Small natural foods company Smart Balance Inc (SMBL) continues to hit new high prices with its shares. The company reported great earnings last week and appears to be getting the most out of its acquisitions. With the company guiding for higher 2012 revenue and issuing strong 2013 guidance, expect to see some analyst activity and a continued rise in share price.
Smart Balance reported net sales of $76.0 million in the second quarter. This marked a 28.7% increase from the previous year. Operating income came in at $10.9 million, an increase of 5.3%. The company reported earnings per share of $0.05. Analysts were calling for earnings per share of $0.05 on $77.06 million. Despite the top line miss, shares did trade up over 12% after reported earnings.
In the second quarter, Smart Balance saw sales of some of its newer items see tremendous growth. Glutino, a recently acquired company, saw sales increase 31% year over year. Earth Balance product sales were up 27%. Smart Balance launched a new line of spreadable butter during the quarter. The company's butter segment now sees an average of 1.8 items on store shelves. Smart Balance held an 11% market share in the butter segment in the second quarter.
Earth Balance was also a big contributor to the company's second quarter. Sales were up 27.1% in the quarter. The brand also has seen recent launches of: Mindful Mayo, Earth Balance Coconut & Peanut Spread, and Soy Milk.
One negative for the company's earnings was milk sales. The company's branded milk saw sales decrease 9.8%. This year's second quarter was up against a strong promotional period last year. The company also said there was a wider gap in pricing between Smart Balance's milk brands and other store brands. Sales should return to normal levels in the third quarter.
One of the biggest reasons shares of Smart Balance were up last week was the announcement that the acquisition of Udi's Healthy Foods would have a positive impact beginning quarter three. In the second quarter, Udi's sales were up 79.6%% to $22.9 million. Smart Balance acquired Udi's for $125 million, which kept me bullish on Smart Balance in a previous article. The acquisition of Udi's closed on July 2nd. Smart Balance now has a trio of newer healthy food segments with Glutino, Udi's, and Earth Balance. Together, the three will make up almost 50% of Smart Balance's sales.
Smart Balance is guiding for full year revenue of $360-$370 million. Previously, the company was guiding for $320-$330 million. The rise in estimates is from acquisitions being closed earlier than expected. Analysts at Yahoo Finance are calling for revenue of $328.98 and earnings per share of $0.27 for the full fiscal year.
The company also issued revenue guidance for 2013. In fiscal 2013, Smart Balance estimates it will earn $440-$450 million in revenue. Operating income is expected to be $70-$75 million. Analysts at Yahoo previously projected revenue of $350.49 million and earnings per share of $0.34.
Shares of Smart Balance now trade at their highest levels since December of 2007. Shares are up over 100% in the calendar year. Back in June, I recommended shares with a price target of $10 after the Udi's acquisition. After the Glutino acquisition in 2011, I recommended shares of Smart Balance as an acquisition target. I still think Smart Balance could ultimately be bought out, but think the company's prospects on its own are stronger than ever.
The company has positioned itself to be a big player in natural foods and gluten free food offerings. Smart Balance will continue to make small acquisitions that help boost earnings. The company's 2013 revenue targets are about $100 million higher than what analysts were expecting. Expect to see some analyst activity soon with upgrades and new revenue targets. Shares remain a buy at these levels as they are set to continue their break out.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.