ItsAValueTrap Posted September 16, 2014 Share Posted September 16, 2014 I don't think the numbers look fishy. They likely have some assets that were depreciated to 0. Kraft has somewhat similar return on equity numbers. Link to comment Share on other sites More sharing options...
HWWProject Posted February 9, 2016 Share Posted February 9, 2016 Armanino Foods has been mentioned as a Buffett small-cap. As sales continue to steadily increase, so do the margins. It seems to be a real gem - shareholder friendly OTC stock. Pays a dividend. Files quarterly/annual reports. Sales were recession-resistant in 08/09. The original family still owns a fair amount of stock. It had a hiccup in 3rd Quarter, international sales fell (perhaps mostly currency translation). Another concern is I believe they are renegotiating the lease in 2016 for their primary manufacturing plant. Their press release indicates 4th quarter doing well. Info is difficult to find on this (or any) OTC stock. There's good discussion and links in this thread. Selling at around 10% pretax earnings yield. I bought an initial position yesterday. Would look to increase on weakness. Link to comment Share on other sites More sharing options...
60North Investments Posted February 9, 2016 Share Posted February 9, 2016 I'm not sure how big of a concern the lease on the manufacturing plant is. This is what is said on the annual report: "The Company has an option to extend the amended agreement for another five years at a base rent equal to the prevailing fair market rental value at that time, but not less than $18,997." I don't know what the fair market rental value might be, probably something little higher than the current $19k? If nothing exceptional happens and they grow FCF at, say, 5% rate going forward, owners at these levels should probably get 7-8% return in the long-term. So I'm curious, what could potentially happen for this to be a 15% return investment? Sale of the company (2013 VIC write-up mentioned that CFO had said there were offers/interested parties that they didn't want to sell at the time)? Something else? Link to comment Share on other sites More sharing options...
KJP Posted February 9, 2016 Share Posted February 9, 2016 If nothing exceptional happens and they grow FCF at, say, 5% rate going forward, owners at these levels should probably get 7-8% return in the long-term. So I'm curious, what could potentially happen for this to be a 15% return investment? Sale of the company (2013 VIC write-up mentioned that CFO had said there were offers/interested parties that they didn't want to sell at the time)? Something else? Historically, the company has required very little cash flow to grow (high ROIC). Because of that, 5% growth could get you 10% returns, rather than 7-8%. But I agree with your general point that to get 15% returns over an extended period of time, you need more than 5% growth. Link to comment Share on other sites More sharing options...
HWWProject Posted February 9, 2016 Share Posted February 9, 2016 If nothing exceptional happens and they grow FCF at, say, 5% rate going forward, owners at these levels should probably get 7-8% return in the long-term. So I'm curious, what could potentially happen for this to be a 15% return investment? Sale of the company (2013 VIC write-up mentioned that CFO had said there were offers/interested parties that they didn't want to sell at the time)? Something else? They've grown sales on basically the same asset base (a single manufacturing plant), so a 5% increase in sales results in significantly more free cash flow. They've been very shareholder friendly with the extra cash, both dividends and buying back shares (rare for OTC stocks). Link to comment Share on other sites More sharing options...
60North Investments Posted February 9, 2016 Share Posted February 9, 2016 What's your reasoning behind 5% sales growth leading to much higher growth in FCF? For this to be the case, they'd need to improve their margins (of course lower taxes for example would do the work as well) which I wouldn't want to bet on (already great margins in a very competitive industry). And even though they've grown without needing much capex, I dare to say that won't be the case forever. They manufacture products, and those plants and equipment will not last forever. What a reasonable maintenance capex is, I'm not sure, but would say that it's perhaps around depreciation? Link to comment Share on other sites More sharing options...
KJP Posted February 9, 2016 Share Posted February 9, 2016 And even though they've grown without needing much capex, I dare to say that won't be the case forever. They manufacture products, and those plants and equipment will not last forever. What a reasonable maintenance capex is, I'm not sure, but would say that it's perhaps around depreciation? Depreciation has not grown even though sales have increased. Compare depreciation in 2014 to depreciation in 2008. So, this isn't an instance in which FCF is inflated because of a difference between depreciation and investment in PP&E. There has been similar improvement in SG&A leverage. That's why operating margins have expanded significantly over the last 10 years. Obviously you won't get further benefits from this operating leverage unless sales increase. But assuming sales do increase, what is the data suggesting that the operating leverage trends will not continue? Link to comment Share on other sites More sharing options...
