The snack attack.

• Author: Martin, Edward
• Position: Lance Inc. in financial trouble - Company Profile

Lance kneads but doesn't need - the dough. It's a paradox: a rich company in financial trouble.

Creed Wilkins, 76, is the kind of customer that made Lance Inc. a fixture in Southern business lore, alongside Pepsi and Goody's Headache Powders. The retired Rutherfordton garage owner has been eating Lance peanut-butter crackers since he was 12. The company's red-capped jars sat on the counter of his hometown's Simpson Grocery Store and next to the drink box in nearly every oily filling station in the South.

"I was a grocery boy making $1 a day, so 5 cents was a lot for a pack of crackers," he says. "But they've always been mighty good."

This year, customers from Wilkins' generation and its successors will buy about $470 million of Lance snacks. The red-topped jars are gone, but 75,000 Lance vending machines have replaced them in mill break rooms and hotel hallways. Although Paul Stroup III, president and CEO, still calls the South "our heartland," Lance's market reaches 37 states.

But the company built on soda crackers and peanut butter is in a jam. Five years of declining earnings were capped by a sharp slump in sales in 1995. Lance responded by writing off $43 million to shut down two plants, laying off workers for the first time since it was founded in 1913. The result was a whopping $21.9 million loss for the fourth quarter, contributing to a $6.9 million loss for the year, compared with income of $27 million in 1994.

Lance in 1996 is a paradox, a rich company in financial trouble. On one hand, it wallows in cash and is beholden to no bank - traits its founding family (which owns 41% of its stock, worth about $200 million) and management take pride in. But those are the same factors that make it an attractive buyout target in the nation's fiercely competitive, $15 billion snack-food industry.

Speculation hasn't been enough to buoy Lance's stock. At the end of April, it was trading at about $16, near its low of 10 years. Ken Hackel, president of Systematic Financial Management, a Fort Lee, N.J.-based institutional investor that holds 4% of Lance stock, typifies stockholders disgusted with its performance. "The best thing that could happen," he says, "would be if they were sold."

Those are unkind words for an old-fashioned Southern company that has stockholders from its founding family who still sign off conversations with a sincere "God bless you." But if a sale doesn't happen, the bigger problem might be Lance's earnings slide, which has left the Charlotte-based company looking like a dowager sitting on her money while the world moves on without her.

Can Lance, which Merrill Lynch has called "the most conservative company in the industry" and which only in recent years has tried newfangled concepts such as television advertising and NASCAR sponsorships, change its culture to survive the snack attacks from Frito-Lay, Nabisco and others?

Critics also question why Lance continues to pay handsome dividends despite years of declining earnings. Why not, they reason, use some profits and Lance's $90 million in working capital to blast the Frito Bandido out of the saddle with aggressive marketing? Of course, Plano, Texas-based Frito-Lay is part of PepsiCo, so that's a little like wondering why Royal Crown doesn't just blow those Coke guys out of the water. But given Lance's regional loyalty, a little money in targeted markets could go a long way.

"Can a company be too conservative in this day and age?" asks Leonard Teitelbaum, a Merrill Lynch analyst who has tracked Lance for 30 years and probably knows it best of any outsider. "The answer is yes. Management is paid to take a certain amount of risk. Prudent risk, but risk nonetheless."

Teitelbaum gets some support from an unlikely quarter. Board member Lance Van Every, 48, is a flamboyant former race-car driver whose career ended eight years ago when a Corvette slammed into his Porsche at an Ohio race, breaking his neck. Not one to shun risk, he nevertheless retired when he asked his doctor what would happen if he was in another jolt, only to hear: "Do you know the meaning of quadriplegic?"

"We've had our heads in the sand," says Van Every, great-grandson of founder Philip Lance and informal family spokesman. "We looked around, and Frito-Lay and other folks were targeting the South, not only with lines such as corn chips, but now crackers and cookies. That's our claim to fame. If we're going to be a viable company at the turn of the century, we're going to have to learn to play hardball."

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