ANNIE'S INC BNNY S
June 08, 2012 - 10:47am EST by
banjo1055
2012 2013
Price: 34.90 EPS $0.82 $0.99
Shares Out. (in M): 18 P/E 43x 35x
Market Cap (in M): 624 P/FCF NA NA
Net Debt (in M): 2 EBIT 24 29
TEV: 626 TEV/EBIT 26x 21x
Borrow Cost: NA

Sign up for free guest access to view investment idea with a 45 days delay.

  • Food Manufacturer
  • Recent IPO
  • Private Equity (PE)
 

Description

 

This will be a fairly straightforward summary given the simplicity of the idea.  It is admittedly a valuation short, but with a decent understanding of why it has reached its current heights, and a business simple and predictable enough that it seems unlikely to surprise fundamentally by a wide margin, despite its potential for growth. 

 

Annie’s Inc. (BNNY) is fairly well-known to anyone with children, and many others, for their organic Mac & Cheese in a box (organic Kraft) and Cheddar Bunny and Bunny Fruit snacks.  The bull case is that they will transition their product placement from the organic section of supermarkets to the “normal food” aisle, and that they will “innovate” by introducing new categories.  I see ample similarity to Smart Balance, which has tried to leverage its brand’s initial success in margarine/spread to compete in other categories including milk, peanut butter, etc.  SMBL was always supposed to get bought, but with a fairly demanding public market valuation, it hasn’t happened, and instead has become an acquirer. 

 

BNNY went public a few days before April Fool’s Day, 2012.  The company originally filed to offer 5m shares with a $14 to $16 range, subsequently raised to $16 to $18, and finally priced at $19.  The stock then proceeded to rise by 89% its first day of trading, and it remains in this general vicinity (+84%), making it 2012’s hottest IPO by this measure.  How underwriters could mis-price a company this simple, by this much, seems absurd.  In this case, I do not believe the underwriters mis-priced the deal at all. 

 

Solera Capital, a middle market private equity firm run by Molly Ashby, has been around since 1999 and according to its website, “is driven by our belief in the power of business to shape the world and inspire solutions. We are guided by a set of core values that include diversity, honesty, collaboration and mentorship.”  Ashby is a veteran of JP Morgan’s private equity arm and seems generally well regarded.  Her firm is staffed with over 50% women, rare in private equity, and many of her investments have been in companies with minority or women founders or management.  Otherwise, it seems like most middle-market private equity firms in terms of objectives and approach.

 

Solera invested in Annie’s in 2002, and at the time of the IPO, owned over 90% of the company at an effective cost of under $6 per share.  In the IPO, 5.75m shares were sold, of which less than 1m were primary shares.  Net of offering fees, the company raised only about $11 million for itself in the deal – this was clearly a liquidity event for Solera.  Solera sold 4.4m shares for net proceeds of $78 million, which added to its previously earned dividends and management fees of about $30 million, resulted in the recoupment of more than 100% of its cumulative investment in the company (around $80m).  At today’s price, Solera still has approximately $340m on paper of unrealized gains through its ownership of 9.8 million shares, making the investment a home run by any metric. 

 

Some BNNY numbers:

 

BNNY Equity   $34.90                  
Basic Shares   16.6                  
Dil Shrs from Warrant 0.1                  
Dil Shrs from Options 1.2                  
  Diluted Shares   17.9                  
                         
Market Cap   623.9                  
Debt     2.5                  
Cash     (0.6)                  
  TEV     625.8                  
                         
                         
      Historical FYE 3/31   Projected FYE 3/31
      2007 2008 2009 2010 2011 2012   2013 2014 2015
Sales     65.6 76.8 93.6 96.0 117.6 141.3   166.0 195.1 229.2
  growth       17.1% 22.0% 2.5% 22.5% 20.1%   17.5% 17.5% 17.5%
                         
Gross Profit   20.9 25.5 28.8 32.9 45.8 55.4   65.5 77.5 91.6
  Gross Margin   31.9% 33.3% 30.7% 34.3% 39.0% 39.2%   39.5% 39.7% 40.0%
                         
SG&A     24.7 23.9 25.6 24.9 30.3 35.6   41.4 48.2 56.0
  % of Sales   37.6% 31.1% 27.3% 26.0% 25.7% 25.2%   24.9% 24.7% 24.4%
                         
EBIT     (3.7) 1.7 3.2 8.0 15.5 19.8   24.1 29.3 35.6
  Margin     (5.7%) 2.2% 3.4% 8.3% 13.2% 14.0%   14.5% 15.0% 15.5%
                         
Adj EBITDA   (3.0) 2.7 4.4 9.3 16.6 21.2   26.8 32.3 38.9
Less: Stock-based Comp 0.3 0.7 0.8 0.9 0.4 0.5   1.0 1.0 1.0
Real Adj EBITDA   (3.3) 2.0 3.6 8.4 16.2 20.7   25.8 31.3 37.9
  Margin     (5.1%) 2.7% 3.8% 8.7% 13.8% 14.6%   15.5% 16.0% 16.5%
                         
Normalized Taxes 40% (1.5) 0.7 1.3 3.2 6.1 7.8   9.5 11.6 14.1
Adj Net Income (unlevered) (2.3) 1.0 2.0 4.8 9.4 12.0   14.6 17.7 21.5
Adj EPS (current share count) ($0.13) $0.06 $0.11 $0.27 $0.53 $0.67   $0.82 $0.99 $1.21
P/E             66x 52x   43x 35x 29x
                         
EV/Sales             5.32x 4.43x   3.77x 3.21x 2.73x
EV/EBITDA           38.7x 30.3x   24.3x 20.0x 16.5x

 

 

What is BNNY worth? 

BNNY currently trades for 4.4x LTM Sales (3.9x calendar 2012), 30x LTM EBITDA (26x calendar 2012), and a whopping 52x LTM EPS (45x calendar 2012).  In my view, the company is worth less than $20 per share (2.5x LTM sales, 17x LTM EBITDA) to an acquirer.  This reflects over 1.5x Sales and 9x EBITDA on a generous forecast for FYE March 2015, assuming uninterrupted high teens revenue growth as well as operating margin expansion to 15.5% from 14.0%.

