Armanino Foods of Distinction (symbol AMNF on the pink sheets) is out today with its earnings report for the first quarter. Sales and earnings both set records for the first quarter of the year. Sales were $5,864,470, an increase of 17% over the sales levels of the same quarter last year. Earnings per share were 1.6 cents, up from 1.1 cents in the same quarter a year ago. It is worth noting that the actual earnings per share were more than 1.6 cents but the number was rounded down. Further, the number of shares used for the calculation does not reflect much of the substantial share buyback that the company did during the first quarter. If the end of quarter numbers were used, the EPS would rise to 1.7 cents.
The trend for the first quarter over the last four years is EPS of 0.3, 0.7, 1.1 and now 1.6 cents. The EPS for the quarter just completed was also essentially the same as the number for the fourth quarter of last year, a good sign that the growth story for the company remains intact.
The report issued with the numbers, however, has both good and troubling aspects. First the good: the company reports that it is continuing to open new industrial and chain accounts, the type of account that contributes heavily to sales increases. The company is also working on new products and reengineering of older products in order to expand into new markets. Here is the not so good: According to the company, "first quarter results were significantly enhanced by sales booked late in March possibly taking sales from April. It is premature to compare [Armanino's] prospects for Q2 2011 to that of the second quarter of 2010, which was the highest sales and profits quarter...ever achieved in the Company’s twenty five year history." This cryptic comment could indicate that the second quarter may not be as good as expected. Nevertheless, the company concludes by saying, "based on the momentum we have achieved, we remain optimistic regarding our accomplishments for the full year of 2011."
So how can one translate the company's statements into numbers? My view is this: Sales per month during the quarter came to about 1.9 million dollars. That is a weekly rate between $400,000 and $450,000. It seems highly unlikely that more than a full week's worth of sales could have been moved forward from the second into the first quarter. The company's net profit rate was about 9% during the quarter just completed. If the profit on the maximum sales moved into the quarter was much higher, say 15%, the extra profit for the quarter was still only about $60,000. That comes to .17 cents per share. Of course, in the next quarter, the number of shares used to comput EPS will be lower, so the movement of sales into the quarter will have a lesser impact, if it has any at all. When one puts these figures together with the company's own optimism for the year as a whole, the question mark placed on next quarter by this sentence in the earnings report is reduced to a rather small one.
The key to the current earnings is that Armanino has turned in another outstanding quarter to add to the string of good results over the last three years. The company has made clear with its results that the sales and earnings growth is both robust and continuing. Despite the company's small size, its record of continuing profitable growth should earn it an increase in the price/earnings multiple. Large and mid cap food stocks get multiples in the area of 14. Right now, Armanino is selling for a multiple of between 9 and 11 based upon differing earnings expectations. Over the next year, the stock should move closer to the higher multiple provided it continues, as expected, to turn in consistent growth in its results.
Disclosure: I am long Armanino with substantial holdings in the company.
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