Annie's Reports Fourth Quarter and Fiscal 2014 Financial Results

BERKELEY, Calif., May 29, 2014 /PRNewswire/ -- Annie's, Inc. (NYSE: BNNY), a leading natural and organic food company, today announced financial results for the fourth quarter and fiscal year ended March 31, 2014.

Highlights:

• Net sales were $60.1 million in the fourth quarter and $204.1 million for the fiscal year; adjusted net sales¹ grew 16% and 19% for the fourth quarter and fiscal year, respectively
• Consumption grew an estimated 20% in the fourth quarter, despite the later Easter holiday, and grew approximately 21% for the fiscal year²
• Diluted EPS was $0.29 in the fourth quarter and $0.88 for the fiscal year; adjusted diluted EPS¹ was $0.29 for the quarter and $0.86 for the fiscal year
• Management provides fiscal 2015 guidance, including adjusted net sales growth of 18% to 20% and adjusted diluted EPS in the range of $0.88 to $0.95

"Annie's delivered another quarter of strong sales growth driven by both base business increases and successful innovation," commented John Foraker, CEO of Annie's. "The Annie's brand is performing exceptionally well in the marketplace, as we continue to benefit from strong consumption trends and growing retailer demand for natural and organic products.

"Despite our strong top-line growth, we were disappointed that our bottom line results fell short of expectations, primarily due to higher-than-expected input costs, in particular organic wheat. We have improved our forward cost coverage of organic wheat, and are broadly building capabilities across our supply chain to keep pace with our growth.  We are also taking the necessary steps to improve both our execution and the predictability of our financial results," continued Foraker.

"As we enter fiscal 2015, our brand has never been stronger. Our consumers love what we stand for, knowing that in buying Annie's, they are bringing home high-quality food from a brand they trust. We are a power brand for retailers, driving growth, profit, and share in the categories in which we chose to compete.  Our consumption trends are running in the +20% range, driven by increased household penetration and strong unit volume growth, placing our brand in the top-tier of our industry.  Importantly, 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."

"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."

"Our financial position remains strong. We generated strong operating cash flow in the fourth quarter, resulting in $17 million in cash and no debt on the balance sheet at fiscal year-end.  We expect to produce strong cash flow in fiscal 2015, while continuing to invest in future growth," concluded Foraker.

Fourth Quarter and Full-Year Results
For the fourth quarter, Annie's reported net sales of $60.1 million. Excluding the benefit to net sales from the pizza recall, primarily related to insurance recoveries, adjusted net sales increased 15.9% to $59.8 million. Net sales growth in the fourth quarter was led by snacks, which grew 26% as a result of strength in fruit snacks, cookies, and crackers. Adjusted net sales of meals grew 11%, impacted by the timing of Easter shipments year-over-year. For the fiscal year, net sales were $204.1 million, and adjusted net sales were $203.0 million, an increase of 19.0%.

In finalizing the fiscal 2014 results, the Company determined that its historical methodology for estimating certain trade allowances did not include all related trade promotion costs. Specifically, it did not consider trade promotion activities conducted by its customers after quarter end related to sales that occurred prior to that quarter end. As a result, the Company chose to revise its methodology used to estimate trade expenses, which resulted in $0.6 million and $0.4 million of higher trade expenses in the fourth quarter and fiscal year, respectively, reflected as a reduction in net sales. However, the financial impact of this change is not considered to be material to any prior or annual financial statements under accounting guidelines. The Company will revise its previously issued financial statements included in its Form 10-K.

Gross margin for the quarter was 35.0%, while adjusted gross margin declined 410 basis points to 34.6%. Gross margin performance was impacted by higher supply chain costs related to: 1) significant commodity inflation, especially organic wheat; 2) increased inventory obsolescence due in part to the impact of new products; and 3) mix changes. In addition to higher cost of goods sold, trade spending increased as a percentage of sales as a result of successful efforts to drive continued distribution and market share growth in a more competitive retail environment. For the fiscal year, gross margin was 37.1% and adjusted gross margin declined 290 basis points to 36.4%.

Selling, general and administrative expenses ("SG&A") for the quarter were 20.2% of net sales, while adjusted SG&A improved by 380 basis points to 20.1% of adjusted net sales. SG&A expenses benefited from reduced incentive compensation expenses and general expense control. For the fiscal year, SG&A was 24.3% of net sales, and adjusted SG&A improved 180 basis points to 24.0% of adjusted net sales.

