Simply Good Foods (NASDAQ: SMPL)- one of the most famous manufacturers of low-carbohydrate products, used for dietary nutrition. Truth, The company operates only in North America and, apparently, and will continue to curtail activities outside of it.
About company
American company Simply Good Foods from Denver, Colorado, specializes in the production of dietary and sports nutrition. The range consists of diet bars, ready-to-drink cocktails, sweet and savory snacks, confectionery, sold under the brand names Atkins, Atkins Endulge и Quest.
In Russia, the shares of the group of companies are traded on the SPb-Exchange under the ticker SMPL and are quoted in US dollars with 31 October 2019. Medium-term share dynamics are positive, since mid-2020, there has been a “post-COVID” growth.
History of the group of companies. The forerunner of the group of companies is Complementary Formulations, created in 1989 by cardiologist Dr. Robert Atkins, author of the low carb diet. In his opinion, exactly carbohydrates, found in abundance in fast food, driving Americans to obesity and heart problems. Initially, the company was engaged in the distribution of low-carb products by mail..
In 1997, a line of the company's first products with artificially low carbohydrates appeared., Atkins Advantage, chocolate bar with macadamia nut flavor. Also appeared the first Atkins cocktails with vanilla and chocolate flavors. In 1998, the company was renamed Atkins Nutritionals. Product line expanded even further. In 1999, the Atkins Foundation was founded to fund scientific research..
In 2012, the company launched the first mobile carb tracking app.. In the same year, she began to produce low-carb frozen products.. Cooperation with Chef'd began in 2016, to launch a low carb food solution and home delivery service. In the same year, the production of food sets for a week began., and also signed an agreement with Bellisio Foods, which began to manufacture and sell products under the Atkins brand.
In 2017, Conyers Park and Atkins Nutritionals merged to form Simply Good Foods.. She held an initial public offering in the same year., and acquired Quest Nutrition in 2019, due to which the group of companies has expanded the range of various low-carbohydrate snacks for a healthy diet.
2020 set a record for TV ad spend. Massive TV advertising campaign continued in 2021.
Composition of the group of companies. The group includes 16 companies, most of which are located in the US state of Delaware. There are foreign subsidiaries in Canada, The Netherlands, Spain, Uk, australia, New Zealand. The group's strong presence in Delaware is due to the state's attractive business environment.. The group includes two more groups of second-tier companies: Atkins и Quest.
Shareholders and key figures. The share capital of the group is held primarily by institutional investors and mutual funds, and only a small part - to retail investors. This situation is generally standard for American companies..
The largest shareholder is BlackRock, the world's largest investment company in terms of managed assets. This fact, undoubtedly, contributes to the investment attractiveness of the group, since such an institutional investor would certainly not hold such an amount of doubtful assets.
Joseph E. Scalzo, chief executive officer and president, served as CEO and President of Atkins prior to forming Simply Good Foods, as well as a member of its board of directors since February 2013.
Prior to joining Atkins, Scalzo was Director of Earthbound Farm from 2010 to October 2013.. Major companies, where did Skalzo work, were food. He was also a top manager for Coca-Cola and Focus Brands.. Education - Bachelor in Chemical Engineering, Notre Dame Catholic University.
SMPL is most associated in the world not so much with the current first person, how many with the founder of her predecessors - Robert Atkins.
Atkins, overweight, being a doctor of cardiology, developed a diet, underlying the products of the group of companies, for myself. From other mid-range diets 20 century it was different in that, which strictly limited not so much fat intake, how many carbohydrates, in particular sugar, refined wheat flour and other simple carbohydrates. Atkins himself actually lost weight as a result of his diet.. At various times, the faces of the company were Kim Kardashian, Sharon Osbourne and other stars, following his diet.
Geography of supplies. Sales outside of North America are rather poor - only 3% as of 2020. Australia accounts for the bulk of international sales, New Zealand and the Netherlands. Such limited international sales with the existence of subsidiaries abroad can be considered the weak side of the group of companies..
What he earns
Products and services. The products of the group of companies are represented by the brands Atkins and Quest.
The main products of the Atkins group of companies:
- Nutritious diet bars with a high content of protein and fiber.
- Atkins Endulge Confectionery. Desserts without added sugar.
- Frozen food. Manufactured by Bellisio Foods under the Atkins brand name. Distributed almost exclusively in North America, excluding online sales.