 

BNNY is growing, but it also is showing signs of its core products being tapped out.  After promoting mac & cheese last year, presenting a tough comp this year, they seem to be pinning their hopes for growth more on frozen pizza.  Smart Balance just bought Udi’s, a gluten-free specialist also active in frozen pizza, for 1.7x Sales ($103m net purchase price for $60.9m sales).  Udi’s doubled sales last year, so this is at least as juicy a growth story coming off a lower base, vs. BNNY’s LTM sales of $141m.  1.7x Sales implies just $14 for BNNY… which corroborates the initial filing range.  Smart Balance also recently bought Glutino for 1.2x Sales, which would imply just a $10 stock price for BNNY.  At 8x LTM EBITDA for BNNY, I’ll call $10 too cheap, but it’s not crazy either.  SMBL itself recently attracted a 13D filing from Gabelli and rose considerably, so call it “half in play”… and it is valued at < 1.7x Sales (pro forma for Glutino and Udi’s).  Even if SMBL stock doubles from here, and we use the implied sales multiple of 2.8x, we get $22 for BNNY.  Now SMBL has lower margins, but using consensus estimates (and conservatively assuming they include Udi’s, which they probably don’t), it seems SMBL trades for 14x 2012 and 12x 2013 EBITDA… implying a $20-$21 stock for BNNY.  Enough playing with numbers, but it’s pretty clear that the current price is crazy when we look at recent, relevant private and public market valuations.  Or we could step back and think about BNNY on the basis of absolute valuation – if you managed a traditional food producer with flagging revenue growth and desperately wanted to augment your position in the organic segment, would you buy Annie’s, and if so, for what price? 

 

What is wrong with Annie’s? 

Here is the weakest part of my thesis.  I posted DMND as a short in spring 2010 because I thought something was very wrong.  I don’t claim to have done anywhere near as much ground research into BNNY, nor would I expect to come up with anything remotely as interesting if I did.  The business seems fine for what and where it is in its lifecycle… but not without challenges.  The following come from a first cut.  I will plan to post an update if I find anything incremental/material/contradictory (but I am not promising anything). 

 

First, everyone I speak to says organic sourcing is currently a pain and limits revenue and profit growth.  Maybe the organic food supply will catch up, but in the near term, this presents execution risk for BNNY.  One CEO of a ~$2 billion food company told me they would have no interest in a company like BNNY or in aggressively pursuing the organic category … “just not worth the hassle.” 

 

Second, Annie’s is only a couple of steps removed from a start-up.  They have under 80 employees, and they just installed ERP systems.  They plan to hire everywhere (marketing, supply chain, finance, accounting), capping any hopes for meaningful margin expansion.  Maybe it will all go off without a hitch.  It better. 

 

Third, they are “capital light”, meaning they completely outsource their manufacturing.  Sounds great until your contract manufacturers drop the ball and can’t meet shipment deadlines, or get greedy on price during commodity fluctuations, or go lax on food safety, etc. etc. etc.  If you’re making a “premium” product, it seems you would want to control the process.  Again, they might be ok here, but this presents another way for them to disappoint.  The stock price doesn’t allow for disappointment. 

 

Fourth, their products really aren’t good for you – this seems to be in extreme contrast to the corporate purpose “to cultivate a healthier, happier world by spreading goodness through nourishing foods, honest words and conduct that is considerate and forever kind to the planet.”  Never mind all the other fun we could have with that one.  I conducted the following nutritional steel cage matches:

 

- Annie’s Mac & Cheese vs. Kraft Original (KFT)

- Annie’s Cheddar Bunnies vs. Pepperidge Farm Goldfish (CPB)

 

Surprisingly, the products are almost identical in standardized nutritional content, with Annie’s actually slightly worse for you by several key metrics.  So for the extra money, you are getting "organic"… but not healthy.  Before adding butter/milk, the mac n cheese has a quarter of your daily sodium (and that’s if you only eat a “serving” of 40% of the box).  50 Cheddar Bunnies have 6-7g of fat, vs. 5g of fat in a serving of 55 Goldfish.  Also, the fact that the numbers are so close across the board suggests to me that the ingredients/recipes/formulas are very close… is Annie’s essentially swapping regular flour/cheese/milk for organic, slapping a cute bunny on the box, and calling it a much more differentiated product than it really is? 

 

Fifth, I don’t fully buy into their policy of “honest words”.  Small examples include the following:

 

They disclose that once prepared, their mac n cheese has no more fat, sodium or other bad stuff than the box contents, whereas Kraft admits their offering balloons in fat content (5% to 29% RDA) once you add the recommended butter and milk.  I guess you could make Annie’s with water… sounds delicious. 

 

On a different front, they went out of their way to disclose in their IPO prospectus that their revolver balance had declined from $13.3m at 12/31/11 to $11.2m at 3/22/12, and even adjusted for this in their Pro Forma Capitalization table.  Yet they reported Q4 (3/31/12) earnings on June 6, and the 3/31/12 revolver balance was back up to 12.8m.  Small potatoes, but was that favorable 2.1m adjustment really necessary, when 1.6m of it came back in the course of the next nine days?  I call that a little cheesy, and not necessarily "honest conduct". 

 

Splitting hairs, but on the earnings call they guided to 17.8m average shares outstanding this year.  Using the treasury method and current share price, I get 17.9m.  But I do get their number if the stock falls into the high $20’s… maybe that’s the difference :)  And this is before new stock compensation, which they warn will ramp up this year. 

 

So, no smoking guns here, but clearly some yellow flags that both suggest the potential for mis-steps, as well as question the company's credibility aroud the margins with both its customers and new shareholders. 

 

Why Does BNNY Trade Where it Does?

I think it’s important to try and understand why a mis-pricing exists, rather than assume we aren’t missing anything.  In this case, there are some general aspects which are obvious – an attractive growth story on the surface, easy to understand, familiar products, a small float, a hot IPO market for consumer brands – these factors all helped get the ball rolling.  But two widely distributed media outlets – CNBC and the WSJ – perpetuated the momentum with some really bad math. 

 

First, Jim Cramer adopted BNNY out of the gates.  On April 2, he claimed the company had notched “150% EPS growth last year” and traded for "23x earnings, cheaper than HAIN at 25x".  His recommendation to buy despite the post-IPO run-up was fairly intense, complete with product placement (did the company supply the goods, and if so, are they complicit in endorsing his “honest words”?)

 

http://video.cnbc.com/gallery/?video=3000082019&play=1

 

I wrote him the following morning on Bloomberg to let him in on a little secret…

 

The company recognized a significant tax reversal in fiscal 2011 (ended 3/31/11), adding $5.7m to pre-tax income.  This is plainly disclosed in the IPO prospectus.  They have also disclosed that their effective tax rate is normally 39.5%.  So, instead of adding $5.7m to their 2011 pre-tax income, we should actually be subtracting $6.1m.  I have also added back Solera’s discontinued management fee and interest expense on since-retired debt, to be fair.  After these adjustments, net income wasn’t $20m – far from it, it was $9.4m.  And as for P/E, it was in the 50's, more than double that of HAIN.  

