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Why Is Blue Buffalo Pet Products Offering Secondary Shares?

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Sep. 14 2016, Updated 9:56 a.m. ET

Price movement

Blue Buffalo Pet Products (BUFF) has a market cap of $5.3 billion. It rose 2.4% to close at $26.09 per share on September 12, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 1.4%, 1.6%, and 39.4%, respectively, on the same day.

BUFF is trading 0.47% above its 20-day moving average, 1.7% above its 50-day moving average, and 16.1% above its 200-day moving average.

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Related ETF and peers

The iShares Morningstar Mid-Cap Growth Index ETF (JKH) invests 0.14% of its holdings in Blue Buffalo Pet Products. The ETF tracks a market cap–weighted index of mid-cap companies selected by Morningstar based on their growth characteristics. The YTD price movement of JKH was 4.2% on September 12.

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

  • Procter & Gamble (PG) — $239.8 billion
  • J.M. Smucker (SJM) — $16.5 billion

Latest news on BUFF

In a press release on September 12, 2016, Blue Buffalo Pet Products reported that “certain of its stockholders intend to offer for sale in an underwritten secondary offering an aggregate of 14,300,000 shares of common stock of Blue Buffalo pursuant to Blue Buffalo’s registration statement on Form S-3, filed with the Securities and Exchange Commission (the “Commission”).

“Blue Buffalo is not offering any shares of common stock in the proposed offering and will not receive any proceed from the sale of shares in the proposed offering. The offering is expected to close on September 16, 2016, subject to customary closing conditions.”

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Performance of Blue Buffalo Pet Products in 2Q16

Blue Buffalo Pet Products (BUFF) reported 2Q16 net sales of $286.9 million, a rise of 13.0% over its net sales of $254.0 million in 2Q15. The company’s gross profit margin and operating income rose 12.9% and 53.9%, respectively, between fiscal 2Q15 and fiscal 2Q16.

Its net income and EPS (earnings per share) rose to $36.6 million and $0.18, respectively, in 2Q16, compared with $22.6 million and $0.11, respectively, in 2Q15. It reported adjusted EBITDA[1. earnings before interest, tax, depreciation, and amortization] and adjusted EPS of $68.3 million and $0.19, respectively, in 2Q16, a rise of 40.5% and 46.2%, respectively, over 2Q15.

BUFF’s cash and cash equivalents and inventories rose 22.0% and 4.8%, respectively, between 4Q15 and 2Q16. Its current ratio rose to 6.1x in 2Q16 from 3.7x in 4Q15.

Projections

Blue Buffalo Pet Products (BUFF) made the following projections for fiscal 2016:

  • net sales in the range of $1.14 billion–$1.15 billion
  • gross margin of ~44%
  • adjusted EPS in the range of $0.74–$0.76, which excludes costs related to litigation and the company’s secondary public offering
  • capital expenditures in the range of $50 million–$60 million
  • an effective tax rate of ~37.3%

In the next part of this series, we’ll discuss Spectrum Brands Holdings (SPB).

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