|Shares Out. (in M):||62||P/E||53.1x||38.8x|
|Market Cap (in M):||987||P/FCF||133.1x||22.2x|
|Net Debt (in M):||237||EBIT||51||59|
I think Boulder Brands (BDBD) is a good short over the next 6-9 months, as the company laps comps associated with its July 2012 acquisition of gluten-free food producer Udi’s and it finds itself increasingly tied to a potential diet fad while its core business continues fading (as has been the case over the past 15 months). BDBD has been written up long on VIC a couple times, most recently by jak in December 2010 (when the stock was trading as Smart Balance for $3.66 per share). It was a great call, and the stock has run to $16, primarily due to the company’s acquisitions of gluten-free food producers Glutino and Udi’s.
BDBD is a consumer food products company that manufactures/markets buttery sprays, sticks, sprays, cooking oil, peanut butter, etc., under the "Smart Balance" brand (segmented into what the company calls its "Smart Balance" segment); it also manufactures/markets gluten-free breads, pizzas, and other snack foods under the "Udi's" and "Glutino" brands and plant-based (vegan) spreads, butters, soy milks, and dressings under the "Bestlife" brand (all of which fall into its "Natural" segment).
|Smart Balance sales growth (y/y)||+4.3%||-1.1%||-9.9%||-12.0%||-15.9%||-12.3%|
|FYE 12/31; $M||2010A||2011A||2012A||2013E||2014E||2015E||2016E|
|Op. Income (adj)||$15.4||$29.6||$32.8||$49.8||$58.7||$65.8||$67.3|
|EV / Sales||1.3x||1.5x||2.7x||2.7x||2.4x||2.2x||2.1x|
|EV / EBITDA||9.3x||9.7x||17.7x||15.5x||13.2x||12.0x||11.7x|
|P / E||16.0x||13.7x||51.6x||54.0x||39.1x||34.3x||34.0x|
|P / B||0.9x||1.0x||2.3x||2.8x||2.6x||2.4x||2.2x|
|P / TB||n/m||n/m||n/m||n/m||n/m||n/m||n/m|
|P / FCF||16.3x||13.7x||51.0x||143.9x||24.9x||22.5x||22.1x|
|EV / uFCF||16.3x||16.1x||42.5x||63.8x||24.3x||22.1x||21.3x|
|Subject||What's bull case?|
|Entry||08/21/2013 07:30 PM|
So the stock is going down because what? Bulls certainly must know rev growth drops off as the lap the Udi acquisition. Is there something in the numbers bulls are missing? Is there a particular quarter number you expect them to miss? You just think the fad eventually turns? Thanks.
|Subject||RE: What's bull case?|
|Entry||08/22/2013 09:21 AM|
Fair question. I think you have a few things lined up in your favor over the next 6-12 months (comp-lapping, gluten-free saturation at the consumer and supermarket level), but uncertainty around timing and the lack of a specific timing trigger are definitely the weakest piece of the thesis. Clearly, I think gluten-free is a diet fad and the bulls don't, but I have no idea if/when that piece of the thesis will be determined. The company took full-year revenue guidance up in 2Q but implicitly lowered its EBITDA margin guidance, while posting weak 2Q profitability (milk was an $8M EBITDA drag in 2012, so the shutting-down/licensing of the milk business should have been much more accretive to earnings). Selling expenses and inventory also both dramatically spiked in Q2. To me, this is very suspicious and suggests they were trying to juice the top line to keep the mo going, but, unfortunately, I don't have anything concrete.
The volatility of the stock around the release of the Prescience Point write-up on Seeking Alpha suggests there are a lot of momentum guys in the stock who are happy to ride this thing higher until it runs out of steam; as the headline growth numbers slow, I wonder if bulls will want to hang around for the ride. At the end of the day, half the business is fading and the other half is based (in very concentrated fashion) on a specific dietary niche, and the stock is expensive/levered, so I don't think it'll take much to cause it to meaningfully correct.
|Subject||RE: RE: RE: What's bull case?|
|Entry||08/26/2013 01:18 PM|
Sorry for the lack of responses; I took a long weekend and tried to actually shut things down for a few days.
With respect to pricing, BDBD can't just cut prices if demand wanes. In 2Q, "Smart Balance" gross margins were 46%, while "Natural" margins were quite a bit lower at 38.9%. The discrepancy was 560 bps in 1Q. The trouble is twofold. First, gluten-free products use ingredients that are more expensive. I guess this could change over time, but tapioca and rice flour are considerably more expensive than traditional grain flour. Second, the manufacturing process is much more tightly-controlled; you can't manufacture gluten-free products alongside (or even in the same facility) as products containing gluten because of the risk of contamination, which could sicken those with Celiac disease.
I'm sorry, but I just don't understand how "gluten-free" constitutes "healthy eating." There's no medical evidence to support the claims that gluten is unhealthy, unsafe, etc., so I fail to see how a company that is selling bagels and frozen pizzas should be viewed in the same light as organic, farm-to-table, etc.
|Subject||RE: RE: RE: RE: What's bull case?|
|Entry||08/26/2013 01:28 PM|
Teton - Thanks for your comments. In some ways, I think you're making my point.
