OREANDA-NEWS. Inventure Foods, Inc. (NASDAQ:SNAK) (“Inventure Foods” or the “Company”), a leading specialty food marketer and manufacturer, today reported financial results for the second quarter and six months ended June 25, 2016.

Second Quarter 2016 Highlights:

  • Consolidated net revenues increased 4.3% to $69.3 million
  • Net loss of $(0.3) million, or $(0.01) loss per share
  • EBITDA* of $3.6 million
  • Healthy/natural products net sales increased 9.3%
  • Frozen fruit net revenues increased 7.4%
  • Rader Farms branded net revenues increased 158.8%
  • Snack segment gross margin increased 250 basis points to 19.7%


(All comparisons above are to the second quarter of fiscal 2015)

“We remain focused on the operational and financial improvement of our business,” said Terry McDaniel, Chief Executive Officer of Inventure Foods. “During the second quarter, we made progress on our key initiatives with another quarter of sequential improvement in gross margin, which contributed to a $1.1 million increase in EBITDA, as compared to the first quarter of 2016.”

Mr. McDaniel continued, “As our management team and our Board of Directors commence a comprehensive strategic and financial review of the Company, we are simultaneously moving forward with our initiatives to strengthen our foundation, increase productivity across our frozen and snack segments and sustain operating momentum to maximize shareholder value.”

Second Quarter Fiscal 2016

Consolidated net revenues increased 4.3% to $69.3 million, compared to $66.4 million in the second quarter of the prior year. Frozen segment net revenues increased 19.7% and snack segment net revenues decreased 12.8%, which is discussed further under “Segment Review” below. 

Gross profit was $10.3 million, compared to $8.0 million in the second quarter of 2015.  This increase in gross profit was attributable to a $2.3 million increase in the frozen segment while the snack segment gross profit remained consistent with the prior year period.

Selling, general and administrative (“SG&A”) expenses were $8.5 million for the second quarter of 2016.  Excluding the $1.3 million of product recall expenses recorded in SG&A in the second quarter of 2015, adjusted SG&A expenses* decreased $0.5 million and as a percentage of net revenues decreased 120 basis points to 12.3% compared to 13.5% in the second quarter of 2015.

Interest expense was $2.3 million for the second quarter of 2016, an increase of $1.4 million, compared to $0.9 million in the prior year period as a result of increased borrowings and higher interest rates. 

Net loss was $(0.3) million, or $(0.01) loss per share, for the second quarter of 2016, compared to net loss of $(2.0) million, or $(0.10) loss per share, for the prior year period.  Excluding the costs associated with the product recall in 2015, adjusted net loss* was $(0.5) million, or $(0.02) adjusted diluted loss per share* in the second quarter of 2015.

EBITDA* for the second quarter of 2016 was $3.6 million compared to adjusted EBITDA* of $2.0 million for the second quarter of 2015.  EBITDA for the second quarter of 2015 was adjusted to exclude product recall expenses of $2.4 million. EBITDA increased $1.1 million in the second quarter of 2016 compared to the first quarter of 2016.

Year-to-Date Fiscal 2016         

Consolidated net revenues decreased 3.4% to $139.1 million for the six months ended June 25, 2016, compared to $144.0 million in the prior year period. A decrease of 9.4% in snack segment net revenues was partially offset by a 0.6% increase in frozen segment net revenues. 

Net loss was $(1.3) million, or $(0.07) loss per share, for the first six months of 2016, compared to net loss of $(16.6) million, or $(0.85) diluted loss per share, in the prior year period.  Excluding the costs of the product recall and the impairment of an intangible asset, adjusted net income* was $0.8 million, or $0.04 adjusted diluted earnings per share*, for the first six months of 2015. 

EBITDA* was $6.0 million for the first six months of 2016, compared to adjusted EBITDA* of $6.6 million in the prior year period.  Adjusted net income* and adjusted EBITDA* for the first six months of 2015 was adjusted to exclude product recall expenses of $17.9 million, pre-tax, and an intangible asset impairment of $9.3 million, pre-tax.

