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Simply Good's Sales, Earnings Are Simply Good

EPS estimates topped in each of the last four quarters

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Apr 06, 2022
Summary
  • Management warns customers of price increases ahead.
  • CEO Joseph E. Scalzo noted "the well-documented supply chain operating environment remains challenging."
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The Simply Good Foods Com. (

SMPL, Financial) saw its share price rise early on Wednesday following the release of financial results for the 13 and 26 weeks ended Feb. 26 that could be described as, appropriately, simply good.

The Denver-based company’s shares, which had closed down 3.6% at $38.40 on Tuesday, rose by 2.5% early on Wednesday. Just after midday, its stock was hovering around $39.95, up $1.55 per share or 4.04%.

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In the second quarter of 2022, net sales increased 28.7%. Net income was $18.5 million versus a net loss of $26.2 million in the prior-year period. The earnings loss per diluted share was 18 cents versus a loss of 27 cents. Adjusted diluted earnings were 36 cents per share, compared to 25 cents. Adjusted Ebitda increased 27.1% to $54.2 million.

The quarterly results represent what Zacks called “an earnings surprise of 28.57%." The investment research website noted, "A quarter ago, it was expected that this nutritional foods company would post earnings of 35 cents per share when it actually produced earnings of 43 cents, delivering a surprise of 22.86%. Over the last four quarters, the company has surpassed consensus EPS estimates four times.”

The company, which markets shakes, snacks and protein bars under the Atkins and Quest brands, estimates its U.S. retail takeaway growth rate in unmeasured channels increased low double-digits on a percentage basis versus last year. As expected, executives said, due to strong performance in the year ago period, the growth rate in unmeasured channels moderated.

“We are pleased with our second-quarter results as our business delivered another quarter of strong sales and earnings growth,” President and CEO Joseph E. Scalzo said. “Retail takeaway was in line with our expectations and the price increase instituted last quarter is tracking in line with our estimates and partially offsetting supply chain cost inflation. However, total net sales and earnings growth was greater than our forecast due to the timing of shipments to support earlier than anticipated third quarter retail customer programs.”

Management commented that Simply Good’s strong performance in the first half of the year, combined with marketing, customer programming and G&A leverage over the remainder of the year, provide confidence to increase its full-year net sales and adjusted Ebitda outlook. While customer service levels are improving, a release noted, “the well-documented supply chain operating environment remains challenging,” as indeed it does for major competitors like McCormick & Co. Inc. (

MKC, Financial).

"The number of snacking occasions of bars is being impacted negatively by people not being back at work," Scalzo told analysts in January in an earnings call. "Now the good news is… all other forms, non-shake, non-bar business is doing really well. Those are incremental consumption occasions, highly less correlated to being at work, and that's starting to pick up some of the slack from a buy rate standpoint."

Management’s update to its full fiscal year 2022 outlook shows net sales are expected to increase 13% to 15% versus fiscal year 2021, including a two percentage point headwind related to the European business exit and Quest frozen pizza licensing. Adjusted Ebitda is anticipated to increase slightly less than the net sales growth rate, while adjusted diluted earnings per share are expected to increase more than the adjusted Ebitda growth rate.

In March, Simply Good entered into an agreement to license the Quest frozen pizza business to Bellisio Foods, the same company that has the license for Atkins frozen meals. “We continue to execute well in a challenging operating environment and believe we are positioned to deliver on our short and long-term objectives,” Scalzo concluded.

There has been no “meaningful” change to the company’s fiscal 2022 supply chain cost inflation and gross margin outlook. Management anticipates that supply chain costs, mostly due to ingredients, will remain at elevated levels into fiscal 2023 and notified customers of plans to institute a price increase effective late in the fourth quarter to help offset these cost increases.

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