Monterey Pasta (NASDAQ:PSTA) lowered its fourth-quarter guidance Tuesday but offered shareholders some consolation: a low-carb line called Carb-Smart. The company seems to think that carbohydrate count, or a lack thereof, will factor into its battles with rivals like American Italian Pasta (NYSE:PLB).
Sinking guidance from Monterey feels like déjà vu. Dave Marino-Nachison had his eye on Monterey's third quarter in September, when the company warned of flagging revenues. At that time, Monterey forecast a 7% to 10% increase in sales for the fourth quarter.
No such luck. The new outlook from Monterey is that fourth-quarter sales will be down 3% to 5%.
American Italian Pasta, meanwhile, has been reporting solid earnings and revenues, with an Atkins-branded line of low-carb pastas among its high-profile successes. Whole wheat and organic products are further signs that American Italian Pasta is changing with the health-conscious times.
While the popularity of Atkins-style, low-carb diets is clearly a force to be reckoned with, Monterey's reliance on major customers Costco (NASDAQ:COST) and Wal-Mart's (NYSE:WMT) Sam's Club is a more pressing concern. In the third quarter, Costco made up 35% of Monterey's sales, while Wal-Mart kicked in another 32%. In that quarter, sales to Costco dropped 31%.
Costco remains Monterey's weakest link. Management affirms that sales to the warehouse retailer will be down 25% to 30% for the fourth quarter. Reasons, according to Monterey, include "storewide item reductions" and "competitive inroads." Sounds like some other pasta maker has cozied up to Costco.
Paying attention to Mr. Atkins' impact on pasta consumption and addressing that trend is all fine and good -- though, even here, Monterey seems a little late to the party. At this point, investors might find less dependence on two customers even more appetizing.
Will an Atkins emphasis help Monterey deliver al dente numbers again? Or has it lost advantage by letting American Italian go low carb first? Chat with other Fools on the Monterey Pasta discussion board. Alyce Lomax welcomes your feedback at [email protected].