60North Investments Posted February 9, 2016 Share Posted February 9, 2016 Yes, I just don't think they'll be able to grow forever without new investments. I don't know how much growth their current capacity still allows though. Operating margins have expanded greatly as you mention. There's no data from Armanino to suggest this might not continue. However, I wouldn't want to guess that they can expand EBIT margins much further from 20%. To 25%? Idk, but growing sales with operating expenses growing at a slower rate is not easy. They have done it successfully so far, but are you sure the limit isn't close? Link to comment Share on other sites More sharing options...
KJP Posted February 9, 2016 Share Posted February 9, 2016 Idk, but growing sales with operating expenses growing at a slower rate is not easy. They have done it successfully so far, but are you sure the limit isn't close? No, I'm not sure, and I don't see how anyone could be. But I think the investment case is that if sales continue to increase at 5-10% and the operating leverage trend continues, you can get a very good long-term return (15%+ cagr). On the other hand, if the company has essentially maxed out its operating leverage, you're likely looking at mediocre returns. And, of course, there's a chance you get bad returns if sales decline. So, you have to decide whether that upside-downside is worth it. Link to comment Share on other sites More sharing options...
Kuhndan Posted February 10, 2016 Share Posted February 10, 2016 Like the company but the one thing I can't get comfortable with is it would seem the company uses an accountant where AMNF would appear to basically be their only account. The firm's address looks to be a residential home. Any one have any insight, thought on this? Link to comment Share on other sites More sharing options...
HWWProject Posted February 11, 2016 Share Posted February 11, 2016 AMNF up 3% today on release of 4th quarter results. from press release - "All annual 2015 numbers reported above are new records for the seventh year in a row. " The march of higher sales and better margins seems to continue with them. I posted a table with analysis of last 4 years financial statements in article here: http://seekingalpha.com/article/3886106-buffett-small-cap-gem-armanino-foods-distinction?v=1455202358&commenter=1 Link to comment Share on other sites More sharing options...
60North Investments Posted February 11, 2016 Share Posted February 11, 2016 Great looking sales figure, but the deriving from the reported operating income it looks like gross margin and/or operating expenses were quite a bit worse. 16% EBIT margin, so without having the actual figures I'd guess gross margin was about 34% and opex 18%. If GM was indeed 34%, that's a relatively large swing from the 36% for the past three Qs to be attributed to product mix. HWWProject, from where do you get "better margins"? Link to comment Share on other sites More sharing options...
KJP Posted February 11, 2016 Share Posted February 11, 2016 Great looking sales figure, but the deriving from the reported operating income it looks like gross margin and/or operating expenses were quite a bit worse. 16% EBIT margin, so without having the actual figures I'd guess gross margin was about 34% and opex 18%. If GM was indeed 34%, that's a relatively large swing from the 36% for the past three Qs to be attributed to product mix. HWWProject, from where do you get "better margins"? I don't see "better margins" either. Looks like operating margins ticked down slightly on an annual basis as well. Presumably the cause is this: "We continued to spend aggressively in promotional investments to increase our US market share and profitability in the short and long term." Link to comment Share on other sites More sharing options...
HWWProject Posted February 11, 2016 Share Posted February 11, 2016 HWWProject, from where do you get "better margins"? I'll need to see Capex and handful of other items from annual report as I calculate my own margins. May be too soon for me to say 'better margins' forgive my exuberance. Happy I got in earlier this week and that 4th quarter seems to have done well. Link to comment Share on other sites More sharing options...
HWWProject Posted April 22, 2016 Share Posted April 22, 2016 HWWProject, from where do you get "better margins"? 2015 10-K is out, and had a chance to review the decade of annual reports. This is a very well run company. Revenue doubled in the past decade, and operating expenses didn't budge much (they only operate one mfg plant). So cash went to the bottom line and net profit margin also doubled. Add in shareholder-friendly practices ie. share buybacks, and Pre-tax profits per share have quadrupled, going from 3 cents/share to near 20 cents/share. Link to comment Share on other sites More sharing options...