Adjusted EBITDA for the quarter increased 6.9% to $8.9 million. For the fiscal year, adjusted EBITDA grew 7.9% to $27.3 million.

Net income for the quarter was $5.1 million, or $0.29 per diluted share, compared to $3.9 million, or $0.22 per diluted share, in the fourth quarter of fiscal 2013. Adjusted net income was $5.1 million, or $0.29 per diluted share, compared to adjusted net income of $4.7 million, or $0.27 per diluted share, in the fourth quarter of fiscal 2013. 

Net income for the fiscal year was $15.3 million, or $0.88 per diluted share, compared to $11.3 million, or $0.64 per diluted share, in fiscal 2013. Adjusted income was $14.9 million, or $0.86 per diluted share, compared to adjusted net income of $13.9 million, or $0.78 per diluted share, in fiscal 2013.

Fiscal 2015 Outlook
The Company expects to achieve adjusted net sales growth of 18% to 20%, including 14% to 16% growth in sales of Annie's branded products and four percentage points of net sales growth from contract manufacturing revenue related to the Company's recent acquisition of the Joplin plant.  The Company's net sales outlook assumes a 3% to 4% impact on net sales from expected inventory reductions by its largest customer.

Adjusted EBITDA is expected to be in the range of $29.5 to $31.5 million, and adjusted diluted EPS of is expected to be in the range of $0.88 to $0.95.

While adjusted gross margin is expected to be comparable to fiscal 2014, despite the dilutive impact of non-core contract manufacturing revenue, the Company expects SG&A expense to increase as a percentage of net sales, reflecting planned investments in people to support future growth, higher stock-based compensation costs and normalization of incentive compensation expense.

The Company expects first quarter results to be significantly impacted by a renewed inventory reduction focus by its largest customer, year-over-year commodity inflation and the phasing of investment spending to support new product introductions and base business growth.  These factors are expected to result in an operating loss for the first quarter, the Company's seasonally smallest quarter. 

The Company expects second half margins to show solid improvement on a year-over-year basis, reflecting the benefit of stronger net sales growth, planned pricing actions and cost savings associated with manufacturing efficiency projects.

The Company continues to expect the Joplin plant acquisition to be neutral to adjusted EPS in fiscal 2015.

Conference Call Information for Today, May 29, 2014
Annie's will host a conference call and live webcast today, May 29, 2014 at 2:00 p.m. PT (5:00 p.m. ET). The conference call can be accessed by dialing 1-877-941-6009, or 1-480-629-9819 (outside the U.S. and Canada). A live webcast will be available on the Investor Relations section of Annie's corporate website at www.annies.com and via replay beginning approximately two hours after the completion of the call for 90 days. An audio replay of the call will also be available to all interested parties beginning at approximately 5:00 p.m. Pacific Time on Thursday, May 29, 2014 until 11:59 p.m. Pacific Time on Thursday, June 12, 2014, by dialing 1-800-406-7325 or 1-303-590-3030 (outside the U.S. and Canada) and entering pass code 4685399#.

About Annie's 
Annie's, Inc. (NYSE: BNNY) is a natural and organic food company that offers great-tasting products in large packaged food categories. Annie's products are made without artificial flavors, synthetic colors, and preservatives regularly used in many conventional packaged foods. Additionally, Annie's sources ingredients so as to avoid synthetic growth hormones and genetically modified food ingredients. Today, Annie's offers over 145 products and is present in over 35,000 retail locations in the United States and Canada. Founded in 1989, Annie's is committed to operating in a socially responsible and environmentally sustainable manner. For more information, visit www.annies.com.

Forward-Looking Statements
Certain statements in this press release and the accompanying conference call that are not historical facts, including any statements about the Company's targets, beliefs, plans, opportunities or expectations, such as its expectations for fiscal 2015 growth prospects, costs and competition, are "forward-looking statements" within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements may be identified by words like "anticipate," "assume," "believe," "continue," "could," "estimate," "expect," "intend," "may," "plan," "potential," "predict," "project," "future," "will," "seek" and similar terms or phrases.

The forward-looking statements contained in this press release and the accompanying conference call are based on management's current expectations, plans, known information, estimates and projections, and are subject to uncertainty, changes in circumstances and significant risks. We cannot assure you that future developments affecting us will be those that we have anticipated.