 

He didn’t respond directly, but the next night he did backtrack pretty heavily on his show (ostensibly caused by the $4 gain in the stock, not by any newfound appreciation for that annoying concept called accuracy).  He admitted that BNNY wasn't as attractive at $38 as it was at $34 in a fairly protracted retracement of the prior evening’s endorsement:

 

http://video.cnbc.com/gallery/?video=3000082019&play=1

 

And by May 12, he affirmed he liked HAIN better, although I doubt anyone was listening any more:

 

http://www.cnbc.com/id/47512247

 

So I’m not sure if this explains why the stock stays in the $30’s, but I think it helps explain how it held up initially, sheds light on the constituency of some of BNNY’s newer shareholders, and reflects the poor analysis and “who cares – it’s going up, baby” outlook buttressing the silly valuation. 

 

The WSJ had some problems with the numbers as well.  On April 13, they wrote in a piece called “The Buyout Brain Behind Annie's IPO”: “Profit climbed to $20.2 million in 2011, up from $6 million in 2010”.  Really?  This wasn’t a quick blurb, but a full feature article.  I contacted the journalist, and their response implied they were not focused on the stock, “certainly didn't intend any endorsement of the stock”, but were focused instead on Solera in what was “merely a personality profile” of Molly Ashby.  Fair enough.  Solera seems to have great PR – witness recent follow-up, a June 6 update titled “Annie’s First Quarter as Public Company a Beat” which keeps the drum beating, but neglects to opine as to why the stock traded down 3% into earnings, and another 3% following earnings, as the market rose.  Some “beat”.  I guess my biggest issue here is really that the company seems to have allowed this gross exaggeration to subsist in multiple venues.  I can’t imagine Solera wants to disabuse any prospective purchasers of the stock of the notion that BNNY is growing EPS triple digits, at least not while they have $340m wrapped up in the stock and are counting the days until they can sell more in late September 2012.  

 

 

Risks

 

Some massive food producer with flagging revenue growth desperately overpays for BNNY in a few years after BNNY has managed to more or less execute on their growth plans (but do we even lose money from here in this scenario?)

 

It’s a somewhat obvious short without a huge float… but today it only costs around 1-2% to borrow, with 7% of the float sold short… and I can’t imagine this writeup of a short idea with no “hard catalyst” is going to change that :) 

 

 

Molly Ashby is proven right after telling the WSJ about BNNY: "Every once in a while a company comes around that changes things."  IBM, MSFT, INTC, Ford, Boeing… move over (and grab yourself a frozen pizza with organic dough… just not one of the competitors’... for a taste of true innovation!) 

 

 

 

Catalysts

 

There aren’t any, but if I must…

 

Solera is almost certain to sell its shares if they trade anywhere near here.  They couldn’t wait to sell at $19.  They were ready to sell as low as $14.  They continue to hold about 59% of the basic shares outstanding.  The lock-up expires late September 2012. 

 

The share count will creep up… people are probably working off the reported 3/31/12 quarter’s number of 16.4m or the prospectus number of 16.6m, but warrants and options add another 1.23m shares and should bring the total to about 17.9m diluted shares over this June quarter, up from the 16.4m number disclosed for the March 2012 quarter.  Bloomberg seems to have 16.6m, which is the pro forma basic number from the prospectus.  Also, there are 867k shares reserved for incentives, and they said on the earnings call there would be an increase in stock-based comp this year, so I expect some additional creep as well.  

 

As of this week, we now have EPS guidance for FY 2013 of 78-82c.  The math just got a lot easier for the WSJ, CNBC et al.  Maybe BNNY “beats and raises” every quarter and ends up closer to $0.90-$1.00 this year, but even if they do, I think we’re ok from here. 

Catalyst

 

Lock-up expires late September 2012. 

 Share count will creep up.  

 P/E math just got a lot easier for the media. 

    sort by   Expand   New

    Description

     

    This will be a fairly straightforward summary given the simplicity of the idea.  It is admittedly a valuation short, but with a decent understanding of why it has reached its current heights, and a business simple and predictable enough that it seems unlikely to surprise fundamentally by a wide margin, despite its potential for growth. 

     

    Annie’s Inc. (BNNY) is fairly well-known to anyone with children, and many others, for their organic Mac & Cheese in a box (organic Kraft) and Cheddar Bunny and Bunny Fruit snacks.  The bull case is that they will transition their product placement from the organic section of supermarkets to the “normal food” aisle, and that they will “innovate” by introducing new categories.  I see ample similarity to Smart Balance, which has tried to leverage its brand’s initial success in margarine/spread to compete in other categories including milk, peanut butter, etc.  SMBL was always supposed to get bought, but with a fairly demanding public market valuation, it hasn’t happened, and instead has become an acquirer. 

     

    BNNY went public a few days before April Fool’s Day, 2012.  The company originally filed to offer 5m shares with a $14 to $16 range, subsequently raised to $16 to $18, and finally priced at $19.  The stock then proceeded to rise by 89% its first day of trading, and it remains in this general vicinity (+84%), making it 2012’s hottest IPO by this measure.  How underwriters could mis-price a company this simple, by this much, seems absurd.  In this case, I do not believe the underwriters mis-priced the deal at all. 

     

    Solera Capital, a middle market private equity firm run by Molly Ashby, has been around since 1999 and according to its website, “is driven by our belief in the power of business to shape the world and inspire solutions. We are guided by a set of core values that include diversity, honesty, collaboration and mentorship.”  Ashby is a veteran of JP Morgan’s private equity arm and seems generally well regarded.  Her firm is staffed with over 50% women, rare in private equity, and many of her investments have been in companies with minority or women founders or management.  Otherwise, it seems like most middle-market private equity firms in terms of objectives and approach.

     

    Solera invested in Annie’s in 2002, and at the time of the IPO, owned over 90% of the company at an effective cost of under $6 per share.  In the IPO, 5.75m shares were sold, of which less than 1m were primary shares.  Net of offering fees, the company raised only about $11 million for itself in the deal – this was clearly a liquidity event for Solera.  Solera sold 4.4m shares for net proceeds of $78 million, which added to its previously earned dividends and management fees of about $30 million, resulted in the recoupment of more than 100% of its cumulative investment in the company (around $80m).  At today’s price, Solera still has approximately $340m on paper of unrealized gains through its ownership of 9.8 million shares, making the investment a home run by any metric. 

