Overhill Farms: Best Laid Plans

The ink was hardly dry on the Declaration of Independence when poet Robert Burns made his famous observation that "the best laid schemes o' mice and men gang aft agley," which, for those of us who are a little unpolished on "Scotch" (the language), it roughly means that things don't always turn out as planned.

Officials at Overhill Farms Incorporated (AMEX: OFI), a company that develops and produces frozen food products, including entrees, plated meals, meal components, soups, sauces, poultry, meat and fish specialties, can surely relate.

Despite record net revenues of $192.6 million for (an increase of 14.4 percent over 2006), OFI's net income actually fell by $540,000, or 10.6 percent, during the year.

The reason? Unplanned expenses.

James Rudis, Overhill Farms' Chairman and Chief Executive Officer noted that "prices for poultry, dairy, cheese, eggs, wheat, corn products and oils rose during the year, some reaching historic highs."

Rudis explained that, although the company typically keeps price fluctuations under control by signing long-term contracts with suppliers, "sales to several of our major customers during the year were higher than we anticipated."

Not a bad problem to have, really. Though, given that Rudis announced that OFI "was on track to reach an annual revenue run rate [of] over $200 million by the third quarter" of FY 2007, the poor planning is that much more perplexing — and disturbing.

Still, the overall numbers look good. Rudis justifiably believes that operating margins will improve in 2008 — barring any more forecasting follies, they'd almost have to — and sales to a national-brand company that were approximately $17 million less than the amount that was contracted in '07, should rebound in the new year, company officials insist.

That would seem to make Over Hill Farms' stock a bargain. As it is, OFI has a P/E ratio south of 10 (less than half the industry average) and a P/S ratio under 0.25.

Perhaps some of investors' best-laid plans should include adding OFI to their 2008 portfolios.

Disclosure: none