Mama’s Creations (MAMA) Reports Q3
Shares of Mama’s Creations (MAMA) are trading down this morning in what “should” be a short-term retreat following a solid Q3 report. The takeaway from the report is that Mama’s has made considerable progress building the foundation for faster, higher-margin growth and is past construction and commodity-related disruptions that impacted Q3 results.
Revenue in Q3 grew by 9.8% to $31.5 million (an almost 5% beat) while adjusted EPS came in at $0.01, $0.04 lower than in the year-ago quarter and $0.03 below expectations.
The EPS miss was the result of two things.
First, chicken prices have exploded. On the conference call, management said they were about $1 a pound at the beginning of January, soared to $2 a pound this summer, and have since backed off to about $1.50 a pound. So that’s impacted margins.
Second, Mama’s has been building out and upgrading both its Farmingdale and East Rutherford facilities to increase throughput, drive operational efficiencies and reduce the need for overtime staffing. East Rutherford is done, pumping out gross margins north of 30%. But Farmingdale was still dealing with the tail end of construction-related disruptions in August and September. That hurt gross margin by about 4% in Q3.
Management said there was a step change improvement in Farmingdale gross margins in November (not part of Q3) and sounded very confident that it’s now full steam ahead.
Beyond the operational stuff, the company has also continued to build out its executive team and focus on selling, which will become an even bigger focus now that there is more capacity and manpower.
Turning to the balance sheet, Mama’s ended Q3 with $9.3 million in cash, down from $11 million a year ago. That’s after paying for $5 million in capital investments and paying down $2.5 million in debt through the first nine months of the year. Total debt as of October 31 was just $6.3 million.
No forward guidance was given, but management did indicate that the normal step down in revenue from Q3 to Q4 ($2 million last year) should be less pronounced this year. No M&A announcements, though the company is still on the prowl.
It really does sound like things are going well. Revenue growth should top 16% this year and consensus is calling for around 13% revenue growth in 2025. I think that seems low given all the work the company is doing. The stock is down about 10% this morning but (other than a quick dip at the open) holding above the 8.7 level that was overhead resistance from late summer through most of November.
I think the stock will take some time to digest this report so it’s not urgent to buy right now. Ultimately, I think MAMA’s keeps trending higher as the recent investments should translate into higher revenue and a return to around 30% gross margins. BUY
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