     

    Some BNNY numbers:

     

    BNNY Equity   $34.90                  
    Basic Shares   16.6                  
    Dil Shrs from Warrant 0.1                  
    Dil Shrs from Options 1.2                  
      Diluted Shares   17.9                  
                             
    Market Cap   623.9                  
    Debt     2.5                  
    Cash     (0.6)                  
      TEV     625.8                  
                             
                             
          Historical FYE 3/31   Projected FYE 3/31
          2007 2008 2009 2010 2011 2012   2013 2014 2015
    Sales     65.6 76.8 93.6 96.0 117.6 141.3   166.0 195.1 229.2
      growth       17.1% 22.0% 2.5% 22.5% 20.1%   17.5% 17.5% 17.5%
                             
    Gross Profit   20.9 25.5 28.8 32.9 45.8 55.4   65.5 77.5 91.6
      Gross Margin   31.9% 33.3% 30.7% 34.3% 39.0% 39.2%   39.5% 39.7% 40.0%
                             
    SG&A     24.7 23.9 25.6 24.9 30.3 35.6   41.4 48.2 56.0
      % of Sales   37.6% 31.1% 27.3% 26.0% 25.7% 25.2%   24.9% 24.7% 24.4%
                             
    EBIT     (3.7) 1.7 3.2 8.0 15.5 19.8   24.1 29.3 35.6
      Margin     (5.7%) 2.2% 3.4% 8.3% 13.2% 14.0%   14.5% 15.0% 15.5%
                             
    Adj EBITDA   (3.0) 2.7 4.4 9.3 16.6 21.2   26.8 32.3 38.9
    Less: Stock-based Comp 0.3 0.7 0.8 0.9 0.4 0.5   1.0 1.0 1.0
    Real Adj EBITDA   (3.3) 2.0 3.6 8.4 16.2 20.7   25.8 31.3 37.9
      Margin     (5.1%) 2.7% 3.8% 8.7% 13.8% 14.6%   15.5% 16.0% 16.5%
                             
    Normalized Taxes 40% (1.5) 0.7 1.3 3.2 6.1 7.8   9.5 11.6 14.1
    Adj Net Income (unlevered) (2.3) 1.0 2.0 4.8 9.4 12.0   14.6 17.7 21.5
    Adj EPS (current share count) ($0.13) $0.06 $0.11 $0.27 $0.53 $0.67   $0.82 $0.99 $1.21
    P/E             66x 52x   43x 35x 29x
                             
    EV/Sales             5.32x 4.43x   3.77x 3.21x 2.73x
    EV/EBITDA           38.7x 30.3x   24.3x 20.0x 16.5x

     

     

    What is BNNY worth? 

    BNNY currently trades for 4.4x LTM Sales (3.9x calendar 2012), 30x LTM EBITDA (26x calendar 2012), and a whopping 52x LTM EPS (45x calendar 2012).  In my view, the company is worth less than $20 per share (2.5x LTM sales, 17x LTM EBITDA) to an acquirer.  This reflects over 1.5x Sales and 9x EBITDA on a generous forecast for FYE March 2015, assuming uninterrupted high teens revenue growth as well as operating margin expansion to 15.5% from 14.0%.

     

    BNNY is growing, but it also is showing signs of its core products being tapped out.  After promoting mac & cheese last year, presenting a tough comp this year, they seem to be pinning their hopes for growth more on frozen pizza.  Smart Balance just bought Udi’s, a gluten-free specialist also active in frozen pizza, for 1.7x Sales ($103m net purchase price for $60.9m sales).  Udi’s doubled sales last year, so this is at least as juicy a growth story coming off a lower base, vs. BNNY’s LTM sales of $141m.  1.7x Sales implies just $14 for BNNY… which corroborates the initial filing range.  Smart Balance also recently bought Glutino for 1.2x Sales, which would imply just a $10 stock price for BNNY.  At 8x LTM EBITDA for BNNY, I’ll call $10 too cheap, but it’s not crazy either.  SMBL itself recently attracted a 13D filing from Gabelli and rose considerably, so call it “half in play”… and it is valued at < 1.7x Sales (pro forma for Glutino and Udi’s).  Even if SMBL stock doubles from here, and we use the implied sales multiple of 2.8x, we get $22 for BNNY.  Now SMBL has lower margins, but using consensus estimates (and conservatively assuming they include Udi’s, which they probably don’t), it seems SMBL trades for 14x 2012 and 12x 2013 EBITDA… implying a $20-$21 stock for BNNY.  Enough playing with numbers, but it’s pretty clear that the current price is crazy when we look at recent, relevant private and public market valuations.  Or we could step back and think about BNNY on the basis of absolute valuation – if you managed a traditional food producer with flagging revenue growth and desperately wanted to augment your position in the organic segment, would you buy Annie’s, and if so, for what price? 

     

    What is wrong with Annie’s? 

    Here is the weakest part of my thesis.  I posted DMND as a short in spring 2010 because I thought something was very wrong.  I don’t claim to have done anywhere near as much ground research into BNNY, nor would I expect to come up with anything remotely as interesting if I did.  The business seems fine for what and where it is in its lifecycle… but not without challenges.  The following come from a first cut.  I will plan to post an update if I find anything incremental/material/contradictory (but I am not promising anything). 

     

    First, everyone I speak to says organic sourcing is currently a pain and limits revenue and profit growth.  Maybe the organic food supply will catch up, but in the near term, this presents execution risk for BNNY.  One CEO of a ~$2 billion food company told me they would have no interest in a company like BNNY or in aggressively pursuing the organic category … “just not worth the hassle.” 

     

    Second, Annie’s is only a couple of steps removed from a start-up.  They have under 80 employees, and they just installed ERP systems.  They plan to hire everywhere (marketing, supply chain, finance, accounting), capping any hopes for meaningful margin expansion.  Maybe it will all go off without a hitch.  It better. 

     

    Third, they are “capital light”, meaning they completely outsource their manufacturing.  Sounds great until your contract manufacturers drop the ball and can’t meet shipment deadlines, or get greedy on price during commodity fluctuations, or go lax on food safety, etc. etc. etc.  If you’re making a “premium” product, it seems you would want to control the process.  Again, they might be ok here, but this presents another way for them to disappoint.  The stock price doesn’t allow for disappointment. 

     

    Fourth, their products really aren’t good for you – this seems to be in extreme contrast to the corporate purpose “to cultivate a healthier, happier world by spreading goodness through nourishing foods, honest words and conduct that is considerate and forever kind to the planet.”  Never mind all the other fun we could have with that one.  I conducted the following nutritional steel cage matches:

     

    - Annie’s Mac & Cheese vs. Kraft Original (KFT)

    - Annie’s Cheddar Bunnies vs. Pepperidge Farm Goldfish (CPB)

     

    Surprisingly, the products are almost identical in standardized nutritional content, with Annie’s actually slightly worse for you by several key metrics.  So for the extra money, you are getting "organic"… but not healthy.  Before adding butter/milk, the mac n cheese has a quarter of your daily sodium (and that’s if you only eat a “serving” of 40% of the box).  50 Cheddar Bunnies have 6-7g of fat, vs. 5g of fat in a serving of 55 Goldfish.  Also, the fact that the numbers are so close across the board suggests to me that the ingredients/recipes/formulas are very close… is Annie’s essentially swapping regular flour/cheese/milk for organic, slapping a cute bunny on the box, and calling it a much more differentiated product than it really is? 