- Recipes. Provided free of charge as part of a marketing strategy.
The main products of the Quest group of companies:
- Protein bars.
- Biscuit.
- Protein Chips.
- Frozen pizza with an extra thin layer of dough.
- Protein shakes.
Most of the products are copies of products to some extent., popular in the Anglo-Saxon states and Mexico. Products are offered with a set of flavors expanded compared to traditional analogues., but with a fundamentally different ratio of protein, fats and carbohydrates and with the inclusion of vitamins and trace elements. They can be used for dietary and sports nutrition without abandoning your usual tastes and stereotypes of food consumption.. This, undoubtedly, the positive side of the group, attractive to investors.
Product sales. In the structure of sales, most of the products are branded Atkins, which in terms of assortment is in many respects similar to the products of the Quest brand.
Atkins sales of 529 838 thousand dollars per financial year, Quest brand sales were 286 803 thousand dollars per fiscal year. Atkins sales up slightly compared to 2019. At the same time, Quest brand products are sold only in three countries in North America..
This indicates a weak business diversification, not only geographically., but also in terms of brands. Quest products have no fundamental differences from Atkins products, Yes, even Quest is inferior to her in sales: new owners, after taking over the brand for a year, were unable to promote it outside of North America.
These are the weaknesses of the company., that could damage the attractiveness of its shares to investors. However, Quest, if we compare its dynamics with that, what was before the takeover, showed very good results, especially in 4 Fiscal Year 2021 Quarter in Protein Bars. This somewhat neutralizes the listed disadvantages..
Financial indicators. IN 4 FY2021 Quarter All metrics are up significantly from the same period in the previous Fiscal Year. It can be interpreted as follows: the demand for healthy food has increased over this period, since the inhabitants of the main region of consumption of products, North America, take more care of their own health amid the coronavirus outbreak.
But the dynamics of financial indicators for the entire 2021 US fiscal year no longer causes such optimism: net income and basic earnings per share even declined. This can be attributed primarily to the economic crisis in the region in the reporting American fiscal year.. Even Mexico, which belongs to emerging markets and demonstrates traditionally more buoyant economic growth, could have a record high poverty rate this year, what, certainly, is already reflected in the purchasing power of the population.
One can conclude, that the drop in net profit is not related to the dynamics of the expenses of the group of companies in 4 Fiscal Year 2021 and Quarter.
Quarterly financials, one thousand dollars
| 4к2020 | 4к2021 | The change | |
|---|---|---|---|
| EBITDA | −20 894 | 38 922 | 286,28% |
| Profit before tax | −34 202 | 27 131 | 179,33% |
| Net profit | −39 290 | 18 246 | 146,44% |
| Basic earnings per share | −0,41 $ | 0,19 $ | 146,34% |
| Diluted earnings per share | −0,41 $ | 0,19 $ | 146,34% |
| Operating profit | 24 832 | 40 825 | 64,40% |
| Adjusted EBITDA | 37 023 | 48 473 | 30,93% |
| Gross profit | 88 102 | 104 457 | 18,56% |
Annual financial indicators, one thousand dollars
| 2020 | 2021 | The change | |
|---|---|---|---|
| EBITDA | 126 268 | 130 507 | 3,36% |
| Profit before tax | 78 964 | 80 860 | 2,40% |
| Net profit | 65 638 | 40 880 | −37,72% |
| Basic earnings per share | 0,70 $ | 0,43 $ | −38,57% |
| Diluted earnings per share | 0,35 $ | 0,42 $ | 20 % |
| Operating profit | 78 224 | 173 675 | 122,02% |
| Adjusted EBITDA | 153 912 | 207 273 | 34,67% |
| Gross profit | 324 328 | 409 766 | 26,34% |
Annual expenses, one thousand dollars
| 2020 | 2021 | The change | |
|---|---|---|---|
| Sales and marketing | 94 469 | 112 928 | 19,54% |
| General and administrative expenses | 106 251 | 106 181 | −0,07% |
| Exports and depreciation | 15 259 | 16 982 | 11,29% |
| Business operating costs | 27 125 | — | — |
| Impairment loss | 3000 | — | — |
| General operating expenses | 246 104 | 236 091 | −4,07% |
Expenses for 4 neighborhood, one thousand dollars
| 4к2020 | 4к2021 | The change | |
|---|---|---|---|
| Sales and marketing | 24 484 | 30 757 | 25,62% |
| General and administrative expenses | 31 290 | 28 536 | −8,80% |
| Exports and depreciation | 4271 | 4339 | 1,59% |
| Business operating costs | 225 | — | — |
| Impairment loss | 3000 | — | — |
| General operating expenses | 63 270 | 63 632 | 0,57 |
Plans and prospects
The company predicts, what, unless mobility in the workplace improves significantly, and logistics costs will continue to rise, growth in financial performance expected in 2022 US fiscal year.
