Boulder Brands capitalizes on gluten-free ‘gold rush’
BOULDER, COLO. — Boulder Brands, Inc., formerly known as Smart Balance, Inc., continued to flex its muscles behind a growing portfolio of gluten-free products and the announcement it plans to expand the Udi’s brand to Europe.
Net income in the first quarter ended March 31 was $3,961,000, equal to 7c per share on the common stock, up 7% from $3,703,000, or 6c per share, in the same period a year ago. Net sales jumped 35% to $106,653,000 from $79,291,000.
Boulder Brands continued to benefit from Udi’s Healthy Foods, L.L.C., which it acquired in the summer of 2012. Boulder said brand profit for its Natural segment totaled $17,200,000 in the first quarter of fiscal 2013, up from $5,800,000 in the same period a year ago. Udi’s contributed approximately $9,100,000 to the profit, while the Glutino and Earth Balance brands also improved.
Net sales for the Natural segment increased to $60,300,000 from $24,100,000. Boulder Brands said its gluten-free brands — Udi’s and Glutino — reported organic net sales growth of 62% and 34%, respectively, in the quarter, driven by an acceleration in distribution gains and continued strength in the gluten-free category. Meanwhile, the Earth Balance portfolio registered a net sales gain of nearly 18% in the first quarter.
In a May 2 conference call with financial analysts, Stephen Hughes, chairman and chief executive officer, said Boulder Brands has increased the average number of items in conventional grocery retail for Glutino to 10.3 items for the most recent four-week period ended in March, up 8.1 items from a year ago. Meanwhile, the number of Udi’s items stocked in conventional grocery stores totaled 6.9 at the end of the first quarter, up from 4.6 items a year ago. Mr. Hughes said the company hopes to have more than 20 gluten-free items at retail by the end of the year, up from 17.2 during the first quarter.
Elaborating on the demand for gluten-free, Mr. Hughes said it’s unlike anything he’s seen in his 35 years in the food business.
“The retailers … strategically get it,” he said. “I don’t think there is a retailer out there today that doesn’t believe they need to have (gluten-free) destination sets for the consumer. Now they’re moving into the operational urgency, and we’ve had some rather spectacular gains with some larger retailers with no slotting. So, it is really a little bit of a gold rush from the standpoint that the retailers want to get this addressed and addressed as quickly as they can. Each retailer has their own personality and when some, like a Wal-Mart, decides to go, they go. Others, it’s a little bit longer process.
“But we’re, by and large, very encouraged by the strategic partnership we’re seeing, and, quite honestly, we’re the only game in town. There is nobody else these retailers are talking to that can really solve their gluten-free strategy challenge the way we can with Udi’s and Glutino.”
Mr. Hughes said Boulder Brands currently has about 150 unique gluten-free items in its portfolio. Some items that stand out as potential “winners” in the category include pizza, tortillas and toaster pastries.
“We’re very pleased on pizza,” he said. “Our velocities on pizza are exceeding the fastest-moving Amy’s item, and we’re just getting started. We’re converting the Glutino pizza to an Udi’s pizza. We had the small-size Glutino and the large-size Udi’s product. We’re going to have one brand in pizza, Udi’s, and I think it’s going to be very successful.
“The tortillas are off to a great start. The sell and demand from other channels on those, we’re getting a lot of inbound requests from customers for the tortillas, and I think that’s going to be a big winner. The toaster pastries, which are like our Pop-Tart, are off to a great start.”
Boulder Brands’ other major reporting segment, Smart Balance, sustained lower year-over-year profit and sales as the company shifts its strategic direction toward the gluten-free market.
Brand profit for Smart Balance was $13,600,000 in the first quarter, down from $15,800,000, while sales fell to $46,400,000 from $55,200,000.
“Part of the Smart Balance decline was based on our strategic plan to improve profitability,” Mr. Hughes said. “We are exiting certain categories that are not strategic, such as Bestlife spreads and Smart Balance Butter Blends, and are rationalizing categories that are not profitable, such as milk. The result is an improvement in overall profitability.
“This quarter, we improved our brand profit margin for the Smart Balance segment. While we manage this segment for profit, we are also making prudent and strategic investments in our spreads business, including our space-saver packaging initiative. We are encouraged by the early response from retailers to our space-saver packing initiative and expect to gain points of distribution with our spreads products in 2013. We expect these recently implemented strategies to result in a more stable and profitable Smart Balance portfolio.”