Stock Story -
Packaged food company Simply Good Foods (NASDAQ:SMPL) fell short of analysts' expectations in Q2 CY2024, with revenue up 3.1% year on year to $334.8 million. It made a non-GAAP profit of $0.50 per share, improving from its profit of $0.44 per share in the same quarter last year.
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Simply Good Foods (SMPL) Q2 CY2024 Highlights:
- Revenue: $334.8 million vs analyst estimates of $337.7 million (small miss)
- Adjusted EBITDA: $71.9 million vs analyst estimates of $69.9 million (2.9% beat)
- Raised full year adjusted EBITDA guidance to 8% year-on-year growth vs previous 6-8%
- EPS (non-GAAP): $0.50 vs analyst estimates of $0.48 (4.3% beat)
- Gross Margin (GAAP): 39.9%, up from 36.7% in the same quarter last year
- Free Cash Flow of $72.01 million, up 56.1% from the previous quarter
- Market Capitalization: $3.62 billion
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 FoodAs 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 GrowthSimply Good Foods is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.
As you can see below, the company's annualized revenue growth rate of 9.6% over the last three years was decent for a consumer staples business.
This quarter, Simply Good Foods's revenue grew 3.1% year on year to $334.8 million, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 16.6% over the next 12 months, an acceleration from this quarter.
Cash Is KingAlthough 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, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining a cash cushion. The company's free cash flow margin has been among the best in the consumer staples sector, averaging 14.9% over the last two years.
Taking a step back, we can see that Simply Good Foods's margin expanded by 5.6 percentage points during that time. This is encouraging because it gives the company more ways to win.
Simply Good Foods's free cash flow clocked in at $72.01 million in Q2, equivalent to a 21.5% margin. This quarter's result was good as its margin was 6.5 percentage points higher than in the same quarter last year, but we wouldn't read too much into it because working capital needs can be seasonal and cause quarter-to-quarter swings in the short term.
Key Takeaways from Simply Good Foods's Q2 Results It was good to see Simply Good Foods beat analysts' gross margin expectations this quarter, leading to adjusted EBITDA and EPS beats versus Wall Street's estimates. The company also lifted its full year adjusted EBITDA guidance. On the other hand, its revenue missed Wall Street's estimates but only by a small amount. Overall, this was a mixed but overall solid quarter for Simply Good Foods. The stock traded up 2.3% to $37 immediately following the results.
