Sink Your Teeth into Whole Earth Brands Stock

Natural sweeteners, food flavors, and ingredients company Whole Earth Brands NASDAQ: FREE stock has been consolidating for months but looks poised to breakout. The makers of natural consumer packaged goods (CPG) operate in two segments, Merisant and MafCo. Merisant is the leading natural sugar replacement under brands like Equal, Pure Via, Canderal, and Whole Earth generating most of the company’s revenues. MafCo is a 100-year old natural flavors and ingredients supplier. The organic, natural, and clean foods trend continues to gain momentum worldwide. The Company is a product of a special purpose entity company (SPAC) reverse merger. While SPACs have had a terrible track record, this one may be unique. Valuation is low in the context of a growing stevia worldwide market. Prudent investors seeking an unvalued play in the clean foods and sugar-free segment can watch for opportunistic pullbacks in shares of Whole Earth Brands.

Q1 FY fiscal 2021 Earnings Release

On May 14, 2021, Whole Earth released its first-quarter fiscal 2021 results for the quarter ending March 2021. The Company reported consolidated product revenues of $105.8 million, up 60.4% on a reported basis year-over-year (YoY). Branded CPG segment product revenues was up 103.4% reflecting the acquisition of Wholesome and Swerve brands. Flavors and Ingredients segment fell (-6.7%) TO $24 million. Gross profit was $35.7 million compared to $25.9 million in same period year ago. Operating losses were (-3.1 million) compared to (-$33.2) million in prior year. Consolidated adjusted EBITDA increased 38.2% to $17.5 million mainly due to contributions from the Swerve and Wholesome acquisitions.

Conference Call Takeaways

Whole Earth Brands CEO Albert Manzone set the tone, “We delivered $17.5 million of adjusted EBITDA in the first quarter driven by strong Branded CPG top line growth and improved margins as a result of successful cost productivity initiatives. Sales in all our key geographical markets around the world grew double-digits versus prior year as did our portfolio of natural brands, Whole, Earth, Swerve and Wholesome. I'm also happy to report to you that the integration of the Swerve and Wholesome acquisitions is complete, a testament to our people's competency, agility, and focus. We are further encouraged by the pace of the economic recovery and the positive implications for the food service industry in North America.” He went on to reiterate fiscal 2021 guidance and the continued strategic vision of growing revenues in all brands to $1 billion. With the acquisitions complete, he plans to increase penetration in the “better for you” sweetener categories that underscore the lifestyle shifts, “It is a lifestyle shift where food plays a central role in our health and wellness goals, helps manage various health problems, provides a range of lifestyle choices including keto, gluten-free, low calorie, low-carb or vegan to name a few. All of these trends provide our business with near-term and long-term tailwinds to support sustainable growth.”

Ecommerce Growth

Ecommerce rose 40% in Q1 2021 and comprises 10% of total sales. CEO Manzone pointed out, “Our e-commerce platform, which already contributes 10% of our sales is well positioned to benefit from the consumer buying pattern shifts toward e-commerce purchasing. This enhances accessibility of our portfolio to consumers and allow for high points of distributions. In Q1, our e-commerce business grew by almost 40% in North America, 110% in France, 160% in the UK and 90% across our Asian markets versus prior year.” The Company is also bolstering its supply chain for a competitive advantage under its reinvention project which is already helping it contain inflationary pressures.

FREE Opportunistic Pullback Levels

Using the rifle charts on weekly and daily charts can provide a near-term perspective of the playing field for FREE stock. The weekly rifle chart has been in a multi-month consolidation ranging from the $14.58 Fibonacci (fib) level to the $12.51 fib level. The weekly Bollinger Bands (BBs) have also been compressed, which precedes and expansion which may be underway. The weekly 5-period moving average (MA) is at $13.29 nearly overlapping the 15-period MA at $13.31. Shares appear ready to make a range break, the question is in which direction. The weekly stochastic formed a pretzel mini inverse pup as it tried to cross up but was abruptly reversed back down. The daily rifle charts triggered a market structure low (MSL) buy trigger on the breakout above $13.03, which is a line in the sand for the bulls. The daily 5-period MA is at the $13.12 fib in a stalled downtrend as the daily stochastic attempts to form a mini pup which would lift shares towards the daily 15-period MA near the $13.49 fib before a crossover up or an inverse pup down. Prudent investors can monitor for opportunistic pullback levels at the $13.12 fib, $12.64 fib, $11.65 fib, $11.04 fib, and the $10.67 fib. The upside trajectories range from the $16.73 fib up to $22.16 fib.