CINCINNATI--(BUSINESS WIRE)--AdvancePierre Foods Holdings, Inc. reported financial results for the third quarter and nine months ended October 1, 2016.
Third Quarter Highlights
- Third quarter GAAP net income of $22.4 million, or $0.29 per diluted share, and Adjusted Net Income1 of $34.8 million, or $0.46 per diluted share, adversely impacted by $9.3 million, or $0.12 per diluted share, of one-time IPO-related non-cash equity compensation expenses
- Third quarter net sales of $393.7 million and volume growth in AdvancePierre’s core segments of 0.7%
- Third quarter Adjusted EBITDA1 of $79.0 million
- Reduction of net leverage to 3.4 times trailing twelve month Adjusted EBITDA
Full Year 2016 Outlook
- Net sales in the range of $1.545 billion to $1.575 billion, including core segment volume growth of 2.0-2.5%
- Adjusted EBITDA in the range of $290 million to $295 million
- Adjusted Diluted Net Income per Share in the range of $1.65 to $1.75
- Expect to pay quarterly dividend of $0.14 per share in the fourth quarter, subject to declaration by the board of directors
- “We are pleased to report another quarter of strong financial performance, driven by continuing execution of APF Way productivity initiatives, including our dynamic pricing model, and improvement in the mix of our business” said AdvancePierre President and Chief Executive Officer John Simons. “As demonstrated in these results as well as our recently announced strategic acquisition of Allied Specialty Foods, we are delivering on our commitments to invest in our core business to continue improving our portfolio mix, and adding accretive acquisitions to accelerate our future growth.”
Consolidated Financial Results for the Third Quarter
Net sales for the third quarter of 2016 were $393.7 million compared to $407.2 million for the third quarter of 2015. The decline was primarily attributable to the Company’s elimination of lower margin business in its Industrial segment, which reduced net sales by $14.0 million, and to strategic price and trade spending investments to reflect lower raw material costs, which reduced net sales by $8.8 million. Excluding the impact of Industrial segment volume, volume and mix in the Company’s three core segments, including sales volume growth of 0.7%, increased net sales by $9.3 million.
Gross profit for the third quarter of 2016 increased by $17.7 million to $105.4 million, or 26.8% of net sales compared to $87.7 million, or 21.5% of net sales, for the third quarter of 2015, reflecting an increase of 530 basis points of margin. Gross profit increased primarily due to positive price realization net of raw material cost movements, productivity improvements, and contributions from volume, partially offset by other increases in cost of goods sold.
Selling, general and administrative expenses for the third quarter of 2016 were $56.1 million, or 14.2% of net sales, compared to $46.0 million, or 11.3% of net sales for the third quarter of 2015. The increase was primarily due to an $11.8 million increase in non-cash stock compensation including one-time charges associated with revaluation of all unvested awards based on our post-IPO valuation and accelerated vesting of certain special incentive awards. These one-time charges adversely impacted Adjusted Net Income and Adjusted Diluted Net Income per Share and our comparison to prior year results by $9.3 million, or $0.12 per share.
Interest expense for the third quarter of 2016 was $18.7 million, a decrease of $7.2 million compared to $25.9 million for the third quarter of 2015. This decrease resulted from $11.0 million of interest savings from lower rates resulting from the refinancing of the Company’s credit facilities in June 2016 and lower average borrowings, offset by $3.8 million of write-offs associated with voluntary prepayment of the term loan and other refinancing charges.
Income tax benefit was $1.8 million for the third quarter of 2016, as compared to an income tax provision of $3.0 million for the third quarter of 2015. Based on an assessment of the realizability of the Company’s deferred tax assets during the second quarter, management determined that a full valuation allowance should no longer be recorded against the deferred tax assets. As a result, the Company reversed $1.7 million of the existing valuation allowance during the third quarter of 2016 representing a decrease to income tax expense during the period.
AdvancePierre’s reported GAAP net income was $22.4 million, or $0.29 per diluted share, for the third quarter of 2016, compared to reported net income of $12.6 million, or $0.19 per diluted share, for the third quarter of 2015. Adjusted Net Income for the third quarter of 2016 was $34.8 million, or $0.46 per diluted share. Adjusted Net Income for the third quarter of 2015 was $22.2 million, or $0.33 per adjusted diluted share.
For the third quarter of 2016, Adjusted EBITDA increased 15.4% to $79.0 million from $68.4 million for the third quarter of 2015.
Segment Financial Results for the Third Quarter
Foodservice
Net sales for the Foodservice segment decreased 4.7% to $222.6 million in the third quarter of 2016, compared to $233.5 million for the third quarter of 2015, reflecting the effects of lower volume (2.2%), unfavorable mix (0.9%) and a reduction in net pricing (1.6%). The volume decline was attributable primarily to fruit cup sales in our schools sub-channel and slower restaurant traffic affecting our national chain and street customers, partially offset by growth in school sandwich and protein categories.
Operating income for the Foodservice segment increased 18.0% to $45.0 million in the third quarter of 2016, compared to $38.1 million for the third quarter of 2015, reflecting productivity savings and net price realization of raw material deflation, partially offset by the impact of lower volume and mix effects.
Retail
Net sales for the Retail segment increased 8.0% to $94.6 million in the third quarter of 2016, compared to $87.6 million for the third quarter of 2015, reflecting higher volume (1.6%) and favorable mix (8.0%) partially offset by a reduction in net pricing (1.6%). The increase in volume was primarily from growth in high value-added stuffed entrées that was partially offset by reduced promotional sales and rationalization of certain private label lower margin fully cooked breaded poultry SKUs.
Operating income for the Retail segment increased 236.7% to $10.3 million in the third quarter of 2016, compared to $3.1 million for the third quarter of 2015, reflecting favorable volume/mix, productivity savings and net price realization of raw material deflation.
Convenience
Net sales for the Convenience segment increased 11.7% to $56.5 million in the third quarter of 2016, compared to $50.6 million for the third quarter of 2015, reflecting higher volume (12.6%) and favorable mix (3.3%) partially offset by a reduction in net pricing (4.2%). Volume growth was driven by new product introductions and increased distribution to convenience stores.
Operating income for the Convenience segment increased 41.6% to $9.5 million in the third quarter of 2016, compared to $6.7 million for the third quarter of 2015, reflecting favorable volume/mix, productivity savings and net price realization of raw material deflation.
Industrial
Net sales for the Industrial segment decreased 43.5% to $20.0 million in the third quarter of 2016, compared to $35.4 million for the third quarter of 2015, reflecting lower volume (40.3%) and a reduction in net pricing (3.9%), partially offset by favorable mix (0.8%). The volume decline was primarily due to the exit of an unprofitable line of business late in the third quarter of 2015.
Operating income for the Industrial segment increased to $1.0 million in the third quarter of 2016 from a loss of $0.2 million for the third quarter of 2015, reflecting exit of unprofitable business and productivity savings.
Unallocated Corporate Expenses
Unallocated Corporate Expenses increased to $26.5 million in the third quarter of 2016 from $6.1 million for the third quarter of 2015 as a result of $10.1 million of non-capitalizable transaction expenses and an $11.8 million increase in non-cash equity compensation expenses. Full report.
