The Simply Good Foods pany(SMPL) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total net sales for Q3 2025 reached $381 million, an increase of 13.8% year over year, driven by Owen's contribution of $33.6 million or 10%, alongside 3.8% organic growth [23] - Adjusted EBITDA for the quarter was $73.9 million, reflecting a 2.8% increase from the previous year [25] - Gross profit increased to $138.5 million, a 3.7% rise from the year-ago period, but gross margin declined to 36.4%, down 350 basis points due to elevated input costs [24][25] - Reported EPS was $0.40 per diluted share, compared to $0.41 in Q3 last year, while adjusted diluted EPS increased to $0.51 from $0.50 [26] Business Line Data and Key Metrics Changes - Quest, representing approximately 60% of net sales, achieved 11% consumption growth in Q3, with household penetration increasing by 120 basis points to 18.3% [11] - Atkins experienced a 12.7% decline in net sales, attributed to distribution losses and the absence of high-volume merchandising events from the previous year [23][15] - Owen's retail takeaway grew by 24% in Q3, with ready-to-drink shakes seeing over 20% growth [18] Market Data and Key Metrics Changes - The nutritional snacking category continued to show robust growth, with overall consumption up double digits, reflecting a shift towards high protein, low sugar, and low carb options [8] - Quest's Salty Snacks platform saw retail takeaway grow by 31% in Q3, indicating strong market demand [12] Company Strategy and Development Direction - The company aims to optimize the Atkins brand by focusing on high-velocity SKUs and reducing lower-performing products, while continuing to support Quest and Owen's growth [16][18] - Simply Good Foods is positioned as a leader in the nutritional snacking category, focusing on innovation, expanding distribution, and increasing brand awareness [20][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged inflationary pressures impacting margins, particularly from cocoa and whey, and emphasized ongoing productivity and cost management efforts [9][10] - The company expects to generate approximately 3% organic growth and mid-single-digit total adjusted EBITDA growth for the fiscal year [10] Other Important Information - The company has repaid $240 million of the $250 million borrowed for the acquisition of Owen, with a current leverage ratio of approximately 0.5 times [10][27] - Cash flow from operations for the fiscal year to date was $133 million, down from $167 million the previous year due to higher working capital needs [27] Q&A Session Summary Question: Distribution expectations for Atkins and impact on sales - Management expects continued double-digit declines for Atkins due to distribution cuts, but is proactively addressing these challenges with retailers [38][40] Question: Performance expectations for Owen - Management remains confident in Owen's growth potential, anticipating similar consumption trends as seen in Q3 [46][50] Question: Gross margin outlook and pricing strategy - Management is evaluating additional pricing actions to recover costs and support gross margins, which are currently under pressure [97][70] Question: Capital allocation priorities - The company prioritizes M&A, debt repayment, and share buybacks as part of its capital allocation strategy [99][100] Question: Impact of Texas legislation on product portfolio - Management believes the impact of new regulations will be minimal, with only a few SKUs requiring reformulation [110]