Get to know a company in less than 5 minutes: That's what a 5-Minute Breakdown is all about. If you're new to Smart Balance (Nasdaq: SMBL), consider this your Foolish way to get introduced and in the know.

What it does
Smart Balance is a marketer of health-food products -- in particular, buttery spreads and alternatives. You may have seen their branded butter sticks, sour cream, or mayonnaise at your local grocery store. Their products' main differentiator (and their primary selling point) is that they are healthier -- no "bad" trans fat, more "good" omega acids, vitamins, and plant sterols -- while tasting just as good.

The key to understanding this company is that it doesn't actually make its products. Product design is done in house and the company owns the rights to its proprietary product formulas, but production and distribution are entirely outsourced. As a business, Smart Balance is all about managing, building, and expanding their brand into new product areas.

How it stacks up
Smart Balance competes against some very big names in the healthy alternative spreads industry. But its capital-light business model and its relatively small base gives it the potential to grow much faster and generate much more free cash flow. Hansen Natural (Nasdaq: HANS) operates with a similar business model, marketing the Monster Energy brand of performance beverages and outsourcing all manufacturing. Smart Balance has a lot of control over the marketing spigot that accounts for almost a sizeable chunk of all expenses, and when the brand is sufficiently established that the company can dial those expenses back, the numbers will really explode.

Have a look at makers of similar products and how their metrics compare:

Company

2-yr Annual Revenue Growth

Return on Capital

Free Cash Flow Margin*

Smart Balance

21.9%

1.8%

9.1%

Other food brand marketers:

     

Hansen Natural (Nasdaq: HANS)

9.4%

35.4%

19.9%

Other buttery spread makers:

     

ConAgra Foods (NYSE: CAG)

3.6%

9.9%

8.2%

Unilever (NYSE: UL)

0.3%

13.6%

12.5%

Source: Capital IQ (a division of Standard & Poor's)
* Free cash flow margin = free cash flow / revenue

What to watch out for
There's a chance Smart Balance never gets to that comfortable point and never gets to turn down its marketing efforts. Currently, the company has 15% share in the spreads market and is the No. 2 in margarine, but that's only after more than $85 million in marketing in just the past three fiscal years. That's a heckuva lot of marketing for a company with a market cap of just $253 million.

Why you should care
Marketing is a lot about putting the right foot forward and getting in the door. There is good reason to think that Smart Balance won't have to match the same level of expenses as it did in the past, simply because it's not building its brand from absolute zero.

As the company moves into new markets, particularly enhanced milk, the halo effects from customer appreciation of other Smart Balance-branded products should carry over and help with the company's new products. The $12.1 billion enhanced milk market is itself more than twice as large as all the categories Smart Balance is currently in combined, so gaining market share there could really be a game changer.

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