I think there's a viable market for those suffering from Celiac, and I wouldn't argue otherwise. My point is that the market for those suffering from Celiac is relatively small given that less than 1% of the population suffers from the affliction. I'm glad alternative products are available for your wife, but I'm assuming (based on the numbers) that people like your wife aren't the source of much of the gluten-free growth/hype.
Like you said, gluten-free "does not represent a good crash diet strategy"; I'm just taking it a step further and saying the medical research to-date suggests gluten-free doesn't represent a good diet strategy in any form for those who don't have a true gluten allergy (i.e., those without Celiac). However, past diet fads have shown people will throw a lot of money at the latest quick fix but very few new diets sustain over time.
|Subject||RE: RE: RE: RE: RE: What's bull case?|
|Entry||08/28/2013 01:58 AM|
I think you are missing a very subtle point. Most people on gluten free diets whether they are celiac or gluten intolerant or just think it is healthy do not always substitute a gluten free pizza or bagel for a regular pizza or bagel. They often end up at a restaurant eating a healthier alternative altogether, eating a lower calorie vegetable dish, for example. That order doesn't help BDBD, but adhering to the gluten free diet does when they go home and eat the gluten free cookie for dessert. I would not be shorting this on a gluten free fad thesis. What does surprise me is that there is not more and better competition, as I haven't found any of these products really taste that that good.
|Subject||Tyler - Not sure I follow|
|Entry||08/28/2013 09:03 AM|
Tyler - Thanks for your comment. It's likely that I'm too dense to grasp the subtlety, but your example seems to presuppose that gluten-free ISN'T
|Subject||RE: Tyler - Not sure I follow|
|Entry||08/28/2013 09:13 AM|
Oops, fat-fingered my attempt at a response. I'll try this again...
Your example seems to presuppose that gluten-free ISN'T a fad. People have been suffering from Celiac disease for years, and before the wider availability of gluten-free substitutes to things like cookies, cakes, bagels, etc., those afflicted with Celiac had to avoid those treats. I fully grasp that reality. However, my contention is the recent spike in gluten-free isn't driven by people with true gluten allergies but by people who believe gluten-free diets to be healthier.
Available data suggest 1 out of 133 people is afflicted with Celiac disease -- so call it 2mm-2.25mm in BDBD's gluten-free target demo that I'd consider sustainable customers. There are a million different ways to slice it from there, but it just isn't a large market. Obviously, the number is much larger if you assume gluten-free continues to garner interest from those for whom gluten-free offers no substantiable benefit, but that's exactly the point I'm arguing: for those people, the interest in gluten-free will wither away as has been the case with nearly all other hot diets.
|Subject||RE: RE: Tyler - Not sure I follow|
|Entry||08/28/2013 09:51 AM|
My point is that while substituting specific glutent free foods for their gluten containing alternaitves may not have much health benfeits to those with out celiacs or gluten intolerances, that is not what is going on. Most of the time, they are substiuting gluten free foods for more healthy alternatives, less bread, more protien and vegitables, particularly when people eat out, and are seeing health and weightloss effects, so that a gluetn free diet works, although for reasons that may not be readilly apparent. Additionally, alot of people are on teh diet becaue they think that gluetn free prodcuts are poinsing them. For those reasons, it may be a fad, but it has a lt nore legs than but it ahs a lot more legs then atdkins, south beach or other diets. When they go to the supermarket, they buy the gluten free products BDBD (and others) sells.
|Subject||RE: RE: RE: Tyler - Not sure I follow|
|Entry||08/28/2013 12:05 PM|
My question for anyone following the space closely, is why isn't there more competition? Am I alone in thinking the food doesn't taste that great, and I am talking by gluten free standards. Every time family members make a trip from southern cal to northern cal, they come back with half a refrigerator full of frozen pizza crusts and other gluten free items. How difficult is it for a major food company to make a better tasting product?
|Subject||RE: RE: RE: RE: RE: Tyler - Not sure I follow|
|Entry||08/28/2013 02:00 PM|
|Entry||08/28/2013 05:33 PM|
gluten free is a relatively new product category, at least in a non-specialty market. when was the last time the big CPG companies were out in front of a new product wave on in house R&D? i've sat here for two minutes and all i've got so far N'Espresso.
the big guys get so much synergy out of buying out smaller biz that they just pay up for smaller companies once sales reach critical mass. i'm sure a decade ago when the GF segment was much smaller there were tons of mom's and pop's in the space. udi's just figured how to operating in the business better than the other guys.
|Entry||08/28/2013 07:17 PM|
all right, forget the big guys. Why isn't there more competition from small start ups? Again, at least in my opinion, BDBD doesn't have that good a product. Since you are already paying a premium price, you don't need to have mass distribution. If you have a better product, you just need to have one sales point within driving distance (if somebody 20 miles away has a better tasting pizza, its not a problem since you will buy 10 a ta time, at least that's how my relatives think).