Freedom Foods (ASX:FNP) share price slumps after missing its own sales guidance

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The Freedom Foods Group (ASX:FNP) share price has fallen 42 cents or 6.6 per cent to $5.99 in Thursday morning trade after the diversified food company said sales for FY18 will come in below its own revenue target.

Freedom Foods said certain new product ranging in dairy, cereal and snacks was implemented later than planned in the 4th quarter of FY18. The company also delayed commencement of certain new customer contracts to match supply to new capacity installations coming on stream. These factors impacted on sales in FY18.

Freedom Foods said that during the 2nd half of FY18 it had launched a significant number of new branded products including the commencement of material private label and other customer contracts.

The company said it estimates net sales for FY18 to be approximately $353 million, an increase of 35 per cent on the prior financial year. This is below its own net sales revenue target of $360 to $380 million.

The company remained upbeat about its future growth prospects, saying based on the current portfolio, product range and new contracts for key customers coming on stream in the 1st half of FY19, Freedom Foods expects net sales revenue in FY 2019 to be in the range of $500 to $530 million.

That implies growth of around 46 per cent in FY19.

Looking further ahead, Freedom Foods said new product revenue streams from major capital expenditure projects are expected to materially impact net sales revenues in FY20.

Sell or buy Freedom Foods shares?

In a recent AFR article, Tony Waters of QVG Capital called Freedom Foods shares a sell, saying he doesn’t think the company will earn a good enough return on the about $500 million of capital the company had poured in to the business over the last four or five years.

In contrast, Andrew Mitchell from Ophir Asset Management has Freedom Foods shares as a buy, saying he is drawn to the company’s quality assets. The company’s bands including a2 milk, So Natural and Australia’s Own are a play on nutritional foods for kids and the growing China middle class. Mr Mitchell says Freedom Foods shares are expensive, and will need to grow into its earnings multiple, but growth is accelerating.

Before today, Freedom Foods Group shares had jumped 39 per cent higher over the past 12 months.

Contributors to this article may own shares in some of the companies mentioned in this article. The Capital Club has a thorough disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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Bruce Jackson has 30 years of hands on investing experience. He is passionate about stock market investing, running his own portfolio and SMSF. His focus is on small cap growth stocks. You can contact Bruce at brucej@thecapitalclub.com.au