The health-food movement is one of the fastest growing segments in today’s grocery business. Though the actual use of the word “health” is sometimes overstretched in supermarket aisles, one cannot deny that these products are increasingly popular among conscious shoppers. One of the leaders in health-oriented prepared foods and snacks, Annies Inc (NYSE:BNNY), reported stronger-than-expected earnings for its fiscal third quarter, but the stock didn’t react in tandem. Let’s take a look at what held Annie’s back and determine whether you should be interested in this quickly growing food company.
For those who may not frequent the grocery store aisles, Annie’s is a natural and organic food purveyor, from frozen meals to fruit cups to macaroni and cheese. The company has been public for only about 11 months, and while it is growing undeniably well, a high initial valuation has kept the return to less than 2%.
It’s tough for some to understand the lack of capital appreciation — the company is a successful disruptor in a highly competitive and typically low-margin business and (some believe) warrants a premium valuation. And things seem only to be improving, as its most recent earnings release suggests nothing less than outperforming growth.
For the third fiscal quarter, Annie’s was able to increase its net sales by nearly 23% to $37.9 million over the prior-year quarter’s $29.3 million. The net sales figure did, however, exclude returned items from a product recall. In the management’s conference call, CEO John Foraker mentioned that consumption trends continue to look very favorable for the company — growing in the high-teens across all channels. The company is seeing particularly strong growth in its more premium items — deluxe mac ‘n’ cheese and specialty dressings. Perhaps the (slowly) improving economic environment in the United States is encouraging shoppers to aim a little higher on the totem pole. Annie’s is increasing its frozen food lines beyond its pizzas, which have been, with one hiccup, successful.
That one hiccup, though, was more of a burp. Recently, the company announced a voluntary recall of its frozen pizzas. This was a widespread recall that pulled the items out of freezers from major retailers such as Whole Foods Market, Inc. (NASDAQ:WFM) and Target Corporation (NYSE:TGT) because of the possibility that the dough contained “metal fragments.” While that’s enough to keep me from running to the nearest Whole Foods to buy one, the company made an immediate and dedicated effort to rectify the situation. Management is expecting to quickly regain footing among its pizza customers.