Ride the Wave With This Company

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WhiteWave Foods (NYSE: WWAV) makes and sells branded plant-based foods and beverages, coffee creamers and beverages, and premium dairy products in North America and Europe. Its leading brands include Horizon Organic, Silk, Alpro, International Delight, and the company sells creamer under license from Land O'Lakes. Plant-based foods once represented a small, niche category, but have since become one of the fastest-growing segments in the food and beverage industry. The products that WhiteWave produces are popular with health-conscious individuals and those that are lactose intolerant.

Recent events

WhiteWave just reported strong second-quarter results. Net sales increased 10% to $616 million and earnings per share increased 28% to $0.16 compared to the second quarter of last year. The company saw volume gains across its entire brand lineup.

WhiteWave also raised its guidance going forward and expects to earn between $0.69 and $0.72 per share for the entire year. Sales for the full year are forecast to grow