Annie's Inc.: Is This Rabbit Lucky?

| About: Annie's, Inc. (BNNY)

Back in December, I introduced readers to Annie's Inc. (NYSE:BNNY) and recommended it once it goes public. That day is coming Wednesday morning, as investors have their first chance to own shares of this natural food company.


Annie's Inc. operates as a natural and organic food maker in the United States. The company has products in three segments:

  • Meals - Mac and Cheese, Canned Meals, Pastas, Cereals
  • Snacks - Crackers, Pretzels, Graham Crackers, Fruit Snacks
  • Dressings - Dressings, Condiments, Barbecue Sauce

In 2011, the revenue broke down by segment:

  • Meals - 42%
  • Snacks - 38%
  • Dressings - 20%

Even though the meals segment represents the most revenue, the snacks business is where Annie's shows it true strength in the natural foods segment. Annie's has a number one market share for three snack products in the natural foods segment. The following four products have a number one natural foods market share position:

  • Mac and Cheese
  • Fruit Snacks
  • Snack Crackers
  • Graham Crackers

The macaroni and cheese sold by Annie's is the second best selling brand in the United States, and trails only Kraft's (KFT) blue box mac and cheese.

Annie's products are found in over 25,000 retail outlets in the United States. Over 125 products are offered in small and large grocery stores. Large retailers of Annie's products are:

  • Kroger (NYSE:KR)
  • Safeway (NYSE:SWY)
  • Target (NYSE:TGT)
  • Costco (NASDAQ:COST)
  • Whole Foods (NASDAQ:WFM)
  • Wal-Mart (NYSE:WMT)
  • Trader Joe's

Recently, Annie's introduced naturally rising frozen pizzas, which can be found at Whole Foods stores. The pizzas come in four flavor varieties and even featured uncured pepperoni. The four pizzas are all organic and come in these flavors:

  • Organic Uncured Pepperoni
  • Organic Four Cheese
  • Organic Supreme
  • Organic Spinach & Mushroom


Annie's' sales in 2011 were $117.6 million. The company reported a profit of $15.1 million. Net sales have grown from $65.6 million back in 2007. For the previous two years, the company reported net sales of $96.0 million (2010) and $93.6 million (2009).


Annie's has sold five million shares at a price of $19 Tuesday evening. This is a very positive sign for the company, but could be costly to investors looking to get in at a decent price. In the article I wrote back in December, Annie's had originally set a range of $12-$14. That range was raised to $14-$16 this week, and many analysts were using the mid range of $15 to show statistics on the company. Nearly one million (950,000) of the shares came from the company itself, while four million (4,050,000) were from private equity owners. Solera Capital, who owned 90% of the company, sold 3.7 million shares and will now own close to 60% of the company as it hits the public market.

Annie's has said that it will use the proceeds from the public offering to pay down debt and a $1.3 million fee to Solera Capital. The real winner in the initial price offering is Solera Capital, as it made $76.95 million from the offering and will receive the $1.3 million fee from Annie's as well.

Acquisition Target

As I wrote before, Annie's is a clear acquisition target due to its pure play in the natural foods and organic segments. Annie's also has a growing gluten free food market. This segment may lead to larger companies taking a closer look. Smart Balance (SMBL) acquired gluten free pure play company Glutino last year, which I praised in this article.

Kraft and General Mills (NYSE:GIS) would appear to be two of the best possible acquiring companies. Recently, General Mills acquired Food Should Taste Good to grow its natural foods segment and it appears to be open to more acquisitions. It is also worth noting that founder Annie Withey sold a previous company called Smartfoods to Frito Lay (NYSE:PEP) back in 1986. Perhaps Pepsi's Frito Lay unit would make a play at Annie's as well.

While my money would be on Kraft or General Mills potentially acquiring Annie's, I wouldn't rule out a smaller player. I think a combination with either Smart Balance or Hain Celestial (NASDAQ:HAIN) as a pure play natural foods company would make more sense, because the integration would line up and the company would enjoy strong margins across the board.

How to Trade

It's hard to recommend shares of Annie's after the company priced at $19. Originally set at a price range of $12-$14, shares are already 46% above the mid range of that projected range. I was really looking forward to seeing shares hit the market and considered buying some. I would like to see shares come back down to the $15-$16 range before I get excited. The company would likely get bought out at $22-$23 within the next two years but I see a buyout at only about 25% right now.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in BNNY over the next 72 hours.