Packaged food company Simply Good Foods (NASDAQ:SMPL) missed Wall Street’s revenue expectations in Q4 CY2024, but sales rose 10.6% year on year to $341.3 million. Its non-GAAP profit of $0.49 per share was 7.6% above analysts’ consensus estimates.
Is now the time to buy Simply Good Foods? Find out by accessing our full research report, it’s free.
Simply Good Foods (SMPL) Q4 CY2024 Highlights:
- Revenue: $341.3 million vs analyst estimates of $347.3 million (10.6% year-on-year growth, 1.7% miss)
- Adjusted EPS: $0.49 vs analyst estimates of $0.46 (7.6% beat)
- Adjusted EBITDA: $70.07 million vs analyst estimates of $68.74 million (20.5% margin, 1.9% beat)
- Operating Margin: 16%, in line with the same quarter last year
- Free Cash Flow Margin: 9.3%, down from 15.2% in the same quarter last year
- Market Capitalization: $3.68 billion
"We continue to see increased relevance and "mainstreaming" of nutritional snacking products as consumers seek high protein, low-sugar, low-carb foods.
Company Overview
Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.
Shelf-Stable Food
As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.
Simply Good Foods is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage. On the other hand, it can grow faster because it’s working from a smaller revenue base and has a longer runway of untapped store chains to sell into.
As you can see below, Simply Good Foods’s sales grew at a decent 8.9% compounded annual growth rate over the last three years as consumers bought more of its products.
This quarter, Simply Good Foods’s revenue grew by 10.6% year on year to $341.3 million but fell short of Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 8.6% over the next 12 months, similar to its three-year rate. This projection is commendable and suggests the market sees success for its products.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.
Simply Good Foods has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.1% over the last two years.
Taking a step back, we can see that Simply Good Foods’s margin dropped by 1.6 percentage points over the last year. Continued declines could signal it is in the middle of an investment cycle.
Simply Good Foods’s free cash flow clocked in at $31.71 million in Q4, equivalent to a 9.3% margin. The company’s cash profitability regressed as it was 5.9 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.
Key Takeaways from Simply Good Foods’s Q4 Results
It was encouraging to see Simply Good Foods beat analysts’ gross margin and EBITDA expectations this quarter. On the other hand, its revenue missed. Zooming out, it wasn't a perfect quarter, but we think this was a decent one. The stock traded up 3.3% to $37.99 immediately after reporting.
Is Simply Good Foods an attractive investment opportunity at the current price? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free.
