Simply Good Foods Beats Q3 Estimates, But 'Under-Shipping' Plan Points To Softer Q4

Simply Good Foods Co (NASDAQ:SMPL) delivered its fiscal third-quarter results ahead of expectations, driven by better-than-expected results across the Quest and OWYN brands.

The fourth-quarter guidance reflects that the company would "under-ship relative to consumption," according to DA Davidson.

The Simply Good Foods Analyst: Analyst Matt Curtis maintained a Neutral rating, while lowering the price target to $14.

The Simply Good Foods Thesis: Management’s turnaround effort is still in an early stage, resulting in concerns around the durability of the company’s sales improvement,Curtis said in the note.

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He highlighted the following results reported by Simply Good Foods:

• Net sales contracted by 6.3% to $357 million but came in higher than consensus estimates of $333-$334 million.
• The sales outperformance was mainly driven by better-than-expected results from the Quest and OWYN segments.
• Quest sales were driven by ongoing momentum in chips.
• OWYN sales rose 3.6% following two consecutive quarters of declines.
• Atkins sales remained under pressure, declining 24.6%.
• Gross margin contracted 390 basis points (bps) to 32.5%, missing the consensus of 33.3%.
• Adjusted EBITDA declined 23% to $57 million but was higher than the consensus of $49-$50 million, driven mainly by the sales upside.

Benefits from productivity initiatives were offset by lower volumes, higher prices of commodities, and cost restructuring, the analyst stated.

"Given the company’s intention to under-ship relative to consumption (which is expected to remain sequentially stable), F4Q guidance was set below consensus," Curtis wrote. Management guided to net revenue of $322 million-$332 million and adjusted EBITDA of $52 million-$57 million, below consensus estimates of $335 million and $61 million, respectively, the analyst noted.

Given the third-quarter upside, management raised its full-year revenue guidance to $1.345-$1.355 billion, from its previous outlook of $1.31-$1.35 billion, while narrowing the adjusted EBITDA guidance to $220-$225 million, he said.

"Further ahead, SMPL announced that it will implement a high-single-digit price increase in September to bolster gross margin against inflationary headwinds in commodities (particularly whey), packaging, and freight," the analyst further wrote.

SMPL Price Action: Simply Good Foods shares were down 3.77% at $12.52 at the time of publication on Friday, according to Benzinga Pro data.