The Armanino Earnings—another Record Quarter

This morning, Armanino Foods of Distinction (AMNF on the Pink Sheets) released its earnings report for the fourth quarter and the year ending December 31, 2010. On the whole, the report was a very positive document. Both sales and profits set records for the fourth quarter. The same is true of the earnings and sales for the year (the second year in a row that has happened). For 2010, the company earned 6.6 cents per share, making the price/earnings multiple for the trailing twelve months just under 13. In view of the company’s growing its earnings YOY by 47% (with the majority of that growth iin the second half of the year to boot), a P/E of 13 remains particularly low.
The detail of the company’s financial performance has not yet been released. It should be made available on the company web site in a few weeks. Certain important points can be discerned from today’s press release, however.
First, most of the funds for the stock buyback remain to be expended in the future. The number of outstanding shares actually rose slightly in the quarter, an indication that very few shares were actually bought back. This provides a nice support for the stock in the coming months.
Second, margins on sales increased in a major way. Income from continuing operations before taxes, a good indicator of margins rose to 13.7% of sales in the quarter in 2010 from 11.7% of sales in the quarter in 2009. With the rise in price of commodities worldwide and of wheat in particular, there was concern that Armanino’s margins would be squeezed. Just the opposite was true. Either the company was able to pass on increased costs or the management figured out how to operate much more efficiently.
Third, Ed Pera, the company’s President and CEO is quoted as saying, “to enhance sales further we are introducing new products into both new market segments and new and existing industrial accounts. We remain cautiously optimistic about our business in 2011.” Over the years, Armanino has been known to underpromise and overperform, so Pera’s statement is good news.
The only question raised with regard to today’s report is the slowing growth of revenues. For the year, revenues rose by 9% while revenues for the fourth quarter rose by only 3.5%. It is premature, however, to determine whether or not this is the start of a trend. Given the company’s push into new accounts in an expanded geographical area, the numbers may be nothing more that the lull arising after the initial sales which stocked the new accounts.
OUTLOOK: On the whole, the earnings report is a major positive for the stock, particularly since it seems to remove the worry about rising commodities prices. I maintain my target of $1.30 for the stock. Indeed, if the stock breaks through the $1.00 barrier, there may be a rapid move to the upside as certain fund managers who are barred from purchasing stock below $1.00 may jump into the stock. If the company takes any action to return to NASDAQ from the Pink Sheets, there should also be a big bump in the price.
Disclosure: I remain long Armanino with extensive holdings in the stock.