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Blue Buffalo Announced Secondary Offering Pricing

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Price movement

Blue Buffalo Pet Products (BUFF) has a market cap of $4.6 billion. It fell 0.77% to close at $23.20 per share on June 28. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -6.7%, -11.5%, and 24.0%, respectively, on the same day.

BUFF is trading 7.5% below its 20-day moving average, 7.6% below its 50-day moving average, and 12.0% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Small-Cap Growth ETF (JKK) invests 0.18% of its holdings in Blue Buffalo Pet Products. The ETF tracks a market-cap-weighted index of the US small-cap growth stocks. The index selects from the 70% to 90% segment of the market cap based on five factors. The YTD price movement of JKK was -3.2% on June 28.

The market caps of BUFF’s competitors are as follows:

  • Procter & Gamble Company (PG) — $219.5 billion
  • J.M. Smucker Company (SJM) — $17.1 billion

Blue Buffalo offered secondary shares

In a press release on June 28, 2016, Blue Buffalo Pet Products stated the following: “Blue Buffalo Pet Products has announced the pricing of the secondary offering of shares of its common stock pursuant to a registration statement on Form S-1, filed with the Securities and Exchange Commission. Existing stockholders of Blue Buffalo are selling 15,000,000 shares of common stock in the offering. The underwriters in the offering will have a 30-day option to purchase up to an additional 2,250,000 shares of common stock. The public offering price is $22.0 per share. The offering is expected to close on July 5, 2016, subject to customary closing conditions.”

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J.P. Morgan Securities, Citigroup Global Markets, Barclays Capital, Deutsche Bank Securities, and Morgan Stanley & Co. are acting as joint book-running managers for the offering. J.P. Morgan Securities and Citigroup Global Markets are also acting as representatives of the underwriters. Wells Fargo Securities is acting as co-manager for the offering.

Performance in 1Q16

Blue Buffalo Pet Products reported 1Q16 net sales of $2.8 billion million—a rise of 12.5% compared to net sales of $2.5 billion in fiscal 1Q15. The company’s cost of sales as a percentage of net sales fell 6.7%. Its operating income rose 21.9% in 1Q16 from  1Q15.

Its net income and EPS (earnings per share) rose to $37.3 million and $0.19, respectively, in fiscal 1Q16 from $30.0 million and $0.15, respectively, in 1Q15. The company reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $67.7 million in 1Q16—a rise of 20.5% compared to 1Q15.

Blue Buffalo Pet Products’ cash and cash equivalents rose 18.2%, and its inventories fell 8.7% in 1Q16 from fiscal 4Q15. Its current ratio rose to 5.9x from 3.7x in 4Q15.

Projections

The company made the following projections for 2016:

  • net sales of $1.13 billion–$1.14 billion
  • gross margin of 43%–44%
  • adjusted EPS of $0.73–$0.74, excluding costs related to litigation
  • capital expenditure of ~$70 million–$80 million

In the next part of this series, we’ll take a look at some updates from Toyota Motor (TM).

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