) is currently facing a lot of headwinds. The company recently
reported lower-than-expected sales and EPS for its fiscal fourth
quarter, due in part to rising input costs. Management provided
fiscal 2015 EPS guidance well below consensus, prompting a flurry
of negative estimate revisions from analysts. The company disclosed
that it had identified a material weakness in its internal control
over financial reporting. And its auditor, PricewaterhouseCoopers,
And despite all of these negatives, shares still trade at a lofty
34x forward earnings.
Annie's is a natural and organic packaged food company that offers
over 145 products and is present in over 35,000 retail locations
across the United States and Canada.
Fourth Quarter Results
Annie's reported its fiscal 2014 fourth quarter results on May 29.
Earnings per share came in at 29 cents, well below the Zacks
Consensus Estimate of 35 cents. It was an increase of 7% over the
same quarter last year.
Adjusted net sales rose 16% to $59.8 million, but this was also
below the consensus of $61.0 million. Sales growth was driven in
large part by the "Snacks" segment, which saw top-line growth of
26% thanks to strength in fruit snacks, cookies, and crackers.
Higher-than-expected input costs, particularly for organic wheat,
hurt gross margins. Adjusted gross profit as a percentage of net
sales fell 410 basis points to 34.6% in Q1.
Looking ahead to fiscal 2015, management expects net sales growth
of 18-20%. However, it only expects adjusted EPS growth of 2-10% as
it projects earnings in the range of $0.88 to $0.95 per share.
This prompted a flurry of negative estimates revisions, driving
Annie's to a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for 2015 is now $0.90, down from $1.14
before the Q4 report. The 2016 consensus is currently $1.16, down
from $1.37 over the same period.
You can see the sharp drop in estimates in the company's "Price
& Consensus" chart:
On June 1, Annie's disclosed that its auditor,
PricewaterhouseCoopers, was resigning. This follows the 10-K
disclosure that Annie's had
"identified a material weakness in its internal control over
The material weakness
"related to an insufficient complement of finance and
accounting resources, including employee turnover, within the
Shares of Annie's have been pummelled in recent months, falling
more than -40% from its 52-week high in October. Despite this,
shares of Annie's still do not look cheap.
The stock trades at a lofty 34x the 2015 Zacks Consensus Estimate
and 26x the 2016 consensus. Although shares have taken a beating
recently, it looks like investors still have very high growth
expectations for the company.
The Bottom Line
Given all of the headwinds for Annie's, the stock does not look
like a bargain at current levels. Investors should consider looking
elsewhere for opportunities.
Todd Bunton, CFA is the Growth & Income Stock Strategist
and Editor of the
Income Plus Investor service
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