From Motley F GROWTH! Could Yowie Group Ltd go bananas in 2017?...

From Motley F

GROWTH! Could Yowie Group Ltd go bananas in 2017?

The Yowie Group Ltd (ASX: YOW) share price has sunk 5% today. Which I think is kinda hard to believe…

This morning the producer of the once hugely popular Australian chocolate and collectables released its cash flow statement for the second quarter of its 2017 financial year (2Q17). It also updated the market on its outlook.

Here are the key stats:

• Net sales of $US4.4 million ($A5.86 million), up 44% from the same period last year
• Half-year sales up 70% at $US9.3 million ($A12.39 million)
• Net cash position of $US28.9 million ($A38.50 million), down from $US30.5 million ($US40.63 million)
• A manufacturing “perfect storm” caused the company to miss key deliveries in an important two-day sales period
• The company partnered with the World Conservation Society
• It doubled packaging capacity
• Reached 18.6 million views on Facebook and YouTube following a successful marketing campaign
• Was the #1 selling novelty item in Wal-Mart Inc stores, and its #4 selling chocolate item
• Yowie’s Neilson market share (includes retailers in Food, Drug, Mass, Dollar, Club and excludes Convenience) increased from 0.7% last quarter to 0.95%
• $US 6.87 million ($A9.15 million) estimated cash outflow next quarter (does not consider revenue)

“I am very pleased to report another material growth quarter with Net Sales of US$4.4M”, Yowie Executive Chairman, Wayne Loxton, said. “As we ended the quarter, our manufacturing operations were running at full throughput which will enable us to build safety stocks going forward and support strong growth in the remainder of fiscal 2017.”

As can be seen in the chart above, using the red columns, it appears quarterly net sales fell quarter over quarter. However, the company said it experienced a “perfect storm” at its manufacturing site in December, a key selling period.

“Interruption to manufacturing included: a two-day local area power outage due to storm damage, longer than anticipated commissioning of the second packaging line, a critical part breakage on the original Yowie wrapper, and interruption to the computer software program on the chocolate moulding line,” the company said.

“Order fulfillment was negatively affected by these events while inventory was at its lowest due to peak season sell in and lower than desired starting inventory following our 100% growth in Q1.”
Given the tight deadlines during the busy Christmas period Yowie was forced to forgo delivery to some customers. “The planned and unplanned production shutdowns as described above during the commissioning of the new Yowie foil wrapping line resulted in less than expected output during the quarter.”

Outlook
Looking ahead the company provided a bullish outlook and hinted at new developments.
“We are pleased with our initial brand building marketing investment and are working on bringing further innovations to the market, which we will share in detail in the coming months,” Yowie Group Global CEO, Bert Alfonso, said. “Consumer demand remains strong and based on our results to date, we continue to believe we will double our revenue in fiscal 2017.”

Foolish Takeaway
After a trying end to 2015 and start to 2016, Yowie appears to have come a long way. Although it is not out of the woods yet, the especially promising developments were the Walmart sales data and market share statistics.

Following a share price ‘flash crash’ caused by potentially incorrect or false rumours earlier this week, I believe today’s update stamps out any idea of Yowie losing its contract with Walmart due to lacklustre demand.

The two-day manufacturing interruption was disappointing, but considering the potential implications I think the company’s performance was good. The company is close to being free cash flow positive, which is a big positive.

In summary: With one of Australia’s former best selling chocolate brands, around 30% of its market cap in cash with no debt, growing customer accounts and a massive market; I think Yowie Group is a very worthy — somewhat speculative — investment in 2017.