole Buyers, CFA
Senior Vice President
Investor Relations & Business Development
Smart Balance, Inc.
cbuyers@smartbalance.com
303-652-0521 x152
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