     

    Fifth, I don’t fully buy into their policy of “honest words”.  Small examples include the following:

     

    They disclose that once prepared, their mac n cheese has no more fat, sodium or other bad stuff than the box contents, whereas Kraft admits their offering balloons in fat content (5% to 29% RDA) once you add the recommended butter and milk.  I guess you could make Annie’s with water… sounds delicious. 

     

    On a different front, they went out of their way to disclose in their IPO prospectus that their revolver balance had declined from $13.3m at 12/31/11 to $11.2m at 3/22/12, and even adjusted for this in their Pro Forma Capitalization table.  Yet they reported Q4 (3/31/12) earnings on June 6, and the 3/31/12 revolver balance was back up to 12.8m.  Small potatoes, but was that favorable 2.1m adjustment really necessary, when 1.6m of it came back in the course of the next nine days?  I call that a little cheesy, and not necessarily "honest conduct". 

     

    Splitting hairs, but on the earnings call they guided to 17.8m average shares outstanding this year.  Using the treasury method and current share price, I get 17.9m.  But I do get their number if the stock falls into the high $20’s… maybe that’s the difference :)  And this is before new stock compensation, which they warn will ramp up this year. 

     

    So, no smoking guns here, but clearly some yellow flags that both suggest the potential for mis-steps, as well as question the company's credibility aroud the margins with both its customers and new shareholders. 

     

    Why Does BNNY Trade Where it Does?

    I think it’s important to try and understand why a mis-pricing exists, rather than assume we aren’t missing anything.  In this case, there are some general aspects which are obvious – an attractive growth story on the surface, easy to understand, familiar products, a small float, a hot IPO market for consumer brands – these factors all helped get the ball rolling.  But two widely distributed media outlets – CNBC and the WSJ – perpetuated the momentum with some really bad math. 

     

    First, Jim Cramer adopted BNNY out of the gates.  On April 2, he claimed the company had notched “150% EPS growth last year” and traded for "23x earnings, cheaper than HAIN at 25x".  His recommendation to buy despite the post-IPO run-up was fairly intense, complete with product placement (did the company supply the goods, and if so, are they complicit in endorsing his “honest words”?)

     

    http://video.cnbc.com/gallery/?video=3000082019&play=1

     

    I wrote him the following morning on Bloomberg to let him in on a little secret…

     

    The company recognized a significant tax reversal in fiscal 2011 (ended 3/31/11), adding $5.7m to pre-tax income.  This is plainly disclosed in the IPO prospectus.  They have also disclosed that their effective tax rate is normally 39.5%.  So, instead of adding $5.7m to their 2011 pre-tax income, we should actually be subtracting $6.1m.  I have also added back Solera’s discontinued management fee and interest expense on since-retired debt, to be fair.  After these adjustments, net income wasn’t $20m – far from it, it was $9.4m.  And as for P/E, it was in the 50's, more than double that of HAIN.  

     

    He didn’t respond directly, but the next night he did backtrack pretty heavily on his show (ostensibly caused by the $4 gain in the stock, not by any newfound appreciation for that annoying concept called accuracy).  He admitted that BNNY wasn't as attractive at $38 as it was at $34 in a fairly protracted retracement of the prior evening’s endorsement:

     

    http://video.cnbc.com/gallery/?video=3000082019&play=1

     

    And by May 12, he affirmed he liked HAIN better, although I doubt anyone was listening any more:

     

    http://www.cnbc.com/id/47512247

     

    So I’m not sure if this explains why the stock stays in the $30’s, but I think it helps explain how it held up initially, sheds light on the constituency of some of BNNY’s newer shareholders, and reflects the poor analysis and “who cares – it’s going up, baby” outlook buttressing the silly valuation. 

     

    The WSJ had some problems with the numbers as well.  On April 13, they wrote in a piece called “The Buyout Brain Behind Annie's IPO”: “Profit climbed to $20.2 million in 2011, up from $6 million in 2010”.  Really?  This wasn’t a quick blurb, but a full feature article.  I contacted the journalist, and their response implied they were not focused on the stock, “certainly didn't intend any endorsement of the stock”, but were focused instead on Solera in what was “merely a personality profile” of Molly Ashby.  Fair enough.  Solera seems to have great PR – witness recent follow-up, a June 6 update titled “Annie’s First Quarter as Public Company a Beat” which keeps the drum beating, but neglects to opine as to why the stock traded down 3% into earnings, and another 3% following earnings, as the market rose.  Some “beat”.  I guess my biggest issue here is really that the company seems to have allowed this gross exaggeration to subsist in multiple venues.  I can’t imagine Solera wants to disabuse any prospective purchasers of the stock of the notion that BNNY is growing EPS triple digits, at least not while they have $340m wrapped up in the stock and are counting the days until they can sell more in late September 2012.  

     

     

    Risks

     

    Some massive food producer with flagging revenue growth desperately overpays for BNNY in a few years after BNNY has managed to more or less execute on their growth plans (but do we even lose money from here in this scenario?)

     

    It’s a somewhat obvious short without a huge float… but today it only costs around 1-2% to borrow, with 7% of the float sold short… and I can’t imagine this writeup of a short idea with no “hard catalyst” is going to change that :) 

     

     

    Molly Ashby is proven right after telling the WSJ about BNNY: "Every once in a while a company comes around that changes things."  IBM, MSFT, INTC, Ford, Boeing… move over (and grab yourself a frozen pizza with organic dough… just not one of the competitors’... for a taste of true innovation!) 

     

     

     

    Catalysts

     

    There aren’t any, but if I must…

     

    Solera is almost certain to sell its shares if they trade anywhere near here.  They couldn’t wait to sell at $19.  They were ready to sell as low as $14.  They continue to hold about 59% of the basic shares outstanding.  The lock-up expires late September 2012. 

     

    The share count will creep up… people are probably working off the reported 3/31/12 quarter’s number of 16.4m or the prospectus number of 16.6m, but warrants and options add another 1.23m shares and should bring the total to about 17.9m diluted shares over this June quarter, up from the 16.4m number disclosed for the March 2012 quarter.  Bloomberg seems to have 16.6m, which is the pro forma basic number from the prospectus.  Also, there are 867k shares reserved for incentives, and they said on the earnings call there would be an increase in stock-based comp this year, so I expect some additional creep as well.  

     

    As of this week, we now have EPS guidance for FY 2013 of 78-82c.  The math just got a lot easier for the WSJ, CNBC et al.  Maybe BNNY “beats and raises” every quarter and ends up closer to $0.90-$1.00 this year, but even if they do, I think we’re ok from here. 

