Simply Good Foods: OWYN Integration Bolsters Growth Prospects

seekingalpha10-27

Simply Good Foods reported a slight growth hiccup in Q4, caused by Quest's temporary supply chain issues. The underlying performance stayed consistent.The OWYN acquisition's integration boosts Simply ...

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The underlying performance stayed consistent.The OWYN acquisition's integration boosts Simply ...</p>\n\n<a href=\"https://seekingalpha.com/article/4729901-simply-good-foods-owyn-integration-bolsters-growth-prospects\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Simply Good Foods: OWYN Integration Bolsters Growth Prospects</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSimply Good Foods: OWYN Integration Bolsters Growth Prospects\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-10-27 10:10 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4729901-simply-good-foods-owyn-integration-bolsters-growth-prospects><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Simply Good Foods reported a slight growth hiccup in Q4, caused by Quest's temporary supply chain issues. The underlying performance stayed consistent.The OWYN acquisition's integration boosts Simply ...</p>\n\n<a href=\"https://seekingalpha.com/article/4729901-simply-good-foods-owyn-integration-bolsters-growth-prospects\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SMPL","symbol_name":"Simply Good Foods Company","start_time":0,"source_url":"https://seekingalpha.com/article/4729901-simply-good-foods-owyn-integration-bolsters-growth-prospects","article_id":"2478131516","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1303258235/image_1303258235.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2478131516","pubTimestamp":1729995000,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Simply Good Foods reported a slight growth hiccup in Q4, caused by Quest's temporary supply chain issues. The underlying performance stayed consistent.The OWYN acquisition's integration boosts Simply ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"SMPL":"Simply Good Foods Company","BK4212":"包装食品与肉类"},"translate_title":"Simply Good Foods：OWYN整合增强增长前景","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SMPL":0.9},"content_text":"Simply Good Foods reported a slight growth hiccup in Q4, caused by Quest's temporary supply chain issues. The underlying performance stayed consistent.The OWYN acquisition's integration boosts Simply Good Foods' earnings growth prospects with better distribution and cost synergies.The Quest brand's initiatives should also drive good in FY2025, in part mitigated by a continued weak Atkins brand.The SMPL stock has some upside, but I still believe that the undervaluation falls within a margin of safety.   MurzikNata/iStock via Getty Images The Simply Good Foods Company (NASDAQ:SMPL), the primarily protein-based nutritional snack seller under the Atkins, Quest, and OWYN brands, reported the company’s fiscal Q4 results on the 24th of October. The company showed a stable quarter, slightly disturbed by temporary Quest supply chain issues, and expects the stable growth performance to continue at a fair level in FY2025 as the now-completed OWYN acquisition is being integrated into Simply Good Foods. In my previous article on the stock, “Simply Good Foods: Valuation Is Attractive Ahead Of Q3 Earnings”, I stayed at a Hold rating with the stock’s valuation reaching more attractive levels. After the article was published, the stock has now lost -9% of its value compared to an S&P 500 return of 6% since the 25th of June. My Rating History on SMPL (Seeking Alpha) Simply Good Foods’ Q4 Report Was Stable Excluding Quest’s Supply Disruption Simply Good Foods’ fiscal Q4 report came with nearly expected financials – the revenues of $375.7 million, up 17.2% year-on-year in part due to an extra week and the OWYN acquisition, beat Wall Street’s expectations by $2.4 million. Underneath, revenue growth was slower at just around a 0.4% like-for-like growth when excluding an extra week in the fiscal Q4, as the Quest brand had temporary chip supply constraints. By brands’ underlying retail performances, Atkins again underperformed with a -5% retail takeaway decline, while the Quest brand gained market share with a 10% growth and the acquired OWYN brand rapidly gained shelf space with a 81% retail takeaway growth. While the company has presented an Atkins revitalization plan, the brand still underperformed very clearly in the quarter.   