Yocream Intl Inc (PINK:YOCM)

Yocream Intl Inc reported 2010 first quarter financial results on March 15, 2010. EPS were down 12.5% to $0.35 on a slight increase in sales. Somewhat discouraging was news that one of their customers has picked up a secondary supplier. Normally we would remove YOCM from the GeoBargain list, but its stellar growth track record and encouraging company comments could infer that a resumption of EPS growth is around the corner:

• Frozen yogurt sales to the general foodservice market remain robust at a growth rate of 30.9%.
  
• The Company continues to work with large national accounts, and four more are presently in test with different products.
  
• The stock actually reacted well, trading up on the release, giving us some comfort.

Stay tuned for further developments.

Source: PR Newswire (March 15, 2010)

Excerpt from GeoBargain & Special Update - Performance Laggards Article

YoCream Intl Inc (PINK:YOCM)

YoCream had a been a great performer for the GeoTeam. However, the Company never really performed after we coded it as a GeoBargain, and momentum stagnated after it reported fiscal 2009 3rd qtr. on Aug 27. YoCream showed weaker growth than what the firm had reported for several of its past quarters.

In that press release the company offered some words of encouragement that could point to an interesting fourth quarter:

…"The third quarter merely saw us catch up with last year's roll out of smoothie sales to a major national account. In fact, sales of our core frozen yogurt products are up 66% in the third quarter. We continue to work with large national accounts. Four more are in test with different products right now. So we expect steady growth ahead for our core products as well as surges in sales should the national accounts approve the products in test."…

…"When asked about capacity to respond to additional surges in sales to large national accounts, Senior Director Matt Hanna reported that YoCream will complete $4 million in FY '09 plant infrastructure capital expansion. This will effectively double the capacity to pasteurize, culture, and package frozen yogurt mix. "We can now run in one shift what was taking us two shifts to produce," he stated. "We believe significant growth is coming and we are prepared to support our core business and new customers.”...

We still have not heard anything from the Company on this account so we are not sure what to expect.

YoCream also recently announced a special dividend. On one hand, this is good news indicating that cash flow remains strong. On the other hand, is the Company attempting to soften the blow of a weaker fourth quarter? We may be over thinking the situation, but we thought short-term investors would want to know. At any rate, we still are optimistic about the long term scenario and are likely willing to accept a few subpar quarters due to the Company’s historical success.

See discussion note from August 27, 2009.

Yocream (Pink Sheets:YOCM) announced third quarter results below the GeoTeam's® expectations, even after adding back a one time non-cash stock compensation charge of $673K .  We were most disappointed in this quarter's revenue showing.

^a Non-GAAP EPS Figures exclude certain non-operating gains and losses as well as certain non-cash items. Non-GAAP information should not be viewed in isolation or as a substitute for reported, or GAAP information . The GeoTeam® non- GAAP figures may, from time to time,  differ from company supplied figures.

We had hoped that Yocream would provide a non-GAAP EPS number as opposed to leaving it up to investors to dig up this information.  Even so, after taking the charge into account, non- GAAP results were still unimpressive.  Although YoCream's core business was up nicely, it appears that sales through its  Custom manufacturing business did not grow at a brisk pace. 

The GeoTeam® is not sure how investors will react to today's news.  The Company did a good job of explaining that this quarter's performance was likely a temporary situation and indicated that robust growth will be resumed in subsequent quarters:

• "The third quarter merely saw us catch up with last year's roll out of smoothie sales to a major national account. In fact, sales of our core frozen yogurt products are up 66% in the third quarter. We continue to work with large national accounts. Four more are in test with different products right now. So we expect steady growth ahead for our core products as well as surges in sales should the national accounts approve the products in test."
• "When asked about capacity to respond to additional surges in sales to large national accounts, Senior Director Matt Hanna reported that YoCream will complete $4 million in FY '09 plant infrastructure capital expansion. This will effectively double the capacity to pasteurize, culture, and package frozen yogurt mix. "We can now run in one shift what was taking us two shifts to produce," he stated. "We believe significant growth is coming and we are prepared to support our core business and new customers."

Combined, these two factors could propel revenue growth, while significantly increasing profit margins.

We will keep Yocream on the GeoBargain list due to the positive commentary in its press release and long-term track record of superior earnings per share growth. What remains to be seen is how fast the Company can get back on the growth track, a situation that is highly dependent upon:

• When its new capacity will be put to work.
• If and when it locks in its customer accounts, currently in test mode.

We think this could be an interesting day for Yocream, possibly creating a buying opportunity for long-term investors if shares get hit hard.  Timing issues still remain for short-term investors who may be inclined to sell their shares.  So far shares are holding up fairly well.

Who knows? If Yocream is in the hands of savvy investors we may be pleasantly surprised. Once the press release is fully digested it is apparent that YoCream is still very confident that it can resume its above average growth trend.  With Geo Calculated non- GAAP trailing EPS of $2.90, the stock is selling at a modest P/E of 10, which could give the stock support.

The GeoTeam® is adjusting its earnings per share estimate for YoCream due to an increase in the company's diluted outstanding share count.  Please see filing, page 2, for more details regarding this event.  Valuation scenarios have been adjusted (Scenarios may be aggressive if short-term investors perceive this development as negative).

New GeoTeam® estimate based on: $2.3 million shares:   $2.88
Old GeoTeam® estimate based on  : $2.6 million shares:   $3.10

The  GeoTeam® is speculating, based on seasonality trends, that the fourth quarter may not show the earnings per share growth we were hoping for.  The long-term story remains intact