How Did Blue Buffalo Pet Products Perform in 3Q16?

Price movement

Blue Buffalo Pet Products (BUFF) fell 2.9% to close at $23.29 per share during the second week of November 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were -2.9%, -5.9%, and 24.5%, respectively, as of November 11.

BUFF is trading 6.2% below its 20-day moving average, 5.8% below its 50-day moving average, and 2.9% below its 200-day moving average.

How Did Blue Buffalo Pet Products Perform in 3Q16?

Related ETF and peers

The iShares Morningstar Mid-Cap Growth Index ETF (JKH) invests 0.16% 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 3.4% on November 11.

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

  • Procter & Gamble (PG) — $224.0 billion
  • The J.M. Smucker Company (SJM) — $14.8 billion

Performance of Blue Buffalo Pet Products in 3Q16

Blue Buffalo Pet Products reported 3Q16 net sales of $288.0 million, a rise of 11.0% on volume growth compared to its net sales of $259.4 million in 3Q15. The company’s gross profit margin expanded 450 basis points, and its operating margin narrowed 670 basis points in 3Q16 compared to the prior year’s period.

The expansion of BUFF’s gross margin was due to efficiency in its supply chain, which included reduced input costs, pricing benefits, and favorable mixes.

BUFF’s net income and EPS (earnings per share) fell to $21.5 million and $0.11, respectively, in 3Q16 compared to $27.1 million and $0.14, respectively, in 3Q15. It reported adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) and adjusted EPS of $74.3 million and $0.22, respectively, in 3Q16, rises of 21.4% and 29.4%, respectively, compared to 3Q15.

BUFF’s cash and cash equivalents rose 41.1%, and its inventories fell 9.7% in 3Q16 compared to 4Q15. Its current ratio rose to 4.4x in 3Q16 compared to 3.7x in 4Q15.

Projections

BUFF has made the following projections for 2016:

  • net sales in the range of $1.1 billion–$1.2 billion
  • gross margin of ~45%
  • adjusted EPS in the range of $0.78–$0.79, excluding costs related to litigation and its public offering
  • capital expenditure in the range of $50 million–$60 million
  • effective tax rate in the range of 36.6%–36.8%

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