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Monday, February 21, 2011

Armanino – looking at the earnings trend

With the latest earnings from Armanino Foods of Distinction (AMNF on the Pink Sheets), the company continued its run of record revenue and earnings. I was asked, however, about the fall off in earnings from the third quarter to the fourth; they went from 1.9 cents in the third quarter to 1.6 cents in the fourth quarter of 2010. Even though this is still a record for the fourth quarter, it is a decline of over 15% from the previous quarter.

The simple answer is that in recent years Armanino’s earnings have been seasonal. Earnings in the second and third quarter are the highest for the year. The fourth quarter earnings are usually the next highest for the year with those for the first quarter earnings being the lowest. Here are the numbers by quarter for the last three years:

2008 0.3 cents 0.9 cents 0.9 cents 0.7 cents
2009 0.7 cents 1.4 cents 1.4 cents 1.2 cents
2010 1.1 cents 2 cents 1.9 cents 1.6 cents

As you can see from the chart, the decline from the third quarter to the fourth quarter was greater (on a percentage basis) in 2008 and 2009 than it was for 2010, the quarter for which the results were just reported.
In our opinion, the earnings decline from the third to the fourth quarter is exactly as expected for the stock. First quarter earnings for 2011 may be lower still. Indeed, if the first quarter 2011 earning come in higher than those of the fourth quarter of 2010, it is a good sign of a really outstanding performance for the current year.
The target and outlook for the stock remain unchanged.

Disclosure: As previously reported I have a substantial long position in the stock.

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