Say It Isn't Dough

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Since organic and natural foods company Annie's (NYSE: BNNY) issued a recall of the company's Rising Crust Frozen Pizza in January, the stock's performance has been relatively flat. The pizza was recalled because traces of metal were found in the dough as a result of a mechanical failure. Now that the company has removed the problem by switching flour suppliers, the frozen pizzas are back in the freezer aisles at supermarkets and Annie's is eager to expand its growing frozen food category.  

Food recalls happen, and Annie's did the right thing from all perspectives by getting on top of the situation early. Nonetheless, in its fiscal 2013 2Q financial results, Annie's pointed to sales momentum from its Rising Crust Frozen Pizza as a catalyst for its full fiscal year 2013 revenue guidance, which the company recently offered as 19%-21% growth. The estimates actually represent an increase from earlier top-line growth projections of between 16%-19%. Whether or not the company will be forced to revisit its fiscal year 2013 revenue guidance as a result of the recall is unclear.

While macaroni and cheese is Annie's flagship item, the company has high hopes for its frozen food segment. It launched the frozen pizzas in the 2Q, which was one quarter ahead of schedule, and distribution to some 2,500 grocery stores ensued. The impact that the pizza recall will have on future distribution growth is unclear. That Annie's had to remove the pizzas from the grocer freezers for a couple of weeks so early in the product launch is no doubt a setback, however.

The company is currently rolling out new snack food items and is developing additional products in the frozen-food segment that should become available in coming years. The company faced higher commodity costs in recent months. To offset the higher costs, Annie's implemented a 3% price increase in October, the impact of which should become apparent in the company's fiscal 3Q earnings report.

Word Choice Recall

Natural foods grocer Whole Foods Market (NASDAQ: WFM) sells Annie's products. The supermarket had to do some recalling of its own in recent weeks but of a completely different nature. In a January interview on NPR, John Mackey, Whole Foods chief executive, associated the U.S. government with fascism in response to a question about the health care system. It was a reference that he later regretted. Mackey issued a statement on the company's website: 

"I made a poor word choice to describe our health care system, which I definitely regret." (John Mackey, Whole Foods CEO.) 

The stock is up more than 5% since the controversy. Whole Foods has $1.3 billion available in cash, according to a recently issued press release. The company recently lifted its quarterly dividend by 43% and increased the size of a share buyback by $300 million through December 2014.

Whole Foods Fiscal 2012 Outlook*

<table> <tbody> <tr> <td> </td> <td><strong>Company Projection</strong></td> </tr> <tr> <td>Sales Growth:</td> <td>12%-14%</td> </tr> <tr> <td>Comparable Store Sales Growth</td> <td>6.5%-8.5%</td> </tr> <tr> <td>Diluted EPS</td> <td>Up 14%-16%<br />(to a range of $2.83-$2.87 per share)</td> </tr> </tbody> </table>

*Source: Whole Foods Market

Organic Food Stock Graduates

In December 2012, United Natural Foods (NASDAQ: UNFI), which is one of Annie's largest food distributors, was ushered into the mid-cap stock category. The stock exited the S&P SmallCap 600 Index and was added to the S&P MidCap 400 Index. United Natural Foods has a market capitalization of $2.6 billion, according to The Wall Street Journal data, and has a trailing price-to-earnings ratio of approximately 27.

United Natural Foods reported sales of $5.24 billion for all of fiscal 2012. The company is more than twice the size of its closet competitor -- KeHE Distributors, which has reported annual sales of $2 billion, according to Nutrition Business Journal Data cited in United Natural Foods' shareholder documents.

For its part, Annie's just revealed that it will announce its Fiscal 2013 3Q results on Feb. 11. The effect that the recall had on sales momentum should become apparent at that time.

GerelynT has no position in any stocks mentioned. The Motley Fool recommends Whole Foods Market. The Motley Fool owns shares of Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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