NEW YORK — Investors ate up shares of pasta maker Annie's Inc. Wednesday, which had the biggest opening day gain for an IPO since May 2011, when LinkedIn went public. It's the latest sign of the pull of natural and organic foods for consumers.
Shares soared 89 percent to close at $35.92, unseating Proto Labs Inc. as the biggest gainer for an IPO this year. Shares of Proto Labs, a Minnesota-based provider of custom parts, soared 81 percent in their first day of trading in late February. When professional networking company LinkedIn Corp. went public in May 2011, shares surged 109.4 percent.
Best known for its signature macaroni and cheese with pasta shaped like rabbits, Annie's now makes about 125 organic and natural food products and is sold in more than 25,000 store locations, almost all in the U.S. Its focus is catering to what it calls "gatekeeper moms," who are willing to spend 25 to 30 percent more for a healthier alternative to staples such as crackers.
"This isn't a surprise. It is a brand name that everyone knows, and the natural organic food sector is pretty hot right now," said Tiffany Ng, a research analyst at IPO investment advisory firm Renaissance Capital.
The U.S. is the world's largest market for foods labeled organic and natural, with sales exceeding $40 billion in 2010, Annie's said in a filing with the Securities and Exchange Commission. The company said that it expects demand for such products to grow faster than demand for food overall.
A tough economy has kept shoppers' appetite for some pricier organic foods in check. In 2004, 13 percent of 5,000 shoppers polled consumed an organic beverage or food at least once every two weeks, according to market researcher NPD Group. That figure went up to 25 percent in early 2008, but growth has stalled, according to Darren Seifer, NPD's food and beverage industry analyst. He noted that the market for organic products has skewed more toward wealthier households that have combined income of at least $100,000.
Annie's momentum hasn't slowed, partly because the company markets products as affordable, according to CEO John M. Foraker. He said that Annie's products have an average price of $2.50.
The Berkeley, Calif., company, which started out in 1989 selling products to regional supermarkets and small natural food stores in New England, now derives 30 percent of its overall sales from big discount chains including Wal-Mart Stores Inc. and Target Corp. About 19 percent of its overall sales came from new products launched since 2009.
Annie's has the No. 1 spot in the natural and organic market in four product lines: Macaroni and cheese, snack crackers, graham crackers and fruit snacks. It started selling organic crust pizza earlier this year.
Revenue rose 22.5 percent to $117.6 million in the year ended March 2011 compared with the previous year. For the nine months through Dec. 31, revenue rose 21 percent to $98.3 million. Foraker believes that an improving economy and rising consumer confidence is helping to lift sales, which are growing at a 20 percent rate compared with a five-year average of 15 to 16 percent.
The initial public offering raised $95 million, with 5 million shares pricing at $19 late Tuesday. That's above the range of $16 to $18 that the company expected on Monday. It originally planned to offer its share at $14 to $16. The higher price was a sign of strong demand for its shares.
Since about 80 percent of the shares were sold by company stockholders rather than Annie's, the company expects net proceeds from the IPO of just $11.6 million, after expenses. Proceeds from shareholder sales don't go to the company. Annie's plans to use most of the money to pay down debt.
Co-founder Annie Withey, who sold about 25 percent of her stake in the IPO, remains involved in the business. She writes the personal letters printed on the back of the boxes, responds to notes from customers and is still involved in product development. She had a 1.1 percent stake after the IPO.
The IPO market has heated up in 2012, with several technology companies making big splashes, after months of gains in the broader stock market. IPOs that have gone public this year are up about 20 percent, while the broader Standard & Poor's 500 index is up about 12 percent, said Ng.
Nine other companies were scheduled to go public this week. Two other companies making their IPO debut Wednesday – Regional Management Corp. and Vocera Communications – are also getting a strong reception. Greenville, S.C.-based lender Regional Management's shares rose 10 percent, while mobile equipment provider Vocera, based in San Jose, Calif., jumped 31 percent.
Credit Suisse and JPMorgan managed the IPO for Annie's.