Changing Food Habits Open Huge Market For Innovative Food

Innovative Food Holdings (IVFH – $1.35) enables, through a fully managed specialty food platform, the distribution of direct from source specialty food products in the United States. The Company has had 19 consecutive quarters of year-over-year revenue growth and is trading at a P/E of 5.2, excluding one-time items.

The Company receives orders from its customers and then works closely with its suppliers and warehouse facilities to have the orders fulfilled within 24 to 72 hours. In order to maintain freshness and quality, suppliers are carefully selected based upon their quality, uniqueness, reliability and access to overnight courier services.

In the professional foodservice channel, Innovative Food Holdings’ platform manages the nationwide sales, sourcing and procurement, logistics, customer service and distribution of over 7,000 specialty food products. Many of Innovative Food Holdings’ products are used on a daily basis by some of the approximately 40,000 leading professional chefs across the United States. Customers include restaurants, hotels, country clubs, national chain accounts, casinos, hospitals and catering houses.

In the direct to consumer channel, the Company offers products through its website at www.forthegourmet.com. In addition, Innovative Food offers a white label specialty food platform for retailers which are seeking to offer the nationwide, efficient, seamless, transparent and cost effective availability of direct from source, specialty and artisanal products, directly to consumers.

Competition

Innovative Food is quite unique because it can very quickly deliver a broad range of specialty food products, such as origin-specific seafood, domestic and imported meats, exotic game and poultry, artisanal cheeses, caviar, wild and cultivated mushrooms, micro-greens, heirloom and baby produce, organic farmed and manufactured food products, estate-bottled olive oils and aged vinegars.

As a result, the Company’s primary competitors are local purveyors that supply a limited local market and have a limited range of products.

Financials

Revenues for the second quarter ended June 30, 2014 were $6.4 million, compared to $5.3 million in the comparable period of 2013, an increase of 21%. This was the 19th consecutive quarter of year-over-year revenue growth for Innovative Food.

Net income for the second quarter of 2014 was approximately $427,000, or $0.05 per share, up from a loss of $92,000, or $0.015 per share, in the second quarter of 2013. Moreover, adjusted net income, excluding non-recurring gains/losses, stock related gains/losses and amortization expenses, grew by 160% to over $745,000 in the second quarter of this year, up from $286,000 in the same period last year. The solid performance reflects continued and growing demand for the Company’s innovative solutions from existing and new chefs.

	Three Months Ended June 30		Six Months Ended June 30
Amounts in $000’s	2014	2013	2014	2013
Net Sales	6,449	5,318	12,002	10,559
Net Income (Loss)	427	(92)	615	(62)
Earnings (Loss) Per Share	0.055	(0.015)	0.081	(0.010)
Most important income statement data for the quarters and six months ending June 30, 2014 and June 30, 2013. Source: Company Filing

Next to the second quarter of 2014, also fiscal year 2013 was severely impacted by one-time items. As a result, the Company reported a loss of $1.48 million for 2013, while without one-time items, it would have reported a net profit of approximately $1.8 million, or $0.28 per share.

Currently, the 12-month trailing EPS of Innovative Food is $0.26, while the stock closed at $1.35 yesterday! This is exactly why doing your own research, as so many small cap investors do, instead of relying on stock screeners, pays off. A stock screener would simply show a negative P/E, and you might lose interest in the stock because of that. But when you actually research a company, you discover that one-time items caused the negative P/E and that they won’t be there next year. That’s how you occasionally find a growing company at a P/E of 5.2.

The company ended the second quarter with over $2.2 million in cash and with the full availability of its $1 million line of credit with Fifth Third Bank.

Game Changer Acquisition

Late August 2014, Innovative Food acquired The Fresh Diet, Inc, a nationwide leader in freshly prepared gourmet specialty meals, using specialty, artisanal, direct from source ingredients, delivered daily, directly to consumers. The Fresh Diet’s platform includes a company managed and owned preparation and logistics infrastructure, including a comprehensive company owned network of same day and next day last mile food delivery capabilities.

The total purchase price for the acquisition of The Fresh Diet was 10 million shares of the Company’s common stock plus the assumption of debt.

For the trailing 12 months ended June 30, 2014 The Fresh Diet generated approximately $24 million in revenues. The transaction is expected to be accretive as of fiscal 2015.

The Fresh Diet’s platform offers the opportunity to expand into additional specialty food market categories including non-diet daily specialty meals, meal kits, allergen specific and additional platform based specialty food opportunities, in the direct to consumer market as well as in select foodservice markets.

In 2013, Innovative Food’s revenues were $23.5 million and it had approximately 7.4 million shares outstanding. So it’s clear that this acquisition, which will double the Company’s revenues and more than double its number of shares outstanding, will have a significant impact on Innovative Food’s financials.

Conclusion

The rapidly changing food consumption trend towards high quality, artisanal foods, presents a compelling market opportunity for Innovative Food. Due to the Company’s proven platform it’s uniquely positioned to pursue and execute on those opportunities.

One negative item is that over 70% of Innovative Food’s sales occur through the sales force of U.S. Foods, a third party company. This has been the case for several years though, and Innovative Food’s management is confident that the Company’s performance and quality of its products form a solid foundation for the relationship with U.S. Foods.

The Company’s sales and earnings continue to grow and the acquisition of The Fresh Diet, will double its size. Despite the fact that Innovative Food had to issue 10 million shares for the acquisition, it still has less than 20 million shares outstanding.

The Company is trading at an extremely low P/E of slightly over 5, so the downside risk is minimal. Buy Recommendation.

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