BranchOut Food Secures Large Scale Production Facility in Peru Capable of $40M in Production Capacity; Estimated 40-50% Gross Margins

Rhea-AI Summary

BranchOut Food (NASDAQ: BOF) has secured a long-term lease for a 50,000 square foot production facility in Peru. The build-out will start immediately, with production expected in Q3 2024. This facility, which BranchOut has the option to purchase within the 10-year lease term, will support the company's expansion due to increasing demand for its dehydrated fruit and vegetable products. The facility will house BranchOut's existing dehydration machine and a second one to be installed soon.

The new facility is expected to yield up to $40 million in production capacity with 40-50% gross margins. The move to Peru, a key agricultural region, will enable BranchOut to control quality, planning, and costs, leveraging strong relationships with local farmers for fresh produce at low costs. This strategic expansion aims to meet the growing demand from major U.S. retailers, thereby enhancing operational efficiency and profitability.

Positive

• Secured a 50,000 square foot production facility in Peru.
• Option to purchase the facility at a fixed price during the 10-year term.
• Facility expected to support $40 million in production capacity.
• Projected gross margins of 40-50%.
• Facility will be 100% owned and operated by BranchOut.
• Existing and new dehydration machines to be installed.
• Establishment in a top agricultural region for controlling quality and costs.
• Strong relationships with local farmers for fresh produce.
• Increased operational efficiency and profitability.
• Growing demand from major U.S. retailers supported by this expansion.

Negative

• Significant initial investment required for the facility build-out.
• Potential delays in production commencement affecting third-quarter targets.
• Dependence on Peruvian agricultural conditions and labor market.
• Possible logistical challenges in shipping machinery and products.

Insights

Financial Analyst

BranchOut Food Inc.'s recent leasing of a large production facility in Peru is a significant move, opening up substantial production capacity worth $40 million. For investors, it's important to note the estimated gross margins of 40-50%, which align well with industry standards for food manufacturing. The facility's vertical integration will likely improve cost controls and quality assurance, potentially leading to higher profitability and a stable supply chain. However, the initial capital expenditure and operational costs could pressure short-term financials. It will be vital for the company to manage this transition efficiently to avoid margin compression or cash flow issues. Additionally, the option to purchase the facility provides potential long-term cost savings and asset appreciation, adding an extra layer of strategic flexibility for the company.

Market Research Analyst

The expansion into a vertically integrated production facility in Peru positions BranchOut Food favorably within the competitive landscape of the food technology sector. The move to produce within one of the world's most abundant fruit and vegetable regions ensures a steady supply of high-quality raw materials at lower costs. This is especially beneficial given the increasing consumer demand for healthy, dehydrated food products. Moreover, the company's strong relationships with local farmers and the advantageous trade routes with the US further solidify its supply chain. These factors could enhance BranchOut's market share by meeting growing retailer demand more reliably and cost-effectively. Nevertheless, the success hinges on efficient execution and the ability to scale production without compromising product quality.

Supply Chain Expert

BranchOut Food's strategy to move to 100% vertical integration by establishing a production facility in Peru is a pragmatic decision. Controlling the entire supply chain—from raw produce sourcing to final product shipment—can significantly reduce dependencies on external suppliers, thereby mitigating risks associated with supply chain disruptions. The location in Peru is strategic, given the proximity to abundant local produce and cost-effective labor. These factors can help the company maintain competitive pricing while ensuring high-quality products. Additionally, establishing a direct trade route with the US can streamline logistics and reduce lead times. However, investors should be mindful of potential risks such as political instability in the region, which could impact operations and logistics if not managed proactively.

Build out to begin immediately, with production expected to commence in the third quarter

LIMA, Peru, May 14, 2024 (GLOBE NEWSWIRE) -- BranchOut Food Inc. (NASDAQ: BOF), a pioneering food technology company and producer of dehydrated fruit and vegetable-based products, today announced that it has signed a long term lease for a 50,000 square foot production facility in Peru. Under the terms of the agreement, BranchOut Food has the first right to purchase the facility at a fixed price at any point during the 10-year term.

The Company has expanded its operations in Peru and moved to 100% vertical integration in response to consistent and increasing demand for its branded and white-label products from some of the largest retailers in the US.

“Our current large-scale, continuous throughput dehydration machine will be moved into our new space. In addition, our second machine, which is currently on order, will be shipped to Peru and installed in the next couple months. Our new facility will be 100% owned and operated by BranchOut. We estimate the facility has $40 million in production capacity, with additional space to grow as needed,” stated Eric Healy, CEO of BranchOut Food.

“We are very proud of our significant growth over the last 12 months, which has included repeat orders from the nation’s largest warehouse club and the nation’s largest retailer, among other retailers across the country. Establishing our own production facility in Peru, one of the world’s most abundant fruit and vegetable growing regions, will allow BranchOut Food to control every step of the production process, including quality control, planning, and cost of goods. Additionally, we expect gross margins to grow to 40-50% as our production capacity increases,” concluded Mr. Healy.

BranchOut Food has built strong relationships with a large network of local farmers in Peru, enabling the Company to select the freshest raw produce at the lowest cost. The location provides access to an ample supply of labor and has direct and free trade routes with the US.

About BranchOut Food Inc.

BranchOut Food is an international food-tech company delivering truly great natural snacks and real superfood ingredients enabled by its licensed dehydration technology. The company’s GentleDry Technology is the next generation in dehydration technology, preserving up to 95% of the original nutrition of fresh fruits and vegetables. BranchOut’s technology is protected by more than 17 patents. BranchOut Food is proud to be a leading provider of high-quality dehydrated fruit and vegetable-based products and its commitment to quality and innovation sets it apart as a trusted brand and private label supplier. For more information about BranchOut Food Inc. and its products, please visit www.branchoutfood.com and follow us on LinkedIn and Twitter.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to expectations or forecasts of future events. Forward-looking statements may be identified using words such as "forecast," "intend," "seek," "target," "anticipate," "believe," "expect," "estimate", "plan," "outlook," and "project" and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. Forward-looking statements with respect to the operations of BranchOut Food, Inc., (the Company) strategies, prospects and other aspects of the business of the Company are based on current expectations that are subject to known and unknown risks and uncertainties, which could cause actual results or outcomes to differ materially from expectations expressed or implied by such forward-looking statements. You are cautioned not to place undue reliance upon any forward-looking statements, which speak only as of the date made. Although it may voluntarily do so from time to time, the Company undertakes no commitment to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

For more information
Jeff Ramson
PCG Advisory
646-863-6893
jramson@pcgadvisory.com

FAQ

What is the production capacity of BranchOut Food's new facility in Peru?

The new facility has an estimated production capacity of $40 million.

When will BranchOut Food's Peru production facility begin operations?

Production is expected to commence in the third quarter of 2024.

What gross margins does BranchOut Food expect from the new facility?

BranchOut Food expects gross margins of 40-50%.

What is the size of BranchOut Food's new production facility in Peru?

The facility is 50,000 square feet.

Does BranchOut Food have the option to purchase the new facility in Peru?

Yes, BranchOut Food has the first right to purchase the facility at a fixed price during the 10-year lease term.

How does the new facility affect BranchOut Food's operational control?

The facility allows BranchOut Food to control every step of the production process, including quality control and cost management.

Why did BranchOut Food choose Peru for its new production facility?

Peru is one of the world's most abundant fruit and vegetable growing regions, offering fresh produce at low costs and direct trade routes with the US.

What machines will be installed in BranchOut Food's new facility?

The facility will house an existing large-scale dehydration machine and a second machine to be installed soon.