    Catalyst

     

    Lock-up expires late September 2012. 

     Share count will creep up.  

     P/E math just got a lot easier for the media. 

    Messages


    SubjectThanks - and extremely minor nitpick
    Entry06/08/2012 11:26 AM
    MemberPar03
    Banjo, thanks for the writeup. I'm surprised the short interest on this one is not higher.
     
    This is only a very minor nitpick, but the reason their mac and cheese, when prepared, doesn't contain more "fat, sodium, or other bad stuff" than the box contains is that if you follow the directions, you only add lowfat or skim milk to the pasta and powdered mix.  The Kraft mac and cheese directions suggest you add butter or margarine in addition to the milk.  The Annie's mac and cheese without butter/margarine is actually plenty good in my opinion (I much prefer it to Kraft with or without the butter/margarine), so I don't think they're being disingenous here.

    SubjectRE: Thanks - and extremely minor nitpick
    Entry06/08/2012 12:33 PM
    Memberbanjo1055

     

     
    Thanks, I thought about that...
     
    Each product starts with similar dairy and fat content from what I can tell (cheese culture, whey, milkfat, milk protein concentrate, etc.)... it's then a question of whether you want it runnier/milder/healthier (add water or skim milk), or thicker and richer (add whole milk and/or butter).  It's similar to instant oatmeal packets, in that your choice of preparation makes a big difference in the nutritional content of the finished product.  Granted, Annie's suggests a healthier preparation (and their nutritional disclosure assumes compliance)... but some of their boxes also "suggest" (but don't "instruct") adding ingredients such as diced ham (which is not factored into their nutritional disclosure), so I think at the end of the day you are starting from a similar place in terms of richness of flavor whether you go with a box of Kraft or a box of Annie's, and then acting independently as you prepare the box to determine the ultimate richness... so the nutritional merits seem comparable to me. 
     
    It would be one thing if, to a broad range of customers, Annie's with skim milk was deemed comparable to Kraft with more fat added.  Perhaps a customer survey is in order.  My kids (and I) much prefer the Kraft preparation... but I guess that's what makes a (super)market!  You may have genetically superior taste buds and will live longer and healthier than most of this country, for which I envy you :) 
     

    SubjectTeton29
    Entry06/08/2012 12:52 PM
    Memberabra399
    Teton29-
     
    Tell us about the food - is there a difference between organic and regular, gmo vs. non GMO? 
     
    Isn't a lot of organic made in China and other unregulated countries - far away from US regulatory scrutiny? 
     
    Of course just the nutshell version would be great to hear from someone who has studied it all and is a keen analyst.
     
    Thanks! 

    SubjectRE: RE: RE: Thanks - and extremely minor nitpick
    Entry06/08/2012 12:55 PM
    Memberzzz007
    I don't claim to be an expert on organic food, but will relate the following regarding "organic" marketing.
     
    I live in Vermont, HQ for all things "organic".  I was at my daughter's elementary school the other night, and was talking to a dude who has lived up here his entire life.  He was laughing as he told me how last winter he marketed the firewood he sells as "organic", and couldn't believe the positive impact it had on his overall sales, despite the fact that all firewood is by definition "organic".  Needless to say, he wasn't overly impressed with the general intelligence level of the city slicker customers who went for his marketing ploy.

    SubjectRE: RE: Thanks - and extremely minor nitpick
    Entry06/08/2012 01:19 PM
    Memberbanjo1055

     

     
    Thanks for the comments, and I would love to hear more about the outlook for the organic food supply chain, challenges/opportunities, etc. if you are familiar... especially wheat flour and dairy components.  Seems the coloring is a big point as well... they use annatto extract (what's that?) vs. yellow 5 and yellow 6.  My background here is limited to a few checks with industry people but is by no means comprehensive.   
     
    But let's deconstruct my statement which you deemed horribly inaccurate:
     
    (1) products are almost identical in <<standardized>> nutritional content.
    (2) this is surprising (to me, at least)
    (3) Annie's slightly worse by several key metrics
    (4) Annie's costs more
    (5) with Annie's, you are getting organic
    (6) with Annie's, you are not getting healthy
     
    I think I am 6 for 6 here.  I believe you are inferring that organic is much healthier than not organic, and this may be true, but I do not think you can argue that a box of Annie's is "healthy" when sodium content is 570 mg per serving (1,425 mg per box) before adding anything, vs. a daily allowance of 2,300 mg.  Maybe it's much better for you than Kraft by a different set of nutritional metrics not required to be disclosed, or perhaps on more qualitative arguments against processed foods - I plead semi-ignorance here.  But so would most BNNY customers (and the very vast majority of KFT customers).  But I stand by what I wrote. 

    SubjectRE:
    Entry06/08/2012 02:22 PM
    Memberbanjo1055
     
    "Easy Mac" is the single-serve, microwavable variety.  That does look more extra-terrestrial, but anything for convenience. 
     
    Here are ingredients for the more comparable Kraft Original Mac & Cheese Dinner...  a little better:   
     
    Ingredients: ENRICHED MACARONI PRODUCT (WHEAT FLOUR, NIACIN, FERROUS SULFATE [IRON], THIAMIN MONONITRATE [VITAMIN B1], RIBOFLAVIN [VITAMIN B2], FOLIC ACID); CHEESE SAUCE MIX (WHEY, MILKFAT, MILK PROTEIN CONCENTRATE, SALT, SODIUM TRIPOLYPHOSPHATE, CONTAINS LESS THAN 2% OF CITRIC ACID, LACTIC ACID, SODIUM PHOSPHATE, CALCIUM PHOSPHATE, YELLOW 5, YELLOW 6, ENZYMES, CHEESE CULTURE).
     
     

    SubjectBanjo, you mentioned SMBL in your writeup
    Entry06/18/2012 06:53 PM
    Membertyler939
    It was mentioned as a comp, but I was wondering if you had any thoughts on it as a stand alone long?  They are positioning themselves as a gluton free company, which sounds great on paper.  My problem is that they can't seem to get their gluton free products into the major supermarkets.  I think this is partly a function (and my sample size is really small), of people with celiac disease or are otherwise on a gluton free diet, shopping at places like wholefoods where they have a lot of choices.   Any thoguths would be appreciated. 

    Subjectsmbl
    Entry06/25/2012 03:30 PM
    Membertyler939
    Let me elaborate on my previous question. 
    Until recently, I tended to look at Smart Balance as being a more ingredients-oriented business (spreads, dairy items) than Annies, which focuses its products one step closer to prepared foods (mac and cheese, salad dressings).  This doesn't mean that I disagree with the thesis of this writeup--I don't--but I categorize SMBL a little differently.  
     
