These Companies Are Still Looking to Grow

Mark is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

B&G Foods (NYSE: BGS) and Pinnacle Foods (NYSE: PF) are set to bid against one another for the Wish-Bone salad dressing brand from Unilever (NYSE: UL). The expected price is to be $400 million to $500 million. Both B&G and Pinnacle are looking to add to their food brands, while Unilever is looking to divest non-core assets and focus on its personal-care business. A sale of Wish-Bone for Unilever would follow up the $700 million sale of Skippy peanut butter to Hormel Foods.

The little food company that keeps growing

B&G Foods is showing no signs of slowing down in the acquisition department. A buy of Wish-Bone would follow up its purchase earlier this month of Robert's American Gourmet Foods for $195 million in cash. Last month B&G purchased the TrueNorth brand from DeMet's Candy Company. These acquisitions add to B&G's portfolio, which already consists of such well-known brands Ortega Salsa, Mrs. Dash, Grandma's Molasses, Emeril's and Cream of Wheat.

For the first quarter of this year, net sales increased 8.8% to $171.2 million. Two brands that were acquired at the end of last year, New York Style and Old London, contributed $11.3 million in net sales. Overall gross profit increased 3.5% to $58.8 million.

The growth going forward for B&G is going to come from its recent acquisitions and any new acquisitions the company makes over the coming quarters. The company's overall strategy with a new acquisition is for it to be immediately accretive to earnings per share and cash flow. In terms of the recent acquisition of Robert's American Gourmet Foods that will likely close next month, the early estimate for annual sales is $80 million to $90 million. The deal is also expected to add $18 million to $20 million in adjusted EBITDA.

What I like about B&G is that the stock offers both growth and income. The dividend has been steadily increasing and the yield is now 3.6%. The dividend payout ratio is 91%, so it's obvious that B&G is a very shareholder-friendly company with such a high payout.

This food company just popped up on the radar

Pinnacle Foods just came public in the first quarter of this year by The Blackstone Group. The company has a great collection of brands which include Duncan Hines, Aunt Jemima, Bird's Eye, Vlasic, and Mrs. Paul's. The company's stated goals are to reinvigorate iconic brands. According to the company, 85% of its products are in American households. The company maintains a top-four market position in the 12 main categories in which it operates.

For the first quarter of this year, net earnings more than doubled to $24.8 million. This compares to only $9.5 million in the prior year's quarter. Adjusted EBITDA rose 16% to $104.5 million. The company also refinanced all of its outstanding debt which will significantly reduce interest expenses going forward.

In looking forward, where I see growth for Pinnacle Foods is in international expansion. Last year, of the company's $2.48 billion in revenues, only $400 million came from outside North America. If Pinnacle can expand its footprint globally, the potential for the company is quite large. The company has great brands that overseas consumers would want to have in their households as well.

The giant both companies want to become

The goal for both B&G and Pinnacle is to one day be like Unilever. Unilever is a European consumer products giant with over $66 billion in revenues. The company's four segments include personal care, foods, refreshment and home care. Some of its brands include Ben & Jerry's, Dove, Hellmann's, Knorr, Lipton, and Breyer's. Unilever is the world's largest manufacturer of ice cream.

In the first quarter of this year, Unilever reported that Hellmann's sales reached 2 billion euros (about $2.6 billion). The company now has 14 brands that each report sales of over $1.3 billion annually. Sales growth increased 4.9%, which is on top of 8.4% growth in the same quarter last year. Sales in emerging markets were up over 10% and this marks 8 consecutive quarters of double-digit sales growth. Emerging markets now account for 57% of all sales.

In looking forward, I like the fact that Unilever is shedding non-core assets like Wish-Bone to focus more on personal-care and home products. Personal-care sales grew 8.3% in the last quarter. Sunsilk just reached the $1.3 billion in sales and Rexona is approaching $2.6 billion. By focusing on this division, Unilever can divert more resources to rolling out its personal care products into more markets. Since the acquisition of Alberto Culver two years ago, Unilever has taken the company's products into five new markets. Within the portfolio of brands acquired with Alberto Culver, some brands have increased by 50% under Unilever's direction.

Foolish assessment

These three companies own tremendous brands that can continue to be leveraged going forward. B&G and Pinnacle are following the path set by Unilever in building a portfolio of brands. All three companies should continue to perform well over the long-run.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Unilever. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure