Mama Mancini's
Q3 2020
By Manuel Maurício
December 21, 2020
Mama Mancini’s results were out a week ago and Mr. Market didn’t like them all that much.
If you’d like to know the Mama Mancini’s story better, you can read my previous articles HERE.
Before looking into the financials, a bit of primary research.
To understand the customer satisfaction, I’ve joined a few Facebook Groups for QVC fans (QVC is the largest shopping TV network in the world) and asked about Mama Mancini’s meatballs.
Here’s the feedback I got:
WOW. It makes me want to try them myself.
Now to the financials:
The revenue grew by 7% in comparison to last year, but down from the second quarter. This was due to the COVID and it seems that the company has been running at full steam in the fourth quarter.
This lower revenue was the main reason Mr. Market didn’t like the results.
The Operating Margin went up slightly…
… but the net income was a bit lower than the previous quarter due to the lower revenue (although the net margin was higher).
… and then this happened:
REDUCING DEBT, ISN’T IT GOOD?
The company paid down all of its debt. Good, hein? Not so fast.
There’s an argument to be made against reducing debt to zero. Businesses can support some amount of debt on their balance sheets; some businesses can support more, some less, it depends on the stability of the business.
Some debt is beneficial to the shareholders, the owners. It boosts the return on their equity. That’s why some investors don’t like to see the businesses they own cutting debt to zero.
I agree with that, but hey, having no debt is also pretty good, especially when the debt was expensive. So, not only will the interest charges be zero from now on, this also gives the company more options, like acquiring others companies.
NOT OPTICALLY CHEAP
If we annualize this quarter’s profits, we get to $2.92 Million in profit. The company is currently worth $62 Million, so we’re talking about a Price/Earnings ratio of 21x. Not cheap, but that’s backward looking. What we, as investors, should be doing is looking forward.
IF WE LOOK FORWARD…
Luckily, Carl, the CEO, likes to drop us some hints of what we can expect going forward.
The company has been making efforts to enter the food service business, it has engaged B&A Food Brokers to help get some clients (note that when I talk about clients, I’m talking about universities, military bases , hospitals, etc). The food service in the US is huge and it’s an incredible opportunity for growth for Mama Mancini’s.
Also, the company engaged B Riley, a famous investment bank in order to pursue a sale of the company, an acquisition of another company, or a merger. Note that this isn’t the first time that the management is looking for an exit.
The CEO is getting old and he owns a bunch of the stock (+50%). When I last talked to Carl (here’s the VIDEO) he told me that in the last time they tried to sell, they couldn’t because they were too small. Let’s see what happens this time.
From an operating perspective, they have switched suppliers for their corrugated paper boxes (for a cheaper and faster one), they’ve automatized their packaging area, thus saving $30K per month going forward and increasing the output by 25%.
CONCLUSION
I’m not sure what will happen to Mama Mancini’s. It may get acquired (I would be sad), it may uplist to the NASDAQ or it may acquire another company. I’m not too worried. We should know something in the next couple of months or so.
I still like Mama Mancini’s very much. Maybe more than before. Especially with recent authorizations in retail and the expansion into the food service business. Mama Mancini’s will be kept in the Portfolio as one of my favorite ideas right now.
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