    They are clearly changing their focus with the acquisition of Udi's, which brings a portfolio of more finished products (e.g., now SMBL has a frozen pizza, too).  While I understand that SMBL's motivation was, at least in part, marketing synergies in gluten-free products, they have to be looking at their multiple against Annie's and wondering why they can't get some motion in their stock by moving a step up the value chain with their new products.
     
    I look at the multiple difference, and I wonder whether Annies might start looking to use its stock as an acquisition currency.  SMBL is the first company that comes to mind, given the similar concept, the largely complimentary product lines, and, of course, Smart Balance's low multiple.
     
     
    I don't know much about the intentions of management at either company, but does an acquisition of smbl by bnny make senses, and do you think it is at all likely?  Thanks in advance for any response.

    SubjectRE: RE: RE: BNNY Customer Concentration
    Entry07/20/2012 09:07 AM
    Memberyellowhouse
    Thanks mojoris. Have you asked if this is related to Annie's just not being an everyday item, but rather part of their product cycling?

    SubjectRE: RE: RE: RE: RE: BNNY Customer Concentration
    Entry07/20/2012 04:07 PM
    Memberyellowhouse
    i called around to a bunch of costcos around the country as well. all but one (8 out of 9) said they were out of the mac and cheese and were unsure when they will be getting it back. a few did have other annie's products.
     
    interesting data point. seems tough to get 11% of your sales from costco when only 11% of the stores are carrying your flagship product.
     
    i don't think there is a standard process to product cycling. the purchasing managers i spoke with said it varies based on the producer's ability to meet demand and costco inventory strategies.

    Subjectearnings out
    Entry07/24/2012 04:17 PM
    Membermrsox977
    seem to be less than spectacular
     

    First Quarter Highlights:

    • Achieves net sales increase of 20% to $34.3 million
    • Reports adjusted net income of $2.1 million, or $0.12 per adjusted diluted share

    For the first quarter of fiscal 2013, Annie's reported net sales of $34.3 million, an increase of 20% over the first quarter of fiscal 2012. Net income for the first quarter of fiscal 2013 was $2.1 million as compared to net income of $1.8 million reported in the first quarter of the prior year.

    Adjusted net income1 for the first quarter of fiscal 2013 was $2.1 million, or $0.12 per adjusted diluted share, based on 17.6 million shares outstanding.  This compares to adjusted net income of $2.0 million, or $0.12 per adjusted diluted share, based on 16.5 million shares outstanding in the first quarter of fiscal 2012.  The year over year decline in adjusted net income was primarily related to increased SG&A costs. Annie's completed its Initial Public Offering on April 2, 2012, increasing shares outstanding by 950,000 in the first quarter of fiscal 2013 as compared to the first quarter of the prior year. Adjusted net income excludes the impact of $13,000 and $518,000 non-cash charge related to the change in the fair value of the convertible preferred stock warrant liability in the first quarter of fiscal 2013 and 2012, respectively and benefit of $332,000 related to an increase in the tax rate applied for deferred tax assets due to an increase in the federal and state tax rates in the first quarter of fiscal 2012.

    "We are pleased with our strong growth and overall financial performance in our business.  Consumption trends remain strong as more consumers seek healthy food options for their families," commented John Foraker, CEO of Annie's.  "We are encouraged by the progress of our mainline initiative in grocery channels, as well as consumer reception to our new products. We are successfully executing our near-term plan, and remain confident in our long-term growth opportunities."


    Subjectthoughts?
    Entry08/02/2012 04:11 PM
    Membermrsox977
    I am surprised that the deal got done at $39.25    Not sure what the next catalyst is to send this lower...

    Subjectno borrow
    Entry08/03/2012 10:16 AM
    Membermrsox977
    We tried to add to this short but it seems there is no borrow today.

    Subjectcan't make this up
    Entry08/09/2012 03:14 PM
    Membermrsox977
    actual quote from JP Morgan on BNNY from a June report I dug up...
     
    "We make no argument that a FY13E P/E of 46x is cheap. But
    numerous high-growth consumer companies, e.g., TFM, WFM, LULU,
    TEA, FRAN, UA, CMG, can maintain premium multiples these days (the
    aforementioned names average 30x on CY13 EPS estimates). Considering
    that Annie’s is not only high growth but also sells consumer staples
    (usually less risky than discretionary), is a possible takeout candidate (per
    CNBC, etc.), is growing off a very low base of sales, and has scarcity value
    in the shares, we are not surprised that it trades at a premium to even those
    stocks listed above. Assuming the current multiple of 46x stays constant,
    we see $46 as fair value (46 times our CY13E EPS of $0.99). This is our
    Dec-12 price target."

    SubjectRE: RE: RE: can't make this up
    Entry08/09/2012 03:52 PM
    Membermrsox977
    honestly, how can JP Morgan employ somebody that says "per CNBC etc."?   June 7, 2012 report if you need to verify this. 

    SubjectRE: RE: RE: RE: RE: RE: can't make this up
    Entry08/09/2012 04:10 PM
    Membercasper719
    10% upside on nutty assumptions from current levels. I'm scared.....

    SubjectRE: RE: RE: RE: RE: RE: RE: can't make this up
    Entry08/09/2012 04:23 PM
    Membermrsox977
    Ashby and two other Board Members have a combined 60 years at JP Morgan.  I'm sure that helped push that comic strip of a report through.  Honestly, and I'm not just saying this because I am short BNNY, the Attorney General's office needs to see a research report like this and examine what is going on.  How can something this absurd be published by a bank that wants to be taken seriously?

    SubjectRE: RE: RE: RE: RE: RE: RE: can't make this up
    Entry08/11/2012 02:15 PM
    Membertyler939
    Mojoris, for what it's worth, Annies contends that Costco was never a year around customer.  They usually just have Kraft, but periodically feature another brand of mac and cheese (something i confirmed with my local Costco).  They argue that Costco is a high volume but low margin customer, and that they are happy with only periodically supplying Costco as they do not want to anger their higher margin customers.

    SubjectRE: RE: RE: RE: RE: RE: RE: RE: can't make this up
    Entry08/11/2012 10:32 PM
    Membertyler939
    I spoke to the bottom of the chain at both Annies and Costco (San Fernando Valley on Costco, which itself may be a bad data point due to numerous "healthy" alternative markets in the area).  i am not at all defending Annies, which I think is a short regardless of the Costco situation.  I was just pointing out their spin and how they can plausibly claim that they haven't lost Costco when asked.  At Costco (I just talked to the guys roaming the floor stocking shelf products), they said that they expected to be selling a second mac and cheese brand temporarilly later this year ("whatever brand the regional purchasing manager can negotiate the best deal with") and that they didn't carry Annies year around in the past.  The S-1 (page 13)  notes that 2010 sales to Costco were 3.2 million less than in 2009, and on page 18 they note seasonal fluctuations in sales due to promotional activities around back-to-school and spring seasons, so it seems plausible to me that Annies does not know for certain that Costco won't purchase from them later this year. I think they should have done a better job disclosing the fact that Costco does not carry them year around.  Have you spoken to anyone at Costco who defintively stated either that they carried Annies year around in the past, or that they would not be buying from Annies at any time this year?

