GuruFocus -
- Net Sales: $341.3 million, increased 10.6% year-over-year, primarily driven by the OWYN acquisition.
- Legacy Net Sales: $309 million, about the same as the previous year.
- Gross Margin: 38.2%, a 90 basis points increase from the previous year.
- Adjusted EBITDA: $70.1 million, an increase of 13.1% from the previous year.
- Net Income: $38.1 million, compared to $35.6 million last year.
- Adjusted Diluted EPS: $0.49, compared to $0.43 in the previous year.
- Cash Flow from Operations: $32 million, compared to $47.5 million last year.
- Capital Expenditures: $300,000 in Q1, with a full-year expectation of $10 million to $15 million.
- Debt Repayment: $50 million repaid on term loan, with an outstanding balance of $350 million.
- OWYN Retail Takeaway: 67% growth in combined measured and unmeasured channels.
- Quest Retail Takeaway Growth: 10% in Q1, with ecommerce growth of about 18%.
- Atkins Retail Takeaway: Declined 4%, with ready-to-drink shakes increasing about 5%.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Net sales increased by 10.6% driven by the acquisition of Only What You Need (OWYN).
- Quest brand showed strong growth with a 10% increase in retail takeaway, driven by new product innovations.
- OWYN's retail takeaway grew by 67%, making it the third largest sports nutrition multipack brand in the US.
- The nutritional snacking category grew by about 12%, largely driven by volume, indicating strong market demand.
- The company reaffirmed its fiscal year 2025 outlook, expecting net sales growth in the 4% to 6% range and adjusted EBITDA growth slightly greater than the net sales increase.
- Atkins brand experienced a 4% decline in retail takeaway, with expectations of high single-digit declines for fiscal year 2025.
- Gross margin is expected to decline by about 300 basis points in Q2 due to higher commodity costs.
- The company is proactively eliminating low ROI investments in Atkins, which will disproportionately affect retail takeaway over the fiscal year.
- There are anticipated club distribution losses for Atkins, which will impact shipments and consumption alignment.
- The company faces input cost inflation in fiscal year 2025, with headwinds increasing beginning in the second quarter.
A: The Q1 margin came in better than expected due to favorable commodity prices. Our full-year guidance remains around a 200 basis point decline, with Q1 favorability offsetting greater than expected inflation in cocoa and whey later in the year. For Q2, we expect a gross margin decline of about 300 basis points due to higher commodity costs and the impact of OWYN.
Q: Regarding the collaborative discussions with a club channel customer, can you provide details on what products are being focused on and when placement might take hold?
A: It's early in the discussions, but they have been productive. The customer is interested in both Quest and OWYN, and we hope to share more details by April on potential opportunities for these brands.
Q: Has your expectation for category growth changed over the remainder of fiscal '25?
A: Not materially. We continue to see high single-digit growth, driven by mainstream demand for high protein, low sugar, low carb products. This trend is supported by science and social media, and we are bringing more mainstream products to market, which are highly incremental to the category.
Q: Can you clarify the impact of shipment timing in Q1 and its effect on fiscal year-to-date consumption and shipments?
A: About two-thirds of the three-point timing impact was related to Quest. We expect shipments and consumption to be more aligned in Q2, with Quest consumption expected to be high single-digit to low double-digit growth. For the full year, we anticipate consumption and shipments to be largely in line.
Q: Can you comment on the innovation launched at the end of the summer for Atkins snacks and Quest bake shop? How incremental are these products?
A: For Atkins, new items are outperforming those they replaced by about 2 to 1, with the Atkins strong 30 gram shake and gummies being highly incremental. For Quest, the Bake Shop platform is 50% incremental to Quest and 30% to the category, indicating that these innovations are bringing new consumers into the category.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.