Segment Review

The Company has two reportable segments: frozen products and snack products. The frozen products segment includes frozen fruits, vegetables, beverages and desserts, for sale primarily to groceries, club stores and mass merchandisers. The snack products segment includes manufactured potato chips, kettle chips, potato crisps, potato skins, pellet snacks, sheeted dough products, popcorn and extruded product for sale primarily to snack food distributors and retailers.

Frozen Products Segment: Net revenues for the second quarter of 2016 increased 19.7% to $41.8 million, compared to $34.9 million in the prior year period.  Excluding Fresh Frozen business net revenues, adjusted frozen products segment net revenues* for the second quarter of 2016 increased 4.4% primarily as a result of increased demand of branded frozen fruit.  For the second quarter of 2016, gross profit was $4.8 million compared to $2.6 million in the prior year period.  For the second quarter of 2016, adjusted frozen products segment gross profit* was $4.8 million compared to $3.7 million and as a percentage of net revenues increased 90 basis points to 11.6% compared to 10.7%, excluding $1.1 million of product recall expenses recorded in cost of revenues in the second quarter of 2015. The improvements in gross margin were primarily driven by steps taken to improve the frozen vegetable products margin profile, including reducing certain retail packaging size. 

Net revenues during the six months ended June 25, 2016 were $86.7 million, an increase of 0.6%, from $86.2 million in the prior year period.  Excluding Fresh Frozen business net revenues, adjusted frozen products segment net revenues* for the first six months of 2016 decreased 2.7%.  For the six months ended June 25, 2016, gross profit was $9.2 million compared to $(4.9) million in the prior year period.  For the second quarter of 2016, adjusted frozen products segment gross profit* was $9.2 million compared to $11.5 million, and gross margin as a percentage of revenue decreased to 10.6% compared to 13.3% in the prior year, excluding $16.4 million of product recall expenses recorded in cost of revenues in the first six months of 2015.

Snack Products Segment: Net revenues during the second quarter of 2016 decreased 12.8% to $27.5 million, compared to $31.5 million in the prior year period, primarily as a result of a reduction of products the Company produces for third parties and decreased Boulder Canyon net revenues due to capacity constraints, a shortage of organic potatoes caused by weather, and slotting investments.  In total, the effect on Boulder Canyon sales of these three items reduced net revenues by over $1.0 million for the second quarter.  For the second quarter of 2016, gross profit was consistent with the prior year period at $5.4 million, and as a percentage of net revenues increased 250 basis points to 19.7%, compared to 17.2% in prior year period as a result of increased capacity.

Net revenues during the six months ended June 25, 2016 were $52.4 million, a 9.4% decrease from $57.8 million in the prior year period. Gross profit for the six months ended June 25, 2016 was $9.9 million, compared to $9.2 million in the prior year period, and as a percentage of net revenues increased 290 basis points to 18.9% compared to 16.0% in the prior year period. 

                             
*Please see the tabular reconciliations of financial measures prepared in accordance with United States generally accepted accounting principles (“GAAP”) to non-GAAP financial measures included at the end of this press release for the definition and information concerning certain items affecting comparability and reconciliations of the non-GAAP terms. 

Strategic and Financial Review

In a separate press release issued today, the Company and its Board of Directors announced the commencement of a strategic and financial review with the objective to increase shareholder value. This review will include a thorough evaluation of the Company's current operating plan and may result in the Company continuing to pursue value-enhancing initiatives as a standalone company, capital structure optimization, a sale of the Company, a sale of certain assets of the Company or other business combination.  A committee of three independent directors has been established to oversee the review. The Company has retained Rothschild as its financial advisor and DLA Piper LLP (US) as its legal advisor to assist in this process.

