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Thursday, November 14, 2013

Armanino Foods -- An Update

Armanino Foods of Distinction (symbol AMNF on the pink sheets) is a company about which I write periodically.  Today, there was some important news released by the company.  After the close of every quarter, Armanino posts detailed financial information on its website, and today, the report for the third quarter appeared.  The report is not the quarterly earnings report for the third quarter; that was released weeks ago.  What Armanino posts is a much more detailed examination of the company's status.  The good news is that the new report contains some favorable information.

Let's start with the guidance given by Armanino.  To be fair, the company does not mention numbers for revenues or profits.  Instead, there is commentary on where thing are headed in the current quarter.  According to management, "The strength of the Company's domestic business drove its overall record breaking sales and profits through the end of the third quarter in 2013; the Company expects this momentum to continue into the fourth quarter."  Let's stop there for a moment.  The report was issued yesterday which is about one half through the fourth quarter.  The language used by the management indicates that domestic sales for the company are on track to hit record levels again.

Next management addresses international sales.  Management says that the sales for the year will be down compared to 2012, but it also says that international sales for the fourth quarter will be up on a year over year basis.  This too is great news.  International sales has been the weak spot for Armanino throughout 2013.  The news that the fourth quarter will see a return to year over year growth for this segment is a clear indication that things are being turned around there.  Rising international sales together with record domestic sales ought to provide an outstanding fourth quarter.

Management also provides detailed information about the cash status of the company.  To put it simply, Armanino is sitting on quite a nice bit of cash.  Indeed, the company's cash hoard is such that it seems reasonable to expect either a special dividend in the next month or an enlargement of the stock repurchase program or, possibly, both.  Our view is that the most likely of these is a special dividend.

There is also a status report on the installation of new equipment by Armanino.  This expansion of capacity was supposed to be completed during the second half of 2013.  Management reports that completion has been delayed until early 2014.  Clearly, this delay is not good news in and of itself.  Nevertheless, when properly analyzed, the delay actually provides good news.  Let's put it this way:  Armanino is on track for higher and perhaps record sales and profits in the fourth quarter without any contribution from the new equipment.  That means that once the equipment does come on line next year, there should be a burst of increased productivity, higher output and resulting higher margins.  In other words, Armanino is doing great even without the equipment and should do much better once it is deployed early in 2014.

We continue to recommend this stock as a strong buy.

DISCLOSURE:  I am long Armanino stock.




 

1 comment:

Sherry Nelson Rosso said...

New institutional investor took a stake in AMNF in Q3, larger than the stake held by Bretton Fund. Looks like Wall Street is starting to take notice