Обзор Simply Good Foods: diet food in North America

Обзор Simply Good Foods: диетическое питание в Северной Америке

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 assortment 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-like" growth.

History. The predecessor of the group of companies is Complementary Formulations, created in 1989 by cardiologist Dr. Robert Atkins, the author of the low carb diet. In his opinion, exactly carbohydrates, abundant in fast food, drive Americans to obesity and heart problems. The company was originally a mail-order distribution of low-carb products..

In 1997, a line of the company's first products with artificially low carbohydrates appeared., Atkins Advantage, chocolate bar with macadamia nut flavor. The first Atkins vanilla and chocolate flavored cocktails also appeared.. 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 app to track carbohydrate levels.. In the same year, it began to produce low-carb frozen products.. In 2016, cooperation with the Chef'd company began, to launch a low-carb food solution and home delivery service. In the same year, production of weekly food sets began., and also an agreement was signed 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 made an initial public offering that same year., and in 2019 acquired Quest Nutrition, due to which the group of companies has expanded the range of various low-carbohydrate snacks for a healthy diet.

Record for TV ad spending in 2020. Massive TV ad 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 wide presence of the group's companies in Delaware is due to the attractive business conditions in this state.. The group includes two more groups of second-tier companies.: Atkins и Quest.

Обзор Simply Good Foods: диетическое питание в Северной Америке

Shareholders and key figures. The group's share capital 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 assets under management. This fact, certainly, plays to the advantage of the investment attractiveness of the group, since such an institutional investor would certainly not hold that amount of doubtful assets.

Joseph E. Scalzo, CEO and President, Prior to founding Simply Good Foods, served as CEO and President of Atkins, as well as a member of its board of directors since February 2013.

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Prior to joining Atkins, Skalzo served as 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 much 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 severely limited not so much fat intake, how many carbohydrates, in particular sugar, refined wheat flour and other simple carbohydrates. Atkins himself, as a result of his diet, really lost weight.. At various times, the faces of the company were Kim Kardashian, Sharon Osborne and other stars, following his diet.

Geography of supplies. Sales outside of North America are rather poor - only 3% as of 2020. The bulk of international sales are in Australia, 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 makes money

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:

  1. High Protein & Fiber Nutritional Diet Bars.
  2. Atkins Endulge Confectionery. Desserts without added sugar.
  3. Frozen food. Manufactured by Bellisio Foods under the Atkins brand name. Distributed almost exclusively in North America, excluding online sales.
  4. Recipes. Provided free of charge as part of a marketing strategy.

The main products of the Quest group of companies:

  1. Protein bars.
  2. Cookies.
  3. Protein Chips.
  4. Frozen pizza with extra thin layer of dough.
  5. Protein shakes.

Most of the products to one degree or another copy products, popular in the Anglo-Saxon states and Mexico. The products are offered with a wider range of flavors compared to traditional counterparts., but with a fundamentally different protein ratio, fats and carbohydrates and with the inclusion of vitamins and minerals. They can be used for dietary and sports nutrition without giving up their usual tastes and food consumption stereotypes.. it, certainly, the positive side of the group, attractive to investors.

Product sales. In the sales structure, the majority is made up of Atkins brand products., which in terms of assortment is in many ways 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 financial year. Atkins sales are up marginally compared to 2019. However, Quest brand products are sold in only three North American countries..

This indicates a weak diversification of business, not only geographically., but also in terms of brands. Quest products are not fundamentally different from Atkins products., and even Quest is inferior to her in sales: new owners after taking over the brand for a year failed to promote it outside of North America.

These are the weaknesses of the company., which could damage the attractiveness of its shares for 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 performance. 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 grown over this period, since the inhabitants of the main region of consumption of products, North America, began to take care of their own health more against the background of the postponed coronavirus.

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But the dynamics of financial indicators for the entire 2021 American financial year no longer arouses 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 financial year.. Even Mexico, which belongs to emerging markets and demonstrates traditionally more vibrant economic growth, May have a record high poverty rate this year, what, sure, already affects 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%
Export 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%
Export 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, if the mobility of the population in the workplace does not significantly improve, and logistics costs will continue to increase, Fiscal 2022 is expected to increase in financial performance.

Net sales are up 8-10% YoY FY2021 with modest competition from European low-carb food manufacturers entering North America.

Reduced gross margins due to supply chain cost inflation, which were in the 2021 American fiscal year, should be offset by price increases, which began in September, and cost saving initiatives. Adjusted EBITDA for FY2022 will increase slightly more, than the growth rate of net sales. Adjusted diluted earnings per share will increase more, than Adjusted EBITDA.

It is assumed, that in FY2022 marketing costs will grow in proportion to sales growth. Now in Ethereum a new ad campaign for Atkins is released with actor Rob Lowe - this is the face of the company. Ads will focus primarily on protein bars and healthy eating in general.. In the near future, a television advertisement will appear at the Quest group of companies.

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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 connected with, they don't explain, but, apparently, it may be dictated by an impulse for a healthy lifestyle, obtained due to the general coronaphobia in the countries of North America. It is planned to reduce advertising costs for chips and peanut shakes, since these products were already selling well in the fourth quarter.

The growth of the sports and diet food market will contribute to the dynamics of the investment attractiveness of the group of companies, as 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, stimulating demand for personalized food in the region.

Risks

Not that useful. The main risk is rather not macroeconomic, and the medical. Low-carb diets are not supported by all dietitians. 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 the products contain small amounts of carbohydrates, and it is also enriched with vitamins and minerals.

Logistics is getting more expensive. Risks, caused by the pandemic, do not decline, 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. Lack of territorial differentiation can also be attributed to risks. The group ditched the European SimplyProtein brand and sold it to Welness Natural - this suggests that, that foreign sales for the company are non-core.

Concentrating further business in North America is not the best solution. On the contrary, should go to emerging markets, where improving the situation with 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 is increasing financial results. Plus the Atkins diet, according to which Quest also works, - brand, which will always be popular, unless objective research appears on 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 does not cope with the coronavirus: deliveries will rise in price.

Greatest risk, Most likely, associated with the above-mentioned medical assessment 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.

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