US: Annie's profitability trails strong sales growth
- FY sales of US$204.1m - up 19%
- Adjusted EBITDA grew 7.9% to $27.3m
- Fiscal 2015 sales growth of 18% to 20% expected
Annie's profits squeezed
US organic food group Annie's booked a one-fifth increase in full-year sales but profitability was hit by higher input costs in the period.
In the 12 months to 31 March, Annie's sales soared to US$204.5m - up 19% on the year. However, increased input costs resulted in a 410 basis point decline in gross margin, which fell to 34.6%.
Adjusted EBITDA grew 7.9% to $27.3m while net profit totalled $15.3m, or $0.88 per diluted share, compared to $11.3m last year.
CEO John Foraker explained: "Despite our strong top-line growth, we were disappointed that our bottom line results fell short of expectations, primarily due to higher-than-expected input costs, in particular organic wheat. We have improved our forward cost coverage of organic wheat, and are broadly building capabilities across our supply chain to keep pace with our growth."
The company forecast sales growth of 18-20% for fiscal 2015, with an EPS guidance range of $0.88 to $0.95.
Shares in Annie's, which published the results after the bell closed in New York yesterday (29 May), tumbled in after-market trading as investors reacted to its forecasts for 2014/15.
Annie's Reports Fourth Quarter and Fiscal 2014 Financial Results
BERKELEY, Calif., May 29, 2014 /PRNewswire/ -- Annie's, Inc. (NYSE: BNNY), a leading natural and organic food company, today announced financial results for the fourth quarter and fiscal year ended March 31, 2014.
-- Net sales were $60.1 million in the fourth quarter and $204.1 million
for the fiscal year; adjusted net sales(1) grew 16% and 19% for the
fourth quarter and fiscal year, respectively
-- Consumption grew an estimated 20% in the fourth quarter, despite the
later Easter holiday, and grew approximately 21% for the fiscal year(2)
-- Diluted EPS was $0.29 in the fourth quarter and $0.88 for the fiscal
year; adjusted diluted EPS(1) was $0.29 for the quarter and $0.86 for
the fiscal year
-- Management provides fiscal 2015 guidance, including adjusted net sales
growth of 18% to 20% and adjusted diluted EPS in the range of $0.88 to
"Annie's delivered another quarter of strong sales growth driven by both base business increases and successful innovation," commented John Foraker, CEO of Annie's. "The Annie's brand is performing exceptionally well in the marketplace, as we continue to benefit from strong consumption trends and growing retailer demand for natural and organic products.
"Despite our strong top-line growth, we were disappointed that our bottom line results fell short of expectations, primarily due to higher-than-expected input costs, in particular organic wheat. We have improved our forward cost coverage of organic wheat, and are broadly building capabilities across our supply chain to keep pace with our growth. We are also taking the necessary steps to improve both our execution and the predictability of our financial results," continued Foraker.
"As we enter fiscal 2015, our brand has never been stronger. Our consumers love what we stand for, knowing that in buying Annie's, they are bringing home high-quality food from a brand they trust. We are a power brand for retailers, driving growth, profit, and share in the categories in which we chose to compete. Our consumption trends are running in the +20% range, driven by increased household penetration and strong unit volume growth, placing our brand in the top-tier of our industry. Importantly, Annie's has a long growth runway, with opportunities to expand distribution of our mainline products and travel to many new categories through our rich innovation pipeline."
"Although we anticipate some headwinds, including an inventory reduction by our largest customer, continued commodity inflation, and higher compensation expense as we build out our capabilities, we expect our bottom-line results to show significant improvement as the year progresses."
"Our financial position remains strong. We generated strong operating cash flow in the fourth quarter, resulting in $17 million in cash and no debt on the balance sheet at fiscal year-end. We expect to produce strong cash flow in fiscal 2015, while continuing to invest in future growth," concluded Foraker.
