What Annie's Needs: Healthier Growth

Next Monday, Annie's (NYSE: BNNY  ) will release its latest quarterly results. After having been public for more than a year now, Annie's biggest need is to show investors that it can sustain its growth trajectory long enough to justify its current stock price.

Over the past year, shares of Annie's have largely remained stagnant, as investors have waited patiently for the company's financial results to catch up with the enthusiasm that shareholders had immediately following its IPO. Now, though, it's time for the natural-foods maker to deliver the growth investors want to see. Let's take an early look at what's been happening with Annie's over the past quarter and what we're likely to see in its quarterly report.

Stats on Annie's

Analyst EPS Estimate

$0.28

Change From Year-Ago EPS

17%

Revenue Estimate

$50.73 million

Change From Year-Ago Revenue

18%

Earnings Beats in Past 4 Quarters

2

Source: Yahoo! Finance.

How will Annie's earnings fare this quarter?
Analysts haven't budged from their calls on Annie's earnings in recent months, keeping their views on the March quarter and the full fiscal 2014 year stable. The stock, however, has had some difficulty, falling about 9% since early March.

Annie's has been one of the beneficiaries of the industrywide trend toward healthier food offerings. Whole Foods Market (NASDAQ: WFM  ) pioneered the movement, and in many ways, its huge growth over the years has directly contributed to the rise of natural-foods producers. Hain Celestial (NASDAQ: HAIN  ) counts Whole Foods as its largest customer for its array of products, which include everything from baby food and organic snacks to prepared meals and personal-care products. Annie's, however, has gone well beyond the natural-food retail segment, getting a greater proportion of its overall revenue from mainstream grocery stores as well as broader-based national retailers.

But Annie's has had to overcome some growth pains lately. In January, the company voluntarily recalled its frozen pizzas after acknowledging the possibility that some of the dough contained what it called "metal fragments." Nevertheless, the company's response to the incident doesn't appear to have slowed growth in its various segments, as its meals, snacks, and condiments divisions all posted substantial growth in the 18% to 25% range, and Annie's issued guidance suggesting 15% to 20% growth even with the continuing impact of the pizza recall.

Moreover, competition will remain fierce in the food segment. Now that industry giant Kraft Foods (NASDAQ: KRFT  ) is focusing solely on its North American grocery business, it will likely hone in on the opportunity in the natural and organic segment, leveraging its brand awareness to drive sales of its own competing products. That won't affect loyal Annie's customers, but it might nevertheless slow the flow of new customers toward the company's offerings.

In Annie's quarterly report, watch for how the company's operating margins compare to those of its competitors, both within the natural-foods niche and in the broader food-production industry. In order to make the most of its emerging brand, Annie's should look for ways to boost margins. Especially as sales growth inevitably slows, it'll be increasingly important for Annie's to make the most of every dollar that comes in.

It's hard to believe that a grocery store could book investors more than 30 times their initial investment, but that's just what Whole Foods has done for those who saw the organic trend coming some 20 years ago. However, it may not be too late to participate in the long-term growth of this organic foods powerhouse. In this premium report on the company, we walk through the key must-know items for every Whole Foods investor, including the main opportunities and threats facing the company. So make sure to claim your copy today by clicking here.

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