The Simply Good Foods Co. realised a more than 50% benefit to its annual sales from last year’s acquisition of Quest Nutrition, which strengthened the US firm’s presence in the health snacks segment as its weight-management business suffered from the effects of the pandemic.
Following the deal for California-based Quest executed in August 2019, Simply Good Foods laid down a three-year target to achieve US$20m in cost savings related to synergies. CEO Joe Scalzo said yesterday (26 October) that goal is in sight, with the majority of the $10m in savings slated for its new fiscal year to start appearing in January.
Nonetheless, Scalzo said the business needs to consolidate its infrastructure given Simply Good Foods now has two warehouses in the state of Indiana, one of which is owned by Quest, and a new facility will be built to house both of those logistics operations.
“That’ll get consolidated with the construction of a single warehouse for both businesses, which will enable us to get our products on one truck. So one order, one shipment, one invoice. So that’ll take us through the end of this fiscal year,” the CEO told analysts after reporting full-year results to 29 August.
The Quest deal represented a 54.8% benefit to sales, which rose 56% for the year to $816.6m, while profits in terms of adjusted EBITDA climbed 55.9% to $153.9m.
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Simply Good Foods’ portfolio is concentrated in two main areas, the Quest business and its dietary brand Atkins after it sold the SimplyProtein snack brand to newly-formed Wellness Natural in September. It took a $3m impairment charge from the disposal in the fiscal year ended in August, which contributed to a 27% decline in net income to $34.7m.
Quest operates in the protein segment, offering bars, cookies, chips, and powders, as well as snack bars, shakes and pizza. Through the Atkins brand, it manufactures low-carb and low sugar snacks, bars and crispbreads.
Assessing the performance, Scalzo said: “Total Simply Good Foods’ retail takeaway in the fourth quarter increased 3.9% in US measured channels, outpacing the category that declined about 3%. Our performance was driven by the more snack-oriented portion of our portfolio, primarily Atkins confections, Quest protein chips, and cookies that are consumed mostly at home. Bars for both brands remain pressured due to fewer on-the-go usage occasions.
“However, in mid-to-late July the improvement in category trends plateaued. The active nutrition segment of the category, which includes Quest, plateaued low single-digits since July and over the first two months of fiscal 2021.
“The weight-management segment, which includes Atkins, has improved, but it’s still down in the upper single-digits due to temporary lower consumer interest in weight control, fewer on-the-go usage occasions and weakness in the mass channel, which has experienced meaningful reduced shopper traffic during the pandemic.”
Despite the drop off in demand for weight-management products, finance chief Todd Cunfer said Atkins “has grown dramatically in the last couple of years”, and now represents 9% of Simply Good Foods’ total business, compared to 2% a “couple of years ago”.
Alexia Howard, an analyst at Alliance Bernstein, said the firm sees Simply Good Foods as “a solid reopening pick for 2021”.
“Sales growth remains hampered by the pandemic as on-the-go snack sales have been hard hit. But share gains are encouraging and we expect category trends to recover as the pandemic subsides,” she wrote in a research note. “Moreover, new innovation and new advertising messages focused on at-home consumption for the Atkins brand should also help drive the recovery.”
Having pulled its financial guidance last April for the fiscal year through August due to the uncertainty from the pandemic, Simply Good Foods is now confident enough to provide an outlook, but only for the first half of the year.
The Denver-based company predicts sales will range from $425m to $435m, while adjusted EBITDA is seen at $77-82m. And it is also seeking to reduce its leverage in terms of net debt to EBITDA.
Simply Good Foods expects the ratio to fall from the level of 3.3 times to “well below” three times by the end of the new fiscal year.
“The unknown duration of the pandemic and its impact on consumer shopping and consumption behaviours make it difficult to provide a full-year fiscal 2021 outlook at this time,” Scalzo said. “However, we expect that total Simply Good Foods’ retail takeaway and revenue trends in the first half of fiscal 2021 to perform similar to current trends.”