Planning for next week’s news – Earnings from Armanino Foods of Distinction

Next week (most likely on Thursday or Friday) the first quarter earnings report for Armanino Foods of Distinction (AMNF on the pink sheets) will be issued. This event provides a pretty good buying opportunity.

I have been a fan of Armanino for quite some time. The company makes Italian style sauces and prepared foods, and it has been steadily expanding its sales in the last few years. The company pays a regular dividend (qualified) of 1.2 cents per quarter for a return of six percent on the current price of 80 cents per share. There have also been nearly annual special dividends which up the return even higher. The company is also in the midst of a stock repurchase program which has helped support the stock price.

Armanino is certainly not the most exciting company in which one could invest. Nevertheless, it pays a steady, safe and high return with its tax-advantaged dividend. Indeed, the high return provides a floor for the stock price which makes the investment rather safe. I first purchased the stock at 26 cents; it is now 80 cents, and the long term trend has been steadily up despite some short term ups and downs. If the company is ever taken out by a competitor, there could be a nice pay out down the road, but in the interim a slow increase with a high present return is well worth the investment.

That brings me to next week’s earnings report. It is not easy to get a fix on where the earnings will be, but the best indications are that we should see a substantial increase in revenue and profits. The squeeze from rising wheat prices that hit in 2011 is over, and wheat is now about 20% lower than it was a year ago. While wheat is not the only commodity that affects the costs for Armanino’s products, the other commodities involved are mostly lower this year compared to last year as well. Higher oil prices may have impacted costs, but this should be of less relevance than the decline in the ingredient costs. Armanino also reported a substantial increase in its inventories as of the end of 2011. The company has historically managed inventories well, so the higher inventory level likely means that sales prospects for the first quarter were seen as growing smartly as well. All of this together makes more likely a major increase in both revenues and profits during the first quarter of 2012.

Because of the way that Armanino trades, a major increase in revenue and profit will move the stock price up, perhaps back to the 88 to 92 cent range. For those of you who are interested in a steady company with a high yield and growing revenues, now would be the time to buy. After the earnings report, we are unlikely to see 80 cents per share again.

NOTE: Because there is little interim information on a company the size of Armanino, my analysis has a bit more conjecture in it that normal. In other words, this is my opinion, and you certainly need to do your own examination of the facts before investing.

DISCLOSURE: I am long Armanino stock and manage a very substantial position in the company.