Friday, April 16, 1999
Balance Bar Co.
Price (4/15/99): $7 3/4
HOW DID IT FIND TROUBLE?
This bulked-up power stock has been exposed as a 98-pound weakling. With the energy bar maker's gloomy near-term outlook, shareholders have been thrown off-balance.
It's been a humbling tumble for a company that had been used to some heavy lifting in the past. Last year sales more than doubled. Net income tripled. The Balance was good. With last year's initial public offering came hope that the company would continue to penetrate new markets and win over new customers.
As well as 1998 went, this year has been another story. The company is expected to report sales growth for the March quarter up a scant 14%. Even worse, earnings per share will be cut in half. The energy boost came and went like a sugar rush tied to a firecracker.
California-based Balance Bar started out in 1992 as Bio Foods. The original nutrition bar was marketed to those with specific dietary needs due to diabetes, hypoglycemia, and heart disease.
The Balance Bar is based on the 40-30-30 respective percentage proportion of carbohydrates, protein, and dietary fat. The bars come in flavors like Honey Peanut, Ginseng (its most popular bar), and Chocolate Banana, and Antioxidants. In 1996 Balance became the top-selling nutrition bar brand in the natural foods market.
In 1997, the company introduced drink mixes based on the same 40-30-30 formula. They come in chocolate, vanilla, coconut, strawberry, banana and mocha flavors. A ready-to-drink version, Total Balance, was rolled out last month.
12-month sales: $81.7 million
12-month income: $5.1 million
12-month EPS: $0.41
Profit Margin: 6.2%
Market Cap: $100.0 million (on 12.9 million)
Cash: $7.2 million
Current Assets: $25.9 million
Current Liabilities: $7.1 million
Long-term Debt: N/A
HOW COULD YOU HAVE SEEN IT COMING?
There was good reason to get pumped up when Balance Bar came public last year. CEO James Wolfe came from the executive ranks at Coca Cola (NYSE: KO) where brand recognition and gaining shelf space reign paramount.
Yet oddly enough, Wolfe's arrival did not help the company's branching out into beverage lines. By the end of last year, nutrition bar sales still accounted for all but 4% of company revenues.
Growth in the past came from adding new distributors and coming up with new bar flavors. But with non-natural food distributors accounting for two-thirds of Balance Bar sales, and the company finding it had reached the point where it would have to discontinue a line before adding a new one to avoid consumer confusion and overstimulation, the days of heady growth were numbered.
Investors who followed the rise and fall of Cold-Eeze lozenge maker Quigley (Nasdaq: QGLY), Breathe Right nasal strip producer CNS (Nasdaq: CNXS) and even Iomega (NYSE: IOM) had already lived through this when those shares surged ahead with exuberant sales as new exciting products began to fill the distribution channels. Once they maxed out the retail outlets, the heady growth came to an end. History repeats itself. It did with Balance Bar.
WHERE TO FROM HERE?
There should be legitimate concern here. The timing of the meltdown is important since the start of every new year is often filled with new year resolutions to trim down. The Balance nutrition-rich energy bars became a logical, healthy, food substitute.
By starting out so poorly in 1999, the company may have difficulties for the rest of the year. Net margins have been cut in half and barring a miracle from the new Total Balance ready-to-drink product line that situation may very well continue in the near-term.
Companies like Quigley and CNS have failed to parlay their one shot at brand success into drugstore shelf powerhouses. Will Balance Bar be the exception? Its clean balance sheet will certainly see the company through any temporary setbacks but if and when the energy will make a return trip is still up for debate.
-Rick Aristotle Munarriz
Call Your Boss a Fool.
Check out the Daily Trouble Message Board