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WhiteWave Foods: A Stock That Has Immense Potential in the Immediate Future

July 05, 2014 | About:
abirk

abirk

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Natural and organic food is the fastest-growing sector in the American food marketplace. Since 2000, the United States has seen organic food sales growth as people are now much more health conscious as the rate of obesity is accelerating at a great pace. U.S. consumers are concerned about exposure to toxins in non-organic foods, and this has paved the way to a decline in the consumption of the same. Organic foods are foods that are produced using methods that do not involve modern synthetic inputs such as pesticides and chemical fertilizers. These products are more nutritious than other food. People’s shift towards healthy eating and organic foods has made WhiteWave Foods Co. (WWAV) to strengthen its position.

About This Player

The WhiteWave Foods Company, formerly WWF Operating Company, is a consumer packaged food and beverage company. The Company manufactures, markets, distributes, and sells plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe. The Company operates in two segments: North America and Europe. The Company's brands distributed in North America include Silk plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, and Horizon Organic dairy products, while its European brands of plant-based foods and beverages include Alpro and Provamel. In October 2012, the company was spun off from Dean Foods Co. (DF) and is doing well after the spinoff.

Positive Numbers

On May 8, 2014, this leading producer reported strong results for the first quarter ended March 31, 2014. This positive result was driven by continued growth across all of the Company’s platforms. WhiteWave Foods reported adjusted diluted earnings per share of $0.22, a 40% increase compared to first quarter 2013 (excluding investments associated with its China joint venture).

From the above chart, it can be seen that net sales were $830 million, a 36% increase from net sales of $608 million in the first quarter of 2013. Organically, revenues grew 12% as both the North American and European businesses reported strong volumes. Compared to $47 million in the first quarter of 2013, adjusted operating income grew 35% to $64 million. This was mainly driven by solid top-line growth. A chart has been provided below to show the company’s segment wise performance.

Positive Outlook

As WhiteWave Foods reported strong first quarter 2014 therefore, the management of the company now expects to report net sales growth in the low thirties percent range for both the full year and the second quarter of 2014. For the full year and second quarter of 2014, the Company now expects an adjusted total operating income percentage growth rate in the low-forties, up from the 35 percent growth rate reported in the first quarter of 2014. Interest expense for the second quarter 2014 will be approximately $8 million to $10 million, up from $5.7 million in the first quarter of 2014. For the full year of 2014, management expects interest expense to be approximately $32 million to $34 million, and annual tax rate of approximately 34 to 35% for 2014. Second quarter and full year 2014 interest expense will be approximately $8 million to $10 million, up from $5.7 million in the first quarter of 2014, and $32 million to $34 million respectively. Due to continued strong volume growth expectations, the Company is increasing its capital investment plans for 2014 to further expand production capacity in North America and Europe. The Company now projects, capital expenditures for 2014 to be approximately $275 million, up from its original estimate of $230 million to $260 million. Further details of the company’s outlook for 2014 have been provided in the chart below.

Charts from company website

Growth

To create a niche in the hearts of consumers, WhiteWave recently introduced line of flavorful almondmilk and coconutmilk blends, and a new variety of almondmilks enhanced with protein and fiber are gaining distribution based on the strength of the Silk brand, and a track record of successful innovation. In addition, the Company has rolled out redesigned packaging across the Silk product line and launched a national advertising campaign to increase brand and category awareness of the benefits of plant-based foods and beverages.

On January 2, 2014, the parent of Silk soy milk and other organic products completed its previously announced acquisition of Earthbound Farm, one of the country’s leading organic food brands, for approximately $600 million in cash. This acquisition will help WhiteWave to provide the two most popular gateways for consumers to enter into the organic category – produce and dairy – and have a significant foothold in the fresh foods category, which represents one of the most attractive, emerging trends in the food industry today.

As people are intending towards organic and healthy foods therefore, major grocery stores like Whole Foods Market, Inc. (WFM), Sprouts Farmers Market Inc. (SFM), and The Kroger Co. (KR) are increasing shelf space by building more stores for WhiteWave.

China At a Glance

To strengthen its position, WhiteWave has entered into a joint venture agreement with China Mengniu Dairy Company Limited (“Mengniu”), a leading Chinese dairy company, on Jan. 5, 2014. The joint venture will be owned 49% by WhiteWave and 51% by Mengniu. The company will manufacture, market and sell a range of nutritious products in China jointly.

To Put the Pieces Together

WhiteWave’s strength can be seen in multiple areas such as strong growth, positive results, and strong portfolio of large scale brands. The company’s acquisition of Earthbound Farm and partnering with China Mengniu Dairy Company Limited will add solid growth in the future. Further, customers’ shift towards organic and healthy foods will pump up the growth of WhiteWave. Therefore, I believe that this company has a great investment opportunity in the long run.


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