Under WSA’s IPO Scanner: AdvancePierre Foods Holdings

Sandwich maker raises a modest $233 million selling 11.1 million shares on July 15th

Source: Company's Website
Source: Company’s Website

The U.S. equity market has witnessed only 52 IPOs, including that of Line Corp. (NYSE: LN), as of August 2016, 57% lesser than 2015. The total proceeds raised from these IPOs stood at $8.9 billion, a decline of about 58% from the same period in 2015. The lesser number of IPOs in 2016 can be mainly attributed to a general global economic slowdown and the market turmoil that resulted from the Brexit vote. The majority of the IPOs this year are from the Healthcare sector, which accounted for 51% of the IPOs (27 companies) on account of a record number of biotech offerings.

In the food service industry, US Foods Holding Corp. (NASDAQ: USFD), a food service distributor, raised more than $1 billion in May 2016. Taking a cue from the investor interest in food services, AdvancePierre Foods Holdings Inc. (NYSE: APFH), a leading producer and distributor of sandwiches, sandwich components, and other entrées and snacks, launched its IPO and began trading on the New York Stock Exchange on July 15th, 2016.

AdvancePierre Foods Holdings was formed by the merger of Pierre Foods, Advance Foods, and Advance Brands in 2010. In 2011, AdvancePierre acquired Barber Foods, a Portland, Maine-based maker of stuffed chicken breasts and other chicken products. In 2015, AdvancePierre Foods forged its position as the market leader in sandwiches with the acquisitions of the wholesale and manufacturing operations of Landshire Inc., an Illinois-based maker of sandwiches, and the manufacturing assets of Better Bakery, a maker of premium sandwiches.

Headquartered in Cincinnati, Ohio, AdvancePierre caters to distribution outlets including foodservice, retail and convenience store providers. With revenues of $1.6 billion in 2015 and over 4,000 employees, the Company offers a menu including ready-to-eat sandwiches, such as breakfast sandwiches, peanut butter and jelly sandwiches and hamburgers; sandwich components, such as cooked hamburger and chicken patties, and Philly steaks; and other entrées and snacks, such as country-fried steak, stuffed entrées, chicken tenders, and cinnamon dough bites. The Company operates through three divisions: Foodservice, Retail, and Convenience.

IPO details

Source: Company's Website
Source: Company’s Website

As per its IPO filings, AdvancePierre was looking to raise nearly $460 million by selling 18.6 million shares priced at $21 each. The Company expected a price range of $20 to $23 in its IPO. The IPO raised $233 million through the sale of 11.1 million shares at $21 each and closed on July 20th, 2016. Stockholders, including Oaktree Capital Management L.P., sold 7.5 million shares. Oaktree is a majority shareholder in AdvancePierre.

Barclays PLC (NYSE: BCS), Credit Suisse Group (NYSE: CS), and Morgan Stanley (NYSE: MS) acted as joint book-running managers for the offering and as representatives of the underwriters. Goldman Sachs Group Inc. (NYSE: GS), BMO Capital Markets and Deutsche Bank Securities Inc. also acted as joint book-running managers for the offering.

Post-IPO plans

AdvancePierre will use the proceeds of the IPO to repay part of its first-lien term loan. The Company had piled up debts of nearly $1.26 billion at the end of FY15. Interest expenses alone cost the company over $104 million during the year.

AdvancePierre also announced that it will release financial results for the second quarter ended July 2nd, 2016, before the market opens on Wednesday, August 10th, 2016.

Key strengths

AdvancePierre swung to profits of $37 million on net sales of $1.6 billion in FY15, following several years of losses. In FY15, food-service customers accounted for 55% of its sales. The Company’s trump card is sandwiches, a category that accounts for over two-thirds of its product offerings. Going forward, the Company plans to focus on improving its key offerings, as well as continue with its pricing discipline and product mix to help it improve profitability and reduce exposure to volatile commodity costs.

Although AdvancePierre has over 3,000 clients, more than 50% of its sales come from 10 major clients. Sysco Corp. (NYSE: SYY) and US Foods Holding, are its top two clients, and together accounted for over 25% of FY15 net sales. Another big advantage for AdvancePierre is that its top 20 clients have remained loyal, and been doing business with it for an average of 20 years, enabling a steady stream of revenue generation.

Stock performance

A3AdvancePierre’s stock stood at $24.08, slipping 1.67%, at the close on Tuesday, August 2nd, 2016, having vacillated between an intraday high of $24.75 and a low of $24.08 during the session. The stock’s trading volume was at 239,225 for the day. The Company’s market cap was at $1.87 billion as of Tuesday’s close.

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