Why Shares of Amira Nature Foods Ltd Dropped, but Shouldn't Have

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Amira Nature Foods Ltd  (NYSE: ANFI  ) were looking unhealthy today, falling as much as 22% after reporting third-quarter earnings this morning. 

So what: The specialty-rice maker came up short on the bottom line, posting per-share earnings of $0.22, up from $0.17 a year ago but below estimates of $0.28. Meanwhile, revenue breezed past expectations, climbing 25.1% to $142.5 million, well ahead of the consensus at $126.5 million. Management cited higher raw material costs for the disappointing profit growth as cost of material rose from 73.5% to 75.4%, or an additional expense of about $2.7 million. Had cost of material remained the same, Amira would have reported an EPS of $0.30. 

Now what: Given the above calculation, investors seem to be burying the lede, here. Amira stock had been bid up substantially in the past few months on little news, which may explain today's sell-off, but the market seems (small-f) foolish to overlook the strong revenue growth, focusing on food costs instead, which are highly volatile and out of Amira's control. The company also raised its revenue for the full year to $507 million-$517 million, slightly ahead of estimates at $508 million, but below fourth-quarter estimates. Still, I'd expect the stock to bounce back as the company continues to expand its product line and geographic footprint. 

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  • Report this Comment On February 25, 2014, at 5:05 PM, HowieMan1 wrote:

    Jeremy- You need to look a little further below the surface on this one. How does ANFI manage to generate higher margins (22% GMs) than its peers (KRBL, LT Foods, REI Agro) despite only 1/3 of sales being Amira branded (vs 90-100% branded for peers) and externally processing 80% of its rice? Note these margins have also remarkably been achieved as raw rice costs have been rising 25-35%.

    Here are a couple answers:

    -http://goo.gl/6Grte

    -http://goo.gl/YP2Oon

    Simply Google search "Amira foods, fraud" to see more for yourself.

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