Smart Balance's Delicate Balance

There's more drama than usual tied to tomorrow morning's quarterly earnings call at Smart Balance (NAS: SMBL) .

Three independent board members resigned in September. The marketer of popular heart-healthy buttery spreads had appointed two new independent members three months earlier, and reconstituted its committees to the point where the three members who eventually resigned were not members of any particular committee.

Why have independent board members if you're not going to value their input?

The three resignations letters in September were brief but critical, knocking everything from the stock's underperformance to corporate governance practices to shareholder accountability. All three terms were set to expire at the next annual shareholder meeting, but one of the three departing board members was also its lead director.

It's easy to see why there's unrest at Smart Balance. The stock has been trading in the single digits for nearly four years. Smart Balance has excelled with its pricey but popular line of heart-healthy spreads, but when it has tried to cash in on its brand by expanding into related items -- including milk, cream cheese, popcorn, and even peanut butter -- the moves haven't really moved the needle.

Net sales grew by just 6% in its previous quarter. Analysts are expecting a 20% pop in tomorrow's quarterly report, but it's not an organic spurt. The company acquired a Quebec-based maker of gluten-free foods toward the end of the previous period.

Profitability is growing nicely, though. Wall Street sees earnings more than doubling to $0.24 a share this year and climbing to $0.31 a share next year. This obviously isn't the kind of bottom-line production that will send Smart Balance's stock into the double digits, but positive steps may finally get the attention of potential acquirers.

Bigger companies have just been better at expanding the reach of their healthy brands. Just stroll the grocery store aisles and see what ConAgra's (NYS: CAG) Healthy Choice and Kraft Foods' (NYS: KFT) SnackWell's are up to. Promise parent Unilever (NYS: UL) would probably love making inroads in the dairy case, and let's not dismiss supermarket titans Sara Lee (NYS: SLE) and Heinz (NYS: HNZ) as companies that could cash in on this premium niche -- if Kraft doesn't get there first.

The unfortunate boardroom tussle may come up during tomorrow morning's call. The Wall Street Journal is playing it up today in its Overheard blog, though it's hard to get too worked up about ex-board member complaints of shareholder accountability when the stock hit a new two-year high last week.

I recommended shares of Smart Balance to Rule Breakers subscribers a couple of years ago, ahead of its enhanced milk rollout. I felt milk -- with its more frequent purchase cycle than buttery spreads -- could be a real game changer. We booted it from the scorecard when the thesis just wasn't playing out.

Smart Balance isn't giving up the way that I -- and the three disgruntled board members -- have, but it really should be exploring strategic alternatives that it hasn't been able to accomplish on its own.

If you want to see which way the spread maker heads, addSmart Balanceto My Watchlist.

At the time thisarticle was published Motley Fool newsletter serviceshave recommended buying shares of Unilever and Heinz. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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