There can be no assurance that this strategic and financial review will result in any specific action, or any assurance as to its outcome or timing. The Company does not intend to comment further regarding the strategic and financial review until the Board of Directors approves a specific action or concludes its review.

 

Note Regarding Forward-looking Statements

This press release contains forward-looking statements, including, but not limited to, the Company’s ability to improve its operational and financial performance, execute its strategic initiatives and pursue value-enhancing initiatives.  Because such statements include risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that may cause actual results to differ from the forward-looking statements contained in this press release and that may affect the Company's prospects in general include, but are not limited to, general economic conditions, increases in cost or availability of ingredients, packaging, energy and employees, price competition and industry consolidation, ability to execute strategic initiatives, product recalls or safety concerns, disruptions of supply chain or information technology systems, customer acceptance of new products and changes in consumer preferences, food industry and regulatory factors, interest rate risks, dependence upon major customers, dependence upon existing and future license agreements, the possibility that the Company will need additional financing due to future operating losses or in order to implement the Company's business strategy, acquisition and divestiture-related risks, the volatility of the market price of the Company's common stock, and such other factors as are described from time to time in the Company's filings with the Securities and Exchange Commission.  All forward-looking statements are based on information available to the Company as of the date of this news release, and the Company assumes no obligation to update such statements.

 
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
    Quarters Ended 
  Six Months Ended
  
  June 25,
2016
   June 27,
2015
   June 25,
2016
   June 27,
2015
  
Net revenues $ 69,263     $ 66,422     $ 139,118     $ 144,029    
Cost of revenues   58,996       58,397       120,034       139,704    
Gross profit   10,267       8,025       19,084       4,325    
Selling, general & administrative expenses   8,493       10,217       16,602       19,369    
Impairment of intangible asset   -       -       -       9,277    
Operating income (loss)   1,774       (2,192 )     2,482       (24,321 )  
Interest expense, net   2,320       928       4,676       1,658    
Loss before income taxes   (546 )     (3,120 )     (2,194 )     (25,979 )  
Income tax benefit   268       1,169       898       9,393    
Net loss $ (278 )   $ (1,951 )   $ (1,296 )   $ (16,586 )  
                                     
Loss per common share:        
Basic $ (0.01 )   $ (0.10 )   $ (0.07 )   $ (0.85 )  
Diluted $ (0.01 )   $ (0.10 )   $ (0.07 )   $ (0.85 )  
                                     
Weighted average number of common shares:              
Basic   19,628       19,566       19,616       19,574    
Diluted   19,628       19,566       19,616       19,574    
                                     
INVENTURE FOODS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
 
  June 25, 
2016
   December 26, 
2015
           
Assets    
Current assets:    
Cash and cash equivalents $ 1,203     $ 2,319  
Accounts receivable, net allowance   22,681       19,928  
Inventories   71,217       81,807  
Deferred income tax asset   3,788       3,788  
Other current assets     3,686         6,262  
Total current assets   102,575       114,104  
     
Property and equipment, net   66,675       59,963  
Goodwill   23,286       23,286  
Trademarks and other intangibles, net   14,553       14,718  
Other assets     1,186         962  
Total assets $   208,275     $   213,033  
               
Liabilities and Shareholders’ Equity    
Current liabilities:    
Accounts payable $ 32,341     $ 35,983  
Accrued liabilities   11,697       8,629  
Current portion of long-term debt     2,407         1,826  
Total current liabilities   46,445       46,438  
     
Long-term debt, less current portion   82,803       83,300  
Line of credit   22,690       25,951  
Deferred income tax liability   2,560       2,560  
Other liabilities     2,035         2,296  
Total liabilities   156,533       160,545  
     
Shareholders’ equity:    
Common stock   201       200  
Additional paid-in capital   34,820       34,271  
Retained earnings     17,192         18,488  
    52,213       52,959  
     
Less: treasury stock     (471 )       (471 )
Total shareholders’ equity     51,742         52,488  
Total liabilities and shareholders’ equity $   208,275     $   213,033