Submitted from Knobias ClipReportThe cost of food has risen dramatically as many are already aware. The cost of corn and other commodities used as feed or actual raw material to produce other products have risen causing the final products to gain in price to offset the cost of rising raw materials. Because of the government’s plans to increase the use of ethanol, the cost of corn could continue to rise in the long term, and adding to the inflationary problem, the Fed ignores food and energy prices when gauging these inflationary concerns.
With the rising food prices, investors might want to hedge the cost of food by adding agricultural, food, or commodity related names to their portfolio.
One name that might be considered a decent hedge against the rising costs is Inventure Group Inc. (SNAK). The Company is engaged in the development, marketing, and distribution of consumer products that are sold through grocery, retailers, mass merchandisers, convenience stores, and vending distributors.
The Company’s portfolio of names includes Boulder Canyon, Braids Pretzels, Tato Skins, Poore Brothers, Rader Farms, Bob’s Texas Style and TGI Friday’s.
With 7 brands and over 50 products, the Company’s sales for the second quarter of fiscal 2007 were $22.9 million, up 24% compared to $18.5 million in the second quarter of 2006. Net income was reported at $300 thousand, or 2c per share, compared to $500 thousand or 3c per share.
The revenue growth was noted as being caused by the acquisition of Rader Farms which accounted for $4.3 million of second quarter net revenue. Rader Farms is a processor and marketer of frozen blueberries, raspberries, berry blends and other fruit products located in the state of Washington.
The Rader Farm acquisition was noted as being accretive to the earnings but was offset by increased commodity costs of $750 thousand. The Company noted in the conference call that they tried to offset the increased commodity costs by increased cost cutting initiatives and strategic price hikes. While the commodity cost increase was noted as being an industry wide problem, the Company noted that they will attempt to further offset the commodity cost increases with further cost cutting and pricing action. The latter was expected to occur in the fourth quarter.
The pricing action is where the Company can recoup the margins lost to the increased costs and while other competitors have drastically raised prices, Inventure Group only strategically raised prices on certain products. With a small increase in price on all products, the name could easily recoup some of the margins.
An additional top line growth initiative was a new product developed in collaboration with a national fast food chain. A line of snack foods are being developed with Burger King and are expected to be released by the end of the year. This French fry snack, which was noted as being developed over the past year and half, was set to be released through their normal distribution channels and could significantly provide top line growth.
Also of note was Burger King’s initiative to offer the snack products in their 7300 stores domestically following a successful testing. While a Burger King French fry snack may not seem like a very desirable food product, many of the TGIF’s line of snacks do not sound appetizing but are in fact, very good performers in the Company’s product line.
The conference call also let many investors into the fact that the Company had experienced some international growth in Mexico, Canada, and the U.K. While the Company has a cash and receivables balance in the $12 million range, one might think another acquisition is possible, especially one to inhibit the international sales growth. The Company noted it was a possibility but declared a pay down of the debt acquired in the Radar Farms acquisition as the main use of cash over the coming months.
With growth initiatives from organic means, pricing initiatives, and the new Burger King line of products, the name is certainly one to follow over the coming months. Investors would be wise to watch.
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Labels: Inventure Group Inc., Knobias, small cap stocks
