Why Annie's Inc. Shares Plunged Today

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 natural food distributor Annie's  (NYSE: BNNY  ) sank 10% today after its quarterly results and outlook disappointed Wall Street.

So what: The stock has slumped in 2014 on signs of slowing growth, and today's Q4 results -- EPS of $0.29 missed the consensus by $0.05 on a revenue increase of 15% -- coupled with downbeat guidance only reinforce those concerns. In fact, adjusted gross margin during the quarter declined 410 basis points to 34.6%, suggesting that Annie's supply chain costs and competitive position are becoming increasingly difficult to maintain. 

Now what: Management now sees full-year 2015 EPS of $0.88-$0.95, well below the average analyst estimate of $1.13. "Annie's has a long growth runway, with opportunities to expand distribution of our mainline products and travel to many new categories through our rich innovation pipeline," said CEO John Foraker. "Although we anticipate some headwinds, including an inventory reduction by our largest customer, continued commodity inflation, and higher compensation expense as we build out our capabilities, we expect our bottom-line results to show significant improvement as the year progresses." More important, with Annie's boasting a rock-solid balance sheet and beaten-down stock price -- now off about 40% from its 52-week highs -- the downside seems limited enough to bet on that turnaround talk. 

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