Jamba to Expedite Supply Chain

Jamba Inc. (JMBA - Snapshot Report) recently inked a supply chain agreement with US Foods for service in northeastern US. Notably, US Foods is one of America’s most innovative food companies and distributors operating one of the largest private trucking fleets in the country.

The partnership will endow Jamba with greater supply chain efficiencies as well as consolidate distribution channels for speedy and timely services to the company’s existing outlets. Expansion in new geographic areas will also be facilitated through this coalition.  

The company also aims to reduce costs through this alliance. Jamba’s stringent cost structure, has already improved the company operated margin considerably. The company continues to be under pressure on the commodity side, but has been able to mitigate this by leveraging a strong supplier relationship and implementing cost saving initiatives.

In its third quarter of 2011, Jamba witnessed a steep decline in its cost structure which resulted in non-GAAP adjusted operating profit margin increment of 670 basis points to 26.9%. The effort was commendable despite the company’s struggling top line and flaring food price inflation.

For 2011, Jamba expects operating profit margin in the range of 18% and 20% while for 2012, the expectation hovers around 19% to 22%. The company’s general and administrative expenses in 2011 will also be consistent with 2010 levels.

We believe Jamba is turning around at a slow but steady pace. While the company’s revenue is still lagging, indicating that it has a long way to go, Jamba has correctly identified cost containment as the trick to expedite earnings improvement. In the third quarter, the company recorded approximately 5 cents in earnings per share, on a reported basis, showing an improvement from the prior-year loss of 2 cents.

Jamba currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock.

Read the full analyst report on JMBA