THE HEDGEYE EDGE
Despite slightly disappointing top and bottom line Q1 2014 results (released on 8/8/13), the company maintained its FY revenue outlook of +18-20% and EPS range of $0.97 to $1.01. We believe that BNNY’s premium valuation is justified by higher growth rates across organic offerings, of which Annie’s is a leader, especially as it increasingly moves its products to the mainstream aisle from the organic aisle.
BNNY caters to a higher income demographic, one we think will continue to pay a premium for organic foods despite fluctuations in macroeconomic conditions.
INTERMEDIATE TERM (TREND) (the next 3 months or more)
Q2 may see another quarter of challenged gross margins (expected to fall -100 to 150bps), however we expect a rebound in the top line (Q1 is typically the weakest revenue quarter) as advertising spend increases, and it further rolls out its frozen pizza and family sized frozen meal offerings, and continues to take share across mac & cheese, crackers and fruit snacks from more traditional branded players.
LONG-TERM (TAIL) (the next 3 years or less)
We believe that BNNY’s strategy to innovate everyday foods and create healthier and better tasting options than its competitors is one that should sustain long-term growth versus traditional CPG innovation that focuses on new and “different” SKUs that may miss consumer trends.
Organic product offerings will become more competitive in the coming years, however we believe that Annie’s can maintain its market leadership and take share from more traditional brand players as it moves more of its items to the center of the store.