“The Joplin plant provides capacity to more than triple our current cookie and cracker production volume and will allow us to grow faster and more profitably than we otherwise could. The plant will also serve as a platform for further innovation in snacks,” said CEO John Foraker in an earning’s call with analysts recently that discussed the company’s second quarter 2014 results.
The plant was purchased from a subsidiary of the supermarket chain Safeway and had been the primary production location for Annies’ crackers and cookies for the past 10 years. After fulfilling certain existing manufacturing agreements over a three year period, the plant's full capacity will be devoted to Annies products, the company said. Annies is a leading natural and organic food company with a product range that includes pastas, snacks, pizza, dressings and oils and frozen foods.
Snacks are key driver of growth
Snacks as a category presents one of the biggest opportunities for the company, Foraker said.
“Snacks have been an important contributor to our recent sales growth. However, we believe we've only scratched the surface of our real potential in this part of our business. To provide some context, in the grocery channel, the category leader in mac & cheese is about 10 times our size, while the category leader in crackers is over 40 times our size,” he said.
Foraker said innovation will be a key element in helping the snack category form an ever-larger portion of the business. One of the key innovations that will drive that growth in a move toward bagged products, Foraker said. The company has up to now traditionally offered its main products, such as its lines of mac and cheese and graham cracker products, in cardboard boxes. But consumer research showed that mothers preferred bags to boxes because they fit easier into purses and satchels.
“This packaging is strongly preferred by consumers, improves our price point competitiveness at shelf and offers potential for significant increases in mainstream distribution and breadth of assortment,” Foraker said.
Earnings details
Annies recorded a strong quarter with adjusted net sales of $57.9 million, an year-over-year increase of 24%. Earnings per share came in an adjusted and diluted 28 cents, a 19.1% increase. Consumption was up strongly, too, showing a 22% increase.
Earnings were negatively affected by higher-than-expected demand for new products. While it is obviously a good thing that launches perform well, new products tend to have lower margins in their initial market phases when compared to established SKUs, said Ed Aaron, senior vice president of strategic planning.
Another drag on earnings was a miscalculation in frozen pizza inventory. In January, Annies recalled its frozen pizzas because of the failure of a metal mesh grid in the plant of one of its contract manufacturers, with bits of metal too small for control machinery to detect ending up in the dough. After destroying its pizza inventory, the company had to make a decision in how much pizza to manufacture quickly to replace that lost inventory. The company ended up overshooting that figure and had to dump at a discount some pizza inventory that was nearing its shelf life limits, Foraker said.