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Small-Cap Investors: Is Inventure Foods Tasty Enough?

Inventure Foods is a foremost specialty food marketer and manufacturer.

The company's focus is to innovate with specialty food brands in the better-for-you (healthy/natural) and indulgent specialty snack foods categories.

Inventure Foods operates in two segments: frozen products (frozen fruit and frozen beverages) and snack products (healthy snacks and indulgent snacks).

The company's strategy is to continue to build a varied collection of premium-quality, competitively priced healthy/all natural food brands and indulgent specialty food brands.

Inventure Foods' growth continues to be reinforced by the increased consumer demand for healthy natural food products.

Due to my extensive prior work experience in the food industry and my continued interest in all that happens in its sectors, I'm always researching food retailers and food manufacturers. I've a deep interest in the supermarket, convenience store and wholesale foods industries, as well as the Consumer Packaged Goods industry that supplies these businesses.

My research has brought me to the doorstep of Inventure Foods, Inc. (NASDAQ:SNAK), a foremost specialty food marketer and manufacturer. The company has an array of company-owned and licensed brand names.

Inventure's focus is to innovate with specialty food brands in the better-for-you (healthy/natural) and indulgent specialty snack foods categories. Inventure Foods operates in two segments. One is frozen products (frozen fruit and frozen beverages) and the other is snack products (healthy snacks and indulgent snacks). I'm often of the indulgent snacks inclination, but this is not where most of the company's revenues come from.

Diversity of brands

Inventure's brands include Boulder Canyon Foods, Jamba, Rader Farms, TGI Fridays, Nathan's Famous, Vidalia Brands, Poore Brothers, Tato Skins, Willamette Valley Fruit company, Fresh Frozen and Bob's Texas Style and Sin In A Tin.

In 2014

For its most recent fiscal year (2014), Inventure Foods realized improvements in revenues and earnings. When compounded yearly over the last five years to the end of FY 2014, the company's revenues grew 21% and its earnings increased 18%. In 2014, Inventure experienced a 32.50% increase in net revenue. The company attained record annual revenues of $285.7 million in 2014. This represented a 32.5% increase from 2013.

Current net revenue

For Q3 ended September 26, 2015, Inventure's consolidated net revenues fell 3.7% to $69.9 million. Excluding the Fresh Frozen business, consolidated net revenues rose 3.8% for Q3. The frozen segment net revenues fell 2.5%

Consolidated net revenues grew 0.9% to $213.9 million for the nine months ended September 26, 2015, versus $211.9 million in the year ago period.

What's behind these numbers? Part of the Q3 drop in consolidated net revenues was because of a drop in frozen beverage sales. The company's net revenues were also hurt by operational trials associated with its voluntary product recall announced on April 23, 2015.

At that time, the company issued a voluntary recall of certain varieties of its Fresh Frozen line of frozen vegetables, and also select varieties of its Jamba "At Home" line of smoothie kits. This was because of finding Listeria monocytogenes in its Jefferson, Georgia, facility. There were no known illnesses linked to the consumption of Fresh Frozen IQF frozen vegetables or Jamba "At Home" smoothies, but out of concern for health safety the company engaged in this voluntary recall of its products. So, less products on the market manifested itself in Inventure's decreased revenues. The expectation is that the company will be back to a more usual run rate at some point during Q1 2016.

In addition, Inventure Foods has experienced capacity issues regarding its growing Boulder Canyon Foods brand. This influenced its margins. Moreover, it affected (because Inventure couldn't fill all its orders) its revenue. Furthermore, the company's frozen segment net revenues decrease was largely due to Jamba, which was affected by the recall. Inventure also discontinued Seattle's Best Coffee. So all these things combined to impact the company's Q3 net revenues.

Inventure Foods getting a handle on its capacity issues is something that investors should watch before plunking money down on the company.

Capital spending

The company is working to increase production capacity. Regarding capital improvements it spent $11.8 million in 2014, mainly to increase production capacity. Inventure's expectation is that the increased capacity will further improve the margins in its frozen fruit segment in the future. In 2014, it bought equipment and improved its production capability at its Fresh Frozen segment. In addition, Inventure invested in new equipment at its Goodyear facility in Arizona to increase its offerings of other snack products. The company is going to spend around $8 million in CapEx next year.

Market value versus book value

Inventure's market value at this writing is $135.99 million. For FY 2014 its book value or net worth was $71.97 million. For the quarter ended September 30, 2015, its book value or net worth was $54.53 million. So, currently, Inventure Foods is being valued higher by the market (investors) than its stated book value, which is a positive for the company. So, investors are seeing earning power and...