American Italian Pasta Co. (AIPC) reported strong Q4 2008 profits blowing by analysts' estimates of .43 cents per share with profits of a $1.23 per share. Revenues were +53% vs. year ago driven by a 16% gain in volume and +45% pricing on its retail business.
AIPC achieved strong volumes despite being very aggressive with pricing to cover a 40% increase in commodity costs. The company is the # 3 ranked pasta producer with an 11% share of market behind New World and Barilla (both private companies).
The pasta category despite rising commodity costs has benefited from consumers "trading in" to supermarkets and eating out less at restaurants. Pasta commodity costs have dropped since the start of the year as the price of durum wheat has moderated. However, private label remains a key threat in the pasta category although AIPC also produces private label pasta products.
Expect shares of AIPC to jump at the open of trading but the key question remains: Are the company's profit gains sustainable? Many supermarket categories are experiencing the same phenomenon:
1) rapid run up in commodity costs in 2008 leading to higher prices
2) a drop in commodity costs that will lead to lower raw material and possibly pricing in Q2 2009
3) Some categories are benefiting from the consumer "trading in" to supermarket food from restaurants
4) Private label growing sales as consumers are more price sensitive.
These trends are benefiting key private label companies like Ralcorp (RAH) and Treehouse foods (THS), both strong private label manufacturers. But we have also seen strong branded companies benefiting from this "trade in" phenomenon. General Mills (GIS) announced strong December sales for its baking and frozen products. Kraft (KFT) sales were strongest in its frozen pizza division led by its Digiorno brand.
AIPC'S results showed it was very adept at managing both margins and market share. It clearly gained market share during the quarter and that is always a good sign. Whether the company can continue to outmaneuver competition remains to be seen, but for now results were very good.
Disclosure: No position in AIPC