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Vital Farms a Certified B Corporation raised $200 million in the sale of 9.3 million shares in an IPO in a debut on NASDQ, Friday July 31st trading under the ticker VITL. The IPO was underwritten by Goldman Sachs and Company, Morgan Stanley, Credit Suisse, with participation by BMO Capital Markets and Stifel. VITL priced at $22.00 and closed at $35.05 on the opening day, rising to $38.90 at close of trading on Tuesday 4th August .  The Company has a market capitalization of $1.5 billion. 

Perspective View of Springfield MO Packing Plant in operation

Vital Farms Inc, established in 2007, had issued a prospectus confirming that equity holders would make available five million shares to raise $71 million with an anticipated initial public offering price of between $15 and $17 per share. In the preamble to the prospectus, the company claimed a 33 percent compound growth rate from 2015 through 2019.  Vital Farms stated that it has 2.5 million households purchasing eggs and dairy products and currently holds 76 percent of the pasture-raised eggs category.  Vital Foods operates a packing plant in Springfield, MO. supplied by 200 contractors.

For the fiscal year ended December 29, 2019 the company generated net revenue of $140.7 million and income from operations of $3.3 million. Gross margin was 30.5 percent, operating and net margins both 2.4 percent.  Earnings per share for the fiscal years 2017, 2018, and 2019 were a loss of $0.07; and positive $0.22 and $0.09 for the most recent years. For the quarter ended June 28th 2020, Vital Farms estimates net revenue will be $58 million with a net income of $5.3 million. 

According to the Vital Farms balance sheet, reflecting March 29th 2020, total assets were $67.4 million, including goodwill of $3.9 million and tangible property plant and equipment of $25.6 million.  The company carries long-term debt and lease obligations amounting to $4.3 million.

In reviewing the prospectus, the following items are worthy of consideration:

• Selling, general, and administrative costs for the fiscal year ended December 29th 2019 amounted to 20.9 percent of net revenue.  The company does not appear to have achieved efficiencies of scale consistent with increased volume.
• In the list of precautionary statements, there is no mention of catastrophic diseases, which may profoundly affect revenue and ongoing operations.  As a company committed to pasture-housed flocks in a limited area with a common feed supply, Vital Farms is vulnerable to infection with avian influenza and exotic Newcastle disease introduced by free-living birds. Pasture-managed flocks are also more susceptible to infection with Salmonella that could impact brand integrity.
• No details are provided concerning dozens of eggs sold or the number of contracted hens, estimated at 1 million, based on revenue and other indirect indications. This represents 1.2 percent of the non-caged U.S. flock.
• The disparity in price between eggs derived from pasture and product from cage-free barn and aviary housing will limit growth. If Vital is obliged to reduce selling price, profit and ROI could be negatively impacted. The fact that growth in consumption of USDA certified organic eggs has been static for months suggests a limited market for eggs priced at $4 and above at retail.
• Vital Foods has an interest in Ovabrite Inc, a company established by Novatrans Group, SA, to determine embryo gender of fertile eggs during incubation. The future financial contribution of this unproven technology is questioned.
• Just a thought- The Market capitalization of VITL on August 6th was $1.62 Billion compared to Cal-Maine Foods at $2.12 Billion. COVID-19 really does have neurologic effects.