Net sales up 8-10% YoY FY 2021 with marginally increased competition driven by European low-carb entry into the North American market.
Reduced gross margins due to supply chain cost inflation, which were in the 2021 US fiscal year, should be offset by price increases, started in September, and cost saving initiatives. FY 2022 Adjusted EBITDA to Increase Slightly More, than the growth rate of net sales. Adjusted diluted earnings per share will increase more, than Adjusted EBITDA.
Supposed, that in the US fiscal year 2022, marketing spending will increase in proportion to sales growth. Right now in Ethereum a new ad campaign for Atkins is released with actor Rob Lowe - this is the face of the company. The ad will mainly focus on protein bars and healthy eating in general.. In the near future, television advertising will appear at the Quest group of companies.
According to top managers of the company, growth in the first half of 2022 will be stronger, than in the second. What is it objectively related to?, they don't explain, but, apparently, it may be dictated by an impulse for a healthy lifestyle, received due to the general coronaphobia in the countries of North America. It is planned to reduce the cost of advertising chips and peanut smoothies, since these products sold out so well in the fourth quarter.
The growth of the sports and dietary nutrition market will contribute to the dynamics of the investment attractiveness of the group of companies, because it is expected, that the sports nutrition market will reach $26.11 billion by 2026, increasing by 10,09%. North America, where the group mainly works, is the largest sports nutrition market, and in 2020 it was 53,45% of the global volume. Government Initiatives Help Increase the Number of Gyms, wellness centers and events, sports related, driving demand for personalized food products in the region.
Risks
Not so helpful. The main risk is not macroeconomic, and medical. Low-carbohydrate nutrition is not supported by all nutritionists.. The pancreas and kidneys are overloaded, there is a decrease in cognitive function, irritability. Athletes, losing weight on a low carb diet, lose strength, endurance and reaction. Preservation of muscle mass by sports doctors has not been proven. The group of companies neutralizes this risk by, that carbohydrates are present in the products in small quantities, It is also enriched with vitamins and microelements..
Logistics is getting more expensive. Risks, caused by the pandemic, do not decrease, at least in North America, where the group of companies mainly operates. You can expect, that the continuation of the pandemic will continue to increase the cost of the supply chain and increase the cost of production - this may lead to a decrease in net profit. The risk is leveled by, that the pandemic has caused, to varying degrees, an increase in the demand for healthy food.
Concentration. The lack of territorial differentiation can also be attributed to the risks. The group abandoned the European brand SimplyProtein and sold it to Welness Natural, which indicates that, that foreign sales for the company are non-core.
Continued concentration of business in North America is not the best solution. Vice versa, should go to emerging markets, where improved internet access could theoretically improve the prospects for online product sales.
conclusions
Simply Good Foods is well positioned for stocks upside due to positive outlook for next year.
Investor optimism may be driven by a successful takeover of the Quest group of companies, which, although significantly inferior in sales to the Atkins group, but increasing financial results. In addition, the Atkins diet, on which Quest also works, - brand, which will always be popular, unless there are objective studies about its unequivocal irreparable harm to health.
Financial results for 2021 American financial year showed a decrease in such a key indicator, as net profit, moreover, in the future, the forecasts of the company itself in terms of development can be adjusted in the negative direction, if North America fails to cope with the coronavirus: deliveries will rise in price.
Greatest risk, Most likely, associated with the above-mentioned medical evaluation of manufactured products. The group is clearly trying its best to mitigate this risk., adding various useful substances to products, but a diet with a carbohydrate content reduced to the lowest possible minimum will still cause a lot of complaints from specialists.
The company's shares can be considered promising, but long-term sustainability is rather average, than high.