Fourth Quarter and Full-Year Results
For the fourth quarter, Annie's reported net sales of $60.1 million. Excluding the benefit to net sales from the pizza recall, primarily related to insurance recoveries, adjusted net sales increased 15.9% to $59.8 million. Net sales growth in the fourth quarter was led by snacks, which grew 26% as a result of strength in fruit snacks, cookies, and crackers. Adjusted net sales of meals grew 11%, impacted by the timing of Easter shipments year-over-year. For the fiscal year, net sales were $204.1 million, and adjusted net sales were $203.0 million, an increase of 19.0%.
In finalizing the fiscal 2014 results, the Company determined that its historical methodology for estimating certain trade allowances did not include all related trade promotion costs. Specifically, it did not consider trade promotion activities conducted by its customers after quarter end related to sales that occurred prior to that quarter end. As a result, the Company chose to revise its methodology used to estimate trade expenses, which resulted in $0.6 million and $0.4 million of higher trade expenses in the fourth quarter and fiscal year, respectively, reflected as a reduction in net sales. However, the financial impact of this change is not considered to be material to any prior or annual financial statements under accounting guidelines. The Company will revise its previously issued financial statements included in its Form 10-K.
Gross margin for the quarter was 35.0%, while adjusted gross margin declined 410 basis points to 34.6%. Gross margin performance was impacted by higher supply chain costs related to: 1) significant commodity inflation, especially organic wheat; 2) increased inventory obsolescence due in part to the impact of new products; and 3) mix changes. In addition to higher cost of goods sold, trade spending increased as a percentage of sales as a result of successful efforts to drive continued distribution and market share growth in a more competitive retail environment. For the fiscal year, gross margin was 37.1% and adjusted gross margin declined 290 basis points to 36.4%.
Selling, general and administrative expenses ("SG&A") for the quarter were 20.2% of net sales, while adjusted SG&A improved by 380 basis points to 20.1% of adjusted net sales. SG&A expenses benefited from reduced incentive compensation expenses and general expense control. For the fiscal year, SG&A was 24.3% of net sales, and adjusted SG&A improved 180 basis points to 24.0% of adjusted net sales.
Adjusted EBITDA for the quarter increased 6.9% to $8.9 million. For the fiscal year, adjusted EBITDA grew 7.9% to $27.3 million.
Net income for the quarter was $5.1 million, or $0.29 per diluted share, compared to $3.9 million, or $0.22 per diluted share, in the fourth quarter of fiscal 2013. Adjusted net income was $5.1 million, or $0.29 per diluted share, compared to adjusted net income of $4.7 million, or $0.27 per diluted share, in the fourth quarter of fiscal 2013.
Net income for the fiscal year was $15.3 million, or $0.88 per diluted share, compared to $11.3 million, or $0.64 per diluted share, in fiscal 2013. Adjusted income was $14.9 million, or $0.86 per diluted share, compared to adjusted net income of $13.9 million, or $0.78 per diluted share, in fiscal 2013.
Fiscal 2015 Outlook
The Company expects to achieve adjusted net sales growth of 18% to 20%, including 14% to 16% growth in sales of Annie's branded products and four percentage points of net sales growth from contract manufacturing revenue related to the Company's recent acquisition of the Joplin plant. The Company's net sales outlook assumes a 3% to 4% impact on net sales from expected inventory reductions by its largest customer.
Adjusted EBITDA is expected to be in the range of $29.5 to $31.5 million, and adjusted diluted EPS of is expected to be in the range of $0.88 to $0.95.
While adjusted gross margin is expected to be comparable to fiscal 2014, despite the dilutive impact of non-core contract manufacturing revenue, the Company expects SG&A expense to increase as a percentage of net sales, reflecting planned investments in people to support future growth, higher stock-based compensation costs and normalization of incentive compensation expense.
The Company expects first quarter results to be significantly impacted by a renewed inventory reduction focus by its largest customer, year-over-year commodity inflation and the phasing of investment spending to support new product introductions and base business growth. These factors are expected to result in an operating loss for the first quarter, the Company's seasonally smallest quarter.
The Company expects second half margins to show solid improvement on a year-over-year basis, reflecting the benefit of stronger net sales growth, planned pricing actions and cost savings associated with manufacturing efficiency projects.
The Company continues to expect the Joplin plant acquisition to be neutral to adjusted EPS in fiscal 2015.
Original source: Annie's
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