Simply Good Foods (NASDAQ:SMPL) Reports Sales Below Analyst Estimates In Q1 Earnings

Max Juang /
2024/04/04 7:05 am EDT

Packaged food company Simply Good Foods (NASDAQ:SMPL) missed analysts' expectations in Q1 CY2024, with revenue up 5.3% year on year to $312.2 million. It made a non-GAAP profit of $0.40 per share, improving from its profit of $0.32 per share in the same quarter last year.

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Simply Good Foods (SMPL) Q1 CY2024 Highlights:

  • Revenue: $312.2 million vs analyst estimates of $316.2 million (1.3% miss)
  • Adjusted EBITDA: $57.8 million vs analyst estimates of $56.2 million (2.8% beat)
  • EPS (non-GAAP): $0.40 vs analyst estimates of $0.38 (5.7% beat)
  • Full year 2024 revenue guidance slightly lowered: now expects growth ~5% vs previous expectation of ~6%
  • Gross Margin (GAAP): 37.4%, up from 34.6% in the same quarter last year
  • Free Cash Flow of $46.13 million, similar to the previous quarter
  • Market Capitalization: $3.25 billion

"Simply Good Foods second quarter results were led by continued Quest growth, as well as strong gross margin performance," said Geoff Tanner, President, and Chief Executive Officer of Simply Good Foods.

Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.

Shelf-Stable Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

Simply Good Foods is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.

As you can see below, the company's annualized revenue growth rate of 12.1% over the last three years was solid for a consumer staples business.

Simply Good Foods Total Revenue

This quarter, Simply Good Foods's revenue grew 5.3% year on year to $312.2 million, missing Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.6% over the next 12 months, an acceleration from this quarter.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.

Simply Good Foods's free cash flow came in at $46.13 million in Q1, in line with the same quarter last year. This result represents a 14.8% free cash flow margin.

Simply Good Foods Free Cash Flow Margin

Over the last eight quarters, Simply Good Foods has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining a robust cash balance. The company's free cash flow margin has been among the best in the consumer staples sector, averaging 13.5%. Furthermore, its margin has averaged year-on-year increases of 4.8 percentage points over the last 12 months. This likely pleases the company's investors.

Key Takeaways from Simply Good Foods's Q1 Results

It was good to see Simply Good Foods beat analysts' gross margin, adjusted EBITDA, and EPS expectations this quarter. On the other hand, its revenue unfortunately missed analysts' expectations and its operating margin missed Wall Street's estimates, and the company slightly lowered full year revenue guidance. Overall, the results were mixed, but they seem to be better than feared. The stock is up 3.1% after reporting and currently trades at $33.57 per share.

So should you invest in Simply Good Foods right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.