    SubjectKraft buyout off the table it seems...
    Entry08/22/2012 10:18 AM
    Membermrsox977
    Perhaps the JP Morgan analyst should update his note.  Unless of course "per CNBC" Kraft is still a possible buyer...
     
    WSJ Aug 21, 2012
     
    Kraft Foods agreed to sell a majority stake in its Back to Nature line of natural-food products to a private-equity firm that focuses on acquiring smaller, overlooked brands from big corporations.

    Financial terms weren't disclosed on the deal, which is expected to close in October, but the purchaser, Brynwood Partners, typically makes deals that are less than $125 million.

    The move comes as Kraft prepares to split into two companies later this year.

    Kraft, which has sold two other brands to Brynwood, will keep a minority stake of between 25% and 50%. The food giant's insistence on retaining a share in the maker of crackers, cookies, granola and trail mixes reflects the potential it sees in the brand, but one that the company felt couldn't be achieved within its massive corporate structure. Kraft steers more money toward its largest, most profitable brands, like Oreo cookies.

    "Back to Nature does not have the kind of scale for us that will get it the resources that could get it the growth that it should," Kraft spokesman Michael Mitchell said.
     
    full story: http://online.wsj.com/article/SB10000872396390443855804577603653889499354.html?ru=yahoo&mod=yahoo_hs

    SubjectCostco survey
    Entry08/28/2012 02:46 PM
    Membermatt366
    Just to add the result of my Costco survey to the conversation:
     
    Annie's Mac and Cheese            
              Mac and Cheese - ?    
    1 Hackensack, NJ 201-487-5471   No   Used to carry it, but only the Kraft Mac and Cheese, last time carried it was back in 2008
    2 Hunstville, AL 256-519-2223   No   Just the Bunnies
    3 Christiana, DE 302-894-0511   No   Not at this time, recently deleted it from the system
    4 North Phoenix 623-293-4403   No   Only bunny snacks
    5 San Francisco 650-872-2021   No    
    6 Colorado Springs West 719-264-5010   Yes   also bunny svariety pack
    7 Chicago   773-360-2053   No   Sell only fruit snacks and cracker variety pack
    8 San Antonio 817-210-0003   No    
    9 Eden Prairie, MN 952-943-4800   No   Bunny snacks and original fruit snacks
    10 Waltham, MA 781-622-3883   No    

    SubjectRE: Costco survey
    Entry08/28/2012 07:23 PM
    Memberclancy836
    watch out, the buyers will start ordering more now that people are constantly calling to ask about them ;)

    Subjectwalmart
    Entry09/19/2012 10:42 AM
    Membermrsox977
    Let's hope this doesn't extend into packaged foods...
     
    http://bit.ly/PzXoTJ

    Subjectcurrent thoughts post recall?
    Entry02/11/2013 10:42 AM
    Memberril1212
    banjo--any thoughts here?  Q4 revs pre-announced only inline (usually companies wearing this kind of valuation have to be chronically beating/raising).  recall will pump up spend in the short term.  bad press has to hurt the brand....

    SubjectMore selling by Solera
    Entry03/01/2013 04:27 PM
    Memberbanjo1055
     
    They are exiting this investment at an impressive pace, and I don't blame them.  Note that BNNY will also repurchase 500k shares from Solera... this is good for the short thesis (BNNY is overpaying).  So Solera has had the IPO lockup waived (in part by JPM, who is a 10% LP of Solera), and now they are selling stock back to the company (of which their founder is the chairperson).  And it's not like the company has cash to burn... they are expanding their credit line to get this done... 

    SubjectRE: More selling by Solera
    Entry03/01/2013 04:45 PM
    Membermrsox977
    Surely they will make the argument that the shareholders benefit as those shares are retired.  However given that the stock trades for an outrageous multiple, it is a complete misappropriation of the stockholder's money, an unjustifiable investment, and an abdication of fiduciary duty.  They are blatantly enriching Solera further.  The fact that Annie's will also *borrow* money to do the deal is further evidence of their ineptitude.  The Company and the Mangement, whom I have meant, are a complete embarassment.  I look forward to the day when these shares are $12.00

    Subjectnew thoughts?
    Entry11/08/2013 08:41 AM
    Membermrsox977
    Looks like they are vertically integrating the snacks part of the business - despite their progress the earnings seemed lackluster, esp for a company that trades at this multiple.  Seems there are some inventory issues as well as a slowdown with their largest customer.  Still no smoking gun as a catalyst for the short however... thoughts?

    SubjectPWC Resignation
    Entry06/04/2014 05:05 PM
    Membermrsox977
    This one has been fun to watch collapse, with the PWC resignation today the proverbial icing on the cake.  I have hated this name ever since management told me (at the JPM Conference 2 yrs ago) that insiders were selling their shares because they 'have things like second mortgages and other obligations'.  This Romper Room team/one product company was a great short to get behind - thanks again for this idea.

    SubjectRE: RE: PWC Resignation
    Entry06/04/2014 07:06 PM
    Membermrsox977
    I am going to go with sloppy and aggressive, but will stop short of saying fraud.  This was a Solera/JP Morgan pump from the get-go that had to keep up with it's ridiculous P/E.

    SubjectAnnie's to be Acquired by GMills $46 Per Share
    Entry09/08/2014 05:04 PM
    Membermrsox977
    http://finance.yahoo.com/news/annies-acquired-general-mills-46-210100247.html

    SubjectRE: Annie's to be Acquired by GMills $46 Per Share
    Entry09/08/2014 07:34 PM
    Memberstraw1023
    banjo,
     
    Fair assessment. We also held on too long, but I am of a split mind. We reviewed at $30 and felt short was a solid as ever in light of the margin pressure. But I gotta hand it to management. I think they sold at optimal time.

    SubjectRE: 27x EBITDA!
    Entry09/09/2014 02:58 PM
    Memberstraw1023
    i think more relevant is that is it 4x revenue. difficult to see them getting more than 12% op margins on the sorts of products they have so they gotta think that they are going to triple/quadruple revenue to make this price make sense. Clearly, their distribution and muscle with retailers to enter new product categories will help, but it sure seems like a stretch to me. Of course, I would say that given that I did the takeover analysis and felt safe to short.
     
    Of course, borrowing at < 3% (after tax) also helps to cover up any errors . . . thank Yernanke.
     
      Back to top