Categories Analysis, Consumer

There is strong investor appetite for Simply Good Foods: Here’s why

In the third quarter of 2022, earnings and revenues increased year-over-year and exceeded Wall Street’s prediction

The Simply Good Foods Company (NASDAQ: SMPL), a leading packaged food and beverage firm, is among the consumer businesses that effectively tackled rising raw materials costs and supply-chain issues. The successful journey so far, marked by stable sales performance and profitability, has allowed the company to reinvest in the business comfortably and generate handsome returns.  

At the Bourses

Simply Good Foods’ positive performance in the most recent quarter, marked by better-than-expected numbers, failed to impress investors amid concerns about its elevated customer inventories. The stock suffered a sharp fall last week soon after the earnings announcement, paring a part of its recent gains. This year, it mostly traded sideways while the broad market experienced significant weakness due to the mass selloff. Currently, the shares are trading almost where they were twelve months ago.

Read management/analysts’ comments on quarterly reports

Despite rising steadily in recent years, the valuation looks reasonable. Considering its solid growth prospects and resilience to multiple challenges, the stock is a promising investment option. It is probably headed to hit new highs this year, offering an opportunity that might never come again. Some prospective investors might still feel that SMPL is expensive, even for the company’s quality products. The fact is that they might not get a chance to buy the stock at a lower price in the near future.

Balanced Diet

The Denver-based company, which owns popular brands like Atkins and Quest, has maintained a healthy balance sheet with positive cash flow that helped it repay debt and repurchase stock. Besides diet/nutrition products, the company also offers a variety of healthy foods and snacks including ready-to-drink shakes, pizza, and prepared meals.

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While inflation pressures remain a concern as far as sales are concerned, Simply Good Foods has managed to beat cost-related headwinds by hiking prices. With more price hikes planned in the coming months, margin performance is expected to improve as it enters the next fiscal year.

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“Due to the year-to-date higher than usual customer inventory levels, we expect fourth-quarter net sales performance to be below the anticipated retail takeaway increase of high-single digits on a percentage basis versus last year. We have good visibility into our cost structure and there is no change to our fiscal 2022 supply chain cost inflation and gross margin outlook. We’re confident in the strength of our business and diversification of our portfolio across brands, forms, customers, and channels that provide us with multiple ways to win in the marketplace and deliver shareholder value,” said SMPL’s CEO Joseph Scalzo.

Q3 Numbers Beat

In the third quarter of 2022, earnings and revenues increased year-over-year and exceeded Wall Street’s prediction. Adjusted earnings moved up by a cent to $0.44 per share, reflecting a 12% increase in net sales to $316.5 million. Simply Good Foods executives expect full-year sales to grow in double-digits, though performance would be slightly affected by the scaling down of European operations. But they’ve cautioned that the current quarter would be hit by increased inventories.

SMPL has rebounded after suffering a major loss last week and maintained the uptrend in the following sessions. On Tuesday, the stock traded slightly lower, after closing the last session up 1%.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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