60North Investments Posted April 23, 2016 Share Posted April 23, 2016 They'll be investing in capacity expansion, for which funding should be decided in Q2, construction beginning in Q3 and project finished in Q4 or Q1 next year. I'm interested in i) how much they'll invest (Q3 mentioned 600k$, is that it?), ii) how much more capacity will they get and iii) will margins react (if it is just new machines or something like that then operating expenses like won't move up meaningfully)? Q1's 10% sales and EBIT growth looks good. Trading for EV/EBIT 10x, p/e 17x based on last year's figures. Arguably there may be some room for multiple expansion if they can maintain their outstanding +40% ROIC. Question is whether that is sustainable or vulnerable, and I don't know which one is it leaning towards. Link to comment Share on other sites More sharing options...
HWWProject Posted April 23, 2016 Share Posted April 23, 2016 Agree watching capex will be important in the future, as it looks like they may be outgrowing current facility. I looked at their capacity for expansion, and some 10-year data here: http://healthywealthywiseproject.com/2016/04/security-like-best-armanino-foods/ (article also on SA) Margins did tick down slightly in 2015, but that's from record 2014 margins. Gross and Net are still above 3 years ago. The most important margin is around 2009 they began earning excellent returns on capital. They've treated shareholders very well, buying back 9% of shares since 2010. Currently there are no outstanding stock options. Overall a nice little stock I think Buffett would love if he managed smaller sums (small cap with room to grow, food business -easy to understand, capable, shareholder-friendly mgmt). Link to comment Share on other sites More sharing options...
60North Investments Posted April 23, 2016 Share Posted April 23, 2016 They've got 8.5m$ worth of PP&E at cost, which is depreciated into today's 1.7m$. Whatever their capacity expansion will end up costing it is interesting how they're able to get as much sales out of their depreciated assets as they are getting. Personal opinion and offtopic, but I would try to move away from the thinking "Buffett would love this company". It may work as a sales pitch but I think there's danger that you destroy your critical thinking capabilities. Other than being a sales pitch I honestly don't know why should anyone care whether some stock would be liked by Buffett. Anyway, an interesting company that I'll keep an eye on and see how things turn out. Currently not sure if it offers enough of return potential compared to potential risks. Link to comment Share on other sites More sharing options...
Guest notorious546 Posted May 12, 2016 Share Posted May 12, 2016 this company showed up in a screen i ran recently. looking forward to following the company and discussing with people. Link to comment Share on other sites More sharing options...
fareastwarriors Posted May 12, 2016 Share Posted May 12, 2016 this company showed up in a screen i ran recently. looking forward to following the company and discussing with people. What kind of screening were you doing? Link to comment Share on other sites More sharing options...
Guest notorious546 Posted May 13, 2016 Share Posted May 13, 2016 this company showed up in a screen i ran recently. looking forward to following the company and discussing with people. What kind of screening were you doing? trades on otc, roic >10% past 10 years and earnings cagr >7% last 10 years. Link to comment Share on other sites More sharing options...
matjone Posted May 13, 2016 Share Posted May 13, 2016 Mind sharing which screener? Link to comment Share on other sites More sharing options...
Guest notorious546 Posted May 13, 2016 Share Posted May 13, 2016 factset Link to comment Share on other sites More sharing options...
Guest notorious546 Posted June 13, 2016 Share Posted June 13, 2016 Armanino Foods of Distinction, Inc. (OTC Pink: AMNF) today declared an increased regular quarterly dividend of $0.020 per share. This new level is an increase of 5.2% from the prior regular quarterly dividend amount of $0.019. The dividend will be payable on or about July 29, 2016 to shareholders of record July 1, 2016. This dividend will be the Company’s 64th consecutive regular quarterly dividend. In addition, the Company has had ten special dividends. View source version on businesswire.com: http://www.businesswire.com/news/home/20160609006281/en/ Link to comment Share on other sites More sharing options...
Foreign Tuffett Posted July 6, 2016 Share Posted July 6, 2016 Like the company but the one thing I can't get comfortable with is it would seem the company uses an accountant where AMNF would appear to basically be their only account. The firm's address looks to be a residential home. Any one have any insight, thought on this? I just wanted to echo the quoted comment above as I don't think anyone addressed it and Armanino is still being audited by Gregory and Associates LLC, the same 1 employee firm. It looks like the PCAOB took issues with the quality of Gregory's audit in 2011. https://pcaobus.org/Inspections/Reports/Documents/2011_Gregory_Associates_LLC.pdf Why would a California company work with a Salt Lake City based accounting firm that apparently has no other clients? Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now