Why Simply Good Foods Co (NASDAQ: SMPL) stock is under pressure

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Simply Good Foods Co (NASDAQ: SMPL) stock plunged 10.71% on January 9th, 2020 (Source: Google finance) after the company swung to a net loss of $4.8 million, for the quarter to Nov. 30 from a profit of $15.4 million, in the year-ago period. The company has posted mixed results for the first quarter of FY 20. At the end of the first quarter 2020, the company had generated cash of $72.7 million.

SMPL in the first quarter of FY 20 has reported the adjusted earnings per share of 22 cents, beating the analysts’ estimates for the adjusted earnings per share of 20 cents, according to the FactSet consensus. The company had reported the adjusted revenue growth of 25.8 percent to $152.2 million in the first quarter of FY 20, missing the analysts’ estimates for revenue of $161.7 million. The company has attributed 14.1 percentage points of its revenue growth to the Quest acquisition. The remaining 11.8 percentage points of core growth exceeded management’s full-year forecast range of 4% to 6%.

Moreover, US legacy Atkins volume growth has risen by 13.5%. Higher volume was partially offset by greater trade promotion resulting in total US legacy Atkins net sales growth of 12.7%. Atkins’ non-US net sales, including Canada and the international business, was up about 1.5% in the quarter. As a result, total organic net sales growth in the quarter was 11.7%.

Further, gross profit had increased 19.8% to $62.2 million in the first quarter of 2020, driven by both legacy Atkins sales growth and Quest, partially offset by a non-cash $2.4 million inventory purchase accounting step-up adjustment related to the Quest acquisition. Adjusted EBITDA rose 19.1% to $31.8 million, due to the increase in gross profit, which was partially offset by a 20.3% increase in selling and marketing expenses.

The company has updated its fiscal 2020 sales guidance range for the acquisition of Quest, to be between $850 million to $870 million, but that was below the FactSet consensus of $873.4 million. Transaction costs in fiscal 2020 are anticipated to be about $27 million with the vast majority occurring in the first quarter. Integration expenses in the first quarter were $1.4 million. We anticipate total integration expenses to be similar to other deals of the same size, about 2% to 3% of the total deal value.

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