Q3 2024 Earnings Summary
- Robust Quest Momentum: Q3 results highlighted Quest’s strong growth with a $300 million retail run rate and roughly 50% growth in key channels, driven by effective advertising and e-commerce performance. This momentum is expected to accelerate further with increased marketing investment in fiscal '25.
- Strategic Expansion through OWYN: The recent OWYN acquisition expands the portfolio by increasing exposure in the shakes segment by about 400 basis points to 23% of total sales, offering access to a new consumer segment with strong consumption metrics and the potential to double revenue over the next four years.
- Focused Revitalization of Atkins: The well-executed revitalization plan for Atkins—with 17 new product launches aimed at maintaining distribution and trimming lower ROI investments—positions the brand for sustainable long-term growth in the weight management category amid rising cultural relevance.
- Margin Pressure from Commodity Inflation: A 60% spike in cocoa prices—from 6,000 to 9,500 metric ton in a short period—could drive higher input costs and compress margins in fiscal '25, particularly during the latter half.
- Short-Term Sales Decline in Atkins: Atkins has experienced 5–6 consecutive quarters of declining consumption, and management’s decision to scale back on lower ROI trade and marketing investments may lead to further short-term sales weakness.
- Portfolio Investment Trade-Offs: Shifting investment focus toward high-growth brands like Quest and OWYN could result in underinvestment in the traditionally strong Atkins brand, exacerbating its short-term performance challenges.
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Cocoa Inflation
Q: How is cocoa inflation affecting margins?
A: Management noted that cocoa spot prices jumped from 6,000 to 9,500 per metric ton, raising ingredient costs for fiscal ’25. They plan to manage these pressures through productivity improvements and pricing levers. -
FY25 Outlook
Q: What levers drive growth for fiscal ’25?
A: They expect top-line growth in the lower end of their long-term 4%–6% range, while cautioning that inflation and reduced low-ROI investments may dampen near-term performance, with OWYN contributing high single-digit growth. -
Atkins Spend
Q: Why cut Atkins’ marketing spend?
A: Management is pulling back on low ROI trade and marketing investments for Atkins to ensure long-term profitability, reallocating resources across Quest, Atkins, and the newly acquired OWYN. -
Atkins Timeline
Q: Is Atkins’ recovery delayed?
A: They expect a short-term sales impact on Atkins as they refine the brand strategy, anticipating a multi-quarter turnaround supported by refreshed products and new advertising set to air this fall. -
Brand Priorities
Q: How does OWYN fit into the portfolio?
A: OWYN will operate largely independent for the first year, allowing management to focus on driving its distribution without skewing investments from Quest or Atkins. -
OWYN Growth
Q: What are OWYN’s immediate growth plans?
A: The plan is to leverage Simply Good Foods’ scale for quick distribution expansion, with steady seasonal performance expected and synergies largely realized at the start of fiscal ’26. -
Quest Product
Q: How are Quest products performing?
A: Quest’s chips are driving impressive growth at about 50% and a run rate of $300 million, while new baked products are poised to further boost household penetration. -
Product Cadence
Q: How often will new platforms launch?
A: New Quest platforms are generally introduced every 2–3 years, ensuring that existing strong performers receive the necessary focus before launching additional products. -
Quest ROI
Q: Is the Quest advertising campaign effective?
A: The latest advertising campaign for Quest has delivered immediate sales gains beyond expectations, prompting plans for increased investment in fiscal ’25. -
Quest & Atkins
Q: What’s the outlook on Quest’s baked launch and Atkins consumption?
A: The new Quest baked items are expected to be well received at launch this fall, while Atkins is forecast to continue underperforming year-on-year in fiscal ’25 due to tighter ad spending. -
Atkins Distribution
Q: Will Atkins trim its subcategories?
A: With 17 new items coming in the fall, management is engineering a product refresh aimed at maintaining distribution levels (except in the club channel) by carefully curating its subcategories.
Research analysts covering Simply Good Foods.