SMPL Q4 Investor Presentation The adjusted came in at $0.50, in line with Wall Street estimates and up $0.05 year-on-year with a mostly consistent margin level. Due to some cost deflation, the gross margin expanded by 1.2 percentage points to 38.8%, but the adjusted net income margin ultimately declined slightly due to operating cost expansion from the OWYN acquisition and marketing initiatives. The GAAP operating margin still stayed at a fairly stable 15.9% level. Overall, the quarter showed stable and expected financials when excluding the effect from Quest’s temporary supply chain issues that have now mostly subsided going into FY2025. The Completed OWYN Acquisition & Quest Initiatives Boost Growth Outlook Going forward into FY2025 and beyond, the recently acquired OWYN brand looks to boost Simply Good Foods’ growth – in April, the brand was expected to generate around $120 million in sales in calendar year 2024, and Simply Good Foods now expects the brand’s growth to continue at a good level with anticipated OWYN sales of $135-145 million in FY2025. The fiscal year ends in August 2025. The Quest brand is also expected to have good growth in FY2025 with a chips supply chain recovery, new product launches, and a full year of advertising investments, leading to a total revenue growth guidance of 8.5-10.5%. The adjusted EBITDA is expected to have slower FY2025 growth of 4-6% due to some expected cost inflation and OWYN’s slightly lower margin level. The growth also accounts for a shift from a 53-week fiscal year into a 52-week fiscal year, causing a small comparability hiccup – overall, the organic performance is expected to stay within the fair 4-6% annual growth target despite considerably slowing food inflation, highlighting stable prospects going forward. The completed OWYN acquisition now positions Simply Good Foods for good earnings growth even after FY2025 – while the brand will initially have weaker margins than the company’s other brands, as the acquisition is integrated into Simply Good Foods, the company’s margins should increase back after FY2025. Combined with Simply Good Foods’ distribution capabilities that the company plans to leverage to expand OWYN further, the acquisition very clearly bolsters the earnings growth outlook. Atkins' Future Remains Uncertain The poorly performing Atkins brand is going through a revitalization plan, where Simply Good Foods is renovating the brand’s product line and considerably changing its marketing – the brand’s clear underperformance is being addressed through a number of strategic initiatives. Due to the brand’s planned Canadian exit and domestic distribution losses, the plan is expected to cause further revenue losses in FY2025. While there are several ongoing initiatives for a brand turnaround, I believe that investors should still expect the Atkins brand to show weak growth going ahead – the rebranding and SKU replacement isn’t guaranteed to work on retail shelves, and I suggest waiting for positive retail sales signals that the short-term outlook isn’t likely going to include. Yet, despite a weak Atkins, Simply Good Foods’ FY2025 guidance underlines the company’s good total growth through the two other brands. Updated Valuation I updated my discounted cash flow [DCF] model for an updated fair value estimate for SMPL’s stock. In the DCF model, I now estimate slightly lower growth for FY2024 than previously due to planned weakness in the Atkins brand due to its revitalization plan, as well as due to slowing food inflation. Afterwards, I again estimate good growth, contributing to a total revenue CAGR of 4.4% from 2023 to 2033 and 2.5% perpetual growth afterwards. With the ongoing integration of OWYN, Simply Good Foods looks to lose margins in FY2025 but should gain the margin level back in FY2026 and forward. I again estimate the EBIT margin to reach 18.0%, and for the cash flow conversion to remain good. DCF Model (Author's Calculation) The estimates put Simply Good Foods’s fair value estimate at $41.98, 25% above the stock price at the time of writing – the stock is now valued for very moderate growth, posing some upside with the good OWYN growth prospects. Yet, the undervaluation falls within a moderate margin in my opinion, not being deep enough for a very clearly outsized risk-to-reward investment. The fair value estimate is nearly the same as my $42.02 estimate previously. CAPM The DCF model uses a weighted average cost of capital of 7.46%, down from 7.75% previously. The used WACC is derived from a capital asset pricing model:   CAPM (Author's Calculation) In Q4, Simply Good Foods had $9.4 million in interest expenses, making the company’s interest rate 9.43% with the current amount of interest-bearing debt. I now estimate a slightly lower 10% long-term debt-to-equity ratio. To estimate the cost of equity, I use the 10-year bond yield of 4.25% as the risk-free rate. The equity risk premium of 4.11% is Professor Aswath Damodaran’s estimate for the US, updated in July. I have kept the beta estimate at 7.46%. With a liquidity premium of 0.25%, the cost of equity stands at 7.50% and the WACC at 7.46%. Takeaway  Simply Good Foods’ growth outlook stands good after a relatively stable Q4, slightly disturbed by Quest’s supply chain issues. The OWYN brand is being integrated with anticipated cost savings and distribution growth gains, and Quest is posed to continue gaining market share as the supply chain issues subside. The underperforming Atkins brand slightly worsens the company’s growth outlook, but the two other brands ultimately look to gain more sales than Atkins loses. With the stock’s undervaluation still falling within a margin of safety, albeit a wider one, I remain with a Hold rating for Simply Good Foods.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.2","shortVersion":"4.29.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2478131516"}