Author Topic: AMNF - Armanino Foods Distinction  (Read 21110 times)

Travis Wiedower

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Re: AMNF - Armanino Foods Distinction
« Reply #60 on: February 08, 2018, 12:06:25 PM »
Everything Schwab brought up is legitimate and I don't like the auditor situation either. Maybe my definition of fraud is different than others, but Armanino is a legitimate business selling legitimate products. There's always a chance there's financial engineering or shady stuff going on behind close doors, but they are a real business (you can go buy their pesto on Amazon if you don't believe me). I do think Armanino is a better business than it appears from the outside. Below is a copied post I made in the MicroCapClub thread last year that explains my logic:

First, just over half of their sales are through Dot Foods which is by far the largest redistributor in the foodservice industry. Dot sells to all the broadline distributors (Sysco, US Foods, etc) and directly to food manufacturers and large chains. There are really only five companies selling pesto through Dot. And only two of those sell in bulk (Armanino and Carla's Pasta). Thus, for the many companies in the industry that buy their products through Dot, if they're big and buying in bulk they really only have two options. The reason more pesto manufacturers aren't selling through Dot is they have monthly minimums for sales. If you join Dot as a supplier and don't sell enough each month, they kick you off the platform. So yes, there are a ton of mom and pop pesto manufacturers selling locally around the country, but only a few have scale. I think that's a big reason Armanino has been able to generate such great returns in an industry that appears from the outside to be a commodity.

Also, once they get a major customer (Sysco private label, large restaurant chain, food manufacturer, etc), those customers are very sticky. I've talked to several people in the industry (owners of restaurant chains, owners of food manufacturers, co-packers, etc) and they all say the same thing: once you're happy with a supplier relationship like that, you rarely change it. Rough quote from a CEO of a restaurant chain when I asked him if he'd change co-packers for a 5% savings: "Absolutely not. Once you find a manufacturer that does a good job and sign a contract with them, you want to stay with them. Switching is a long process, there's no guarantee a new company gets it perfect, and switching can introduce new problems you didn't even think of. All manufacturers use different sources of ingredients, all have different equipment, different freezing techniques, etc." This is something I didn't originally appreciate. One pesto manufacturer can't simply reverse-engineer Armanino's pesto, it's not that simple. And pestos from different manufacturers have minor differences. If you're a food manufacturer using Armanino pesto to produce a product that sells well it's very risky to switch to one of Armanino's competitors.

One of Armanino's largest single clients is Sysco (they do private labeling for them, in addition to selling Armanino branded products). I've been told that it takes Sysco a year or more to change a private label supplier (same reasons as I discussed in the last paragraph). "You really have to piss them off" was the exact quote I got. It's very difficult to get a Sysco private label, but once you do it's very difficult to lose the business. Management won't say how big the Sysco private label is, so I'm guesstimating it's their largest end client (Armanino only reports concentration at the redistributor/broker level).

If you're like me and wonder "why is pesto demand growing so consistently over the years?" the answer is their fastest growing segments are Mexican and burger joints. Pesto is healthy (and yummy) so it's a nice fit for gourmet burger places (or mid/high-end restaurants that have a couple nice burgers on the menu). Anecdotally, I looked at the menus for a bunch of restaurants around Austin that serve burgers and quite a few did serve burgers with pesto on them, so it is "a thing."
My investing blog: Egregiously Cheap


Foreign Tuffett

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Re: AMNF - Armanino Foods Distinction
« Reply #61 on: March 05, 2018, 08:11:09 AM »
Travis, please accept my (belated) thank you for providing some really good insight here.

bookie71

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Re: AMNF - Armanino Foods Distinction
« Reply #62 on: March 05, 2018, 08:42:34 AM »
Yep, they need a big outfit like Arthur Anderson , they did such a good job on Enron.
Always remember, Pigs get fat and hogs get slaughtered.

Schwab711

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Re: AMNF - Armanino Foods Distinction
« Reply #63 on: March 05, 2018, 09:04:16 AM »
Yep, they need a big outfit like Arthur Anderson , they did such a good job on Enron.

AMNF is the only non-fraud/bankruptcy Gregory Associates has ever signed-off on. Most have been classic penny stock-types with a few proven frauds sprinkled in. They've only audited a 10 or so public companies. Gregory Associates never once warned about any going concerns or issues with financials/accounting until after the fact. Maybe a more reputable firm wouldn't be a bad idea.