Annie's net sales up 10%

Annie's Inc. (NYSE: BNNY), a leading natural and organic food company, announced financial results for the first quarter ended June 30, 2014.

Highlights:

"We remain on track to deliver our top- and bottom-line growth targets for the year. In the first quarter, consumer trends remained strong and we made good progress in our efforts to improve execution in a number of key areas," commented John Foraker, CEO of Annie's. "As expected, financial results were impacted by customer inventory reductions and a significant increase in organic wheat costs. Underlying operating performance was ahead of expectations, but was offset by stock-based compensation expenses related to prior periods and higher-than-expected professional services fees.

"As we look ahead to the remainder of fiscal 2015, we are confident in our ability to deliver much improved financial results. Our strategies position us well for solid volume growth, driven by base business growth and strong innovation, and we expect margins in the second half of the year to benefit from price realization and important operational improvements. We feel confident that the trends that have supported the rapid growth of our business will continue to drive our performance long-term. Our Board and management continue to be intensely focused on taking all steps necessary to deliver on Annie's substantial potential," concluded Foraker.

First quarter results
For the first quarter, Annie's reported net sales of $43.3 million, up 10.1 percent year-over-year. Sales related to planned contract manufacturing revenues associated with the Joplin acquisition contributed year-over-year growth of $2.0 million, or 5.2 percent. Net sales from the base business grew by $1.9 million, or 4.9 percent, led by double-digit growth in snacks. Base business performance was impacted by a 45 percent decline in sales to the Company's largest customer as part of its inventory optimization program. Net sales to other customers increased 20 percent, reflecting continued strong growth trends in conventional channels. 

Gross margin for the quarter was 28.2 percent, compared to an adjusted gross margin of 38.8 percent in last year's first quarter. Gross margin performance was impacted by higher commodity costs, particularly organic wheat, as well as higher trade spending and mix changes, including the impact of the Joplin supply agreement.

Selling, general and administrative expenses ("SG&A") were 32.7 percent of net sales, while adjusted SG&A expenses increased by 360 basis points to 32.3 percent of net sales. The increase in SG&A as a percentage of net sales reflects higher professional services expense, primarily audit, legal and consulting fees related to addressing the material weakness and associated legal matters, and higher stock-based compensation expense resulting from a $0.9 million charge related to prior years. Excluding the impact of both of these items, adjusted SG&A percentage was modestly favorable to the prior year.

Adjusted EBITDA for the quarter was approximately breakeven, compared to $4.6 million in last year's first quarter.

Net loss for the quarter was $1.2 million, or $0.07 per share, compared to net income of $2.2 million, or $0.13 per share in the first quarter of fiscal 2014. Adjusted net loss was $1.1 million, or $0.06 per share, compared to adjusted net income of $2.4 million, or$0.14 per share, in the first quarter of fiscal 2014. Excluding the stock-based compensation and professional services items mentioned above, the business delivered a breakeven performance at the adjusted net income level.