Packaged food company Simply Good Foods (NASDAQ:SMPL) missed Wall Street’s revenue expectations in Q4 CY2024, but sales rose 10.6% year on year to $341.3 million. Its non-GAAP profit of $0.49 per share was 7.6% above analysts’ consensus estimates.

Is now the time to buy Simply Good Foods? Find out in our full research report.

"We continue to see increased relevance and "mainstreaming" of nutritional snacking products as consumers seek high protein, low-sugar, low-carb foods.

Company Overview

Best known for its Atkins brand that was inspired by the popular diet of the same name, Simply Good Foods (NASDAQ:SMPL) is a packaged food company whose offerings help customers achieve their healthy eating or weight loss goals.

Shelf-Stable Food

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Sales Growth

A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.

Simply Good Foods is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage. On the other hand, it can grow faster because it’s working from a smaller revenue base and has a longer runway of untapped store chains to sell into.

As you can see below, Simply Good Foods’s sales grew at a decent 8.9% compounded annual growth rate over the last three years as consumers bought more of its products.

This quarter, Simply Good Foods’s revenue grew by 10.6% year on year to $341.3 million but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 8.6% over the next 12 months, similar to its three-year rate. This projection is commendable and suggests the market sees success for its products.

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Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Simply Good Foods has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer staples sector, averaging 15.1% over the last two years.

Taking a step back, we can see that Simply Good Foods’s margin dropped by 1.6 percentage points over the last year. Continued declines could signal it is in the middle of an investment cycle.

Simply Good Foods’s free cash flow clocked in at $31.71 million in Q4, equivalent to a 9.3% margin. The company’s cash profitability regressed as it was 5.9 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

Key Takeaways from Simply Good Foods’s Q4 Results

It was encouraging to see Simply Good Foods beat analysts’ gross margin and EBITDA expectations this quarter. On the other hand, its revenue missed. Zooming out, it wasn't a perfect quarter, but we think this was a decent one. The stock traded up 3.3% to $37.99 immediately after reporting.

Is Simply Good Foods an attractive investment opportunity at the current price? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.