Update: Boulder Brands Update

| About: Boulder Brands, (BDBD)


The company beat 2Q consensus on the top line and reported in-line on the bottom line.

We remain bearish on the company’s prospects given the rise in competition and debt levels.

We didn’t anticipate the recent in-line earnings and believe expectations were just too low after the company missed 1Q consensus by 17%.

Boulder Brands (NASDAQ:BDBD) managed to post 2Q earnings of $0.05 a share (meeting consensus) and revenues of $131 million (marginally beating consensus). Shares have soared 15% since earnings, but full-year 2014 earnings consensus remained the same and 3Q EPS consensus has decreased by 9% over the last week.

Sales for 2Q were up 18.7% y/y, but operating income was down 19.9%. The company noted that its first half 2014 weakness was driven by elevated egg-white prices, which are now locked in for the next year.

Since we first covered Boulder Brands back in September of last year, shares are down over 20%. At the time, we put an $8 price target on the company -- we still have 40% downside to that level. Its valuation (on a forward P/E and P/S basis) is now more reasonable, but as we noted in September,

We feel that BDBD is not the perfect growth story that management would like us to believe. The company is facing a number of headwinds including:

  • Slowdown in its Smart Balance business.

  • The encroachment by larger food companies into the gluten-free segment.

  • A gluten-free diet is not for the general population, but only for those for celiac disease or gluten sensitivity.

  • The company is looking to adopt a growth via acquisition strategy and lacks the financial resources to continue making large, transformative acquisitions. Evidence of this is the acquisition of Level Life Foods which has less than $1 million in sales and the company claims to have products for 106 million Americans with diabetes.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.