Actual results may differ materially from the forward-looking statements contained in this press release and the accompanying conference call due to changes in economic, business, competitive, market, regulatory and other factors, many of which are beyond our control. We believe that these factors include those disclosed in the section entitled "Risk Factors" in our Annual Report on Form 10-K for fiscal 2014 to be filed with the SEC, including risks relating to implementing our growth strategy; maintaining our brand and reputation; product liability claims; competition; new product introductions; reduced availability of, and competition for, organic ingredients and other inputs; supply chain and inventory management; our internal controls; our reliance on a limited number of distributors, retailers and contract manufacturers of our products; our acquisition of the Joplin plant and expansion of our business model to include manufacturing; changes in consumer preferences; regulatory compliance; and seasonality.   Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, our actual results may vary in material respects from those projected in these forward-looking statements.

Any forward-looking statement made by us in this press release or the accompanying conference call speaks only as of the date hereof. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by any applicable securities laws.

Non-GAAP Financial Measures
Adjusted net sales, adjusted gross margin, adjusted selling, general and administrative expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS are not financial measures prepared in accordance with U.S. generally accepted accounting principles, or GAAP. As used in this press release: (1) adjusted net sales represents net sales adjusted for impact on net sales due to frozen pizza recall and related insurance recoveries; (2) adjusted gross margin represents gross margin adjusted for impact on gross margin due to frozen pizza recall and related insurance recoveries; (3) adjusted selling, general and administrative expenses reflect selling, general and administrative expenses adjusted for impact on selling general and administrative expenses due to frozen pizza recall and related insurance recoveries, secondary offering costs, and costs associated with the Joplin plant acquisition; (4) EBITDA represents net income plus interest expense, provision for income taxes, and depreciation and amortization; (5) adjusted EBITDA represents EBITDA adjusted for impact on net sales, cost of sales, and selling, general and administrative expenses due to frozen pizza recall and related insurance recoveries; costs associated with the Joplin plant acquisition; secondary offering costs; stock-based compensation; and the change in fair value of convertible preferred stock warrant liability; (6) adjusted net income represents net income adjusted for impact on net sales, cost of sales, selling, general and administrative expenses and provision for income taxes due to frozen pizza recall and related insurance recoveries; costs associated with Joplin plant acquisition, secondary offering costs, the change in fair value of convertible preferred stock warrant liability and the provision for income taxes on these; and (7) adjusted diluted EPS represents adjusted net income divided by weighted average diluted shares of common stock.

We present adjusted net sales, adjusted gross margin, adjusted selling, general and administrative expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS because we believe these measures provide additional metrics to evaluate our operations and, when considered with both our GAAP results and the related reconciliation to the most directly comparable GAAP measure, provide a more complete understanding of our business than could be obtained absent this disclosure. We use adjusted net sales, adjusted gross margin, adjusted selling, general and administrative expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS together with financial measures prepared in accordance with GAAP to assess our operating performance, to provide meaningful comparisons of operating performance across periods, to enhance our understanding of our core operating performance and to compare our performance to that of our peers and competitors. We believe that these non-GAAP financial measures are also useful to investors in assessing the operating performance of our business without the effect of the items described above. Adjusted net sales, adjusted gross margin, adjusted selling, general and administrative expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS are subject to inherent limitation as they reflect the exercise of judgment by management in determining how they are formulated. Further, our computation of these non-GAAP measures is likely to differ from methods used by other companies in computing similarly titled or defined terms, limiting the usefulness of these measures. These non-GAAP measures should not be considered in isolation or as alternatives to GAAP measures and do not purport to be alternatives to either net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. We urge investors to review the reconciliation of these non-GAAP financial measures to the comparable GAAP financial measures included in this press release, and not to rely on any single financial measure to evaluate our business.

¹Adjusted net sales, adjusted gross margin, adjusted selling, general and administrative expenses, EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS are non-GAAP financial measures and must be read in conjunction with the important information about these measures and the full reconciliation to the most comparable GAAP measures set forth below.
²Source: Syndicated and proprietary retail sales data for most applicable 12-week period.

CONTACT:
Ed Aaron
510-558-7574
303-868-5551
[email protected]

SOURCE Annie's, Inc.