Horn WhiteWave Foods (NYSE:WWAV) was spun off from Dean Foods (NYSE:DF) in 2012, and the company has performed spectacularly since then. The stock is up roughly 250% since the spin off, and the company's top and bottom line performance has also been impressive.
During the first-quarter fiscal 2015, the top-line grew 13% year-over-year on constant-currency terms, backed by solid performance in the U.S. and Europe foods and beverages market. The acquisitions of So Delicious and Earthbound Farms also pushed the revenues higher. While the recent acquisitions have been strong growth drivers for the company, Horn is also performing well organically. Excluding acquisition, WhiteWave's revenue jumped a solid 12% in 2014.
A fundamental shift is occurring in the food industry, as many people are opting for healthier food. As a result, the biological food market is expected to continue growing for the coming years. WhiteWave Foods is well positioned to capitalize on this growth, which is why I ponder investors should buy the stock for the long term.
There's no hiding the fact that WhiteWave has been very successful with its M&A strategies. In the previous quarter, the revenues of Earthbound Farms and So Delicious jumped 34% and 3%, respectively. The organic market is growing at a rapid pace, and WhiteWave's strategy of focusing on acquisitions will benefit the company in the long run.
It doesn't look like WhiteWave's acquisition spree will end soon, as the company recently announced an agreement to acquire Vega. Vega has an active presence in the plant-based nutrition products market across Canada, and the U.S. Vega grossed $100 million in sales over final 12 months and has recorded year-to-date growth of 30% so far. For fiscal 2016, Vega's acquisition is expected to contribute $0.06 per share to WhiteWave's earnings.
"Vega's plant-based nutrition products complement our plant-based foods portfolio. With its strong brand, high-quality products, and commitment to innovation and sustainability, Vega is a perfect fit for WhiteWave." - WWAV CEO Gregg Engles
This acquisition will expand WWAV's core trade of plant-based foods and beverages portfolio by including plant-based nutrition products. Also, the acquisition will be a tailwind for growth in the $8.6 billion nutritional powders, bars and ready-to-drink beverages market.
Another company that reminds me of growing through acquisitions is Hain Celestial (NASDAQ:HAIN). Comparing the Return on Invested Capital, or ROIC, we find that Horn is slightly ahead for WhiteWave as compared to Hain.
So, the shopping for growth initiative is panning out well for WhiteWave, as well as for Hain Celestial. Given the success of WhiteWave's M&A strategy, investors can expect more acquisitions going forward. The company has been very successful in integrating the acquisitions in its core business, which is why I think its strategy will prove to be fruitful both in the long and short term.
Soy milk consumption in the U.S. has declined from 2008 to 2010. However, growth in the Asia market has offset this decline. Asia continues to dominate soy milk consumption internationally, with Hong Kong (17l/day) topping the charts, followed by Singapore (12l/day), Thailand (10l/day) and China (9.5l/day) and Malaysia (9l/day). By comparison, average consumption in the U.S. stands at a mere 1.5l/day.
The strong growth potential in Asia will let WhiteWave benefit from its startup of a joint venture in China. The investments in the startup did negatively impact EPS in the reported quarter by $0.02. But once production ramps up, Horn will allow the company to build the most of the opportunity.
In addition, the other plant-based dairy alternatives, like almond milk, coconut milk, cashew milk, and blends, are alternatives for consumers who do not opt for soy milk. In fact, the entire dairy alternative beverage (soy, almond, rice) market is projected to grow to $14 billion in sales by 2018. WhiteWave enjoys 64% market share of the North American coconut milk and 53% of the almond milk market.
WhiteWave has many top brands in the organic food and beverage segments. Organic food sales are soaring worldwide, and the company is well positioned to benefit from the global trend towards healthier living. Also, the company has been very successful with its acquisitions. Given the success, I expect WhiteWave to continue acquiring more value-adding companies, making Horn a terrific buy for the long term.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)I wrote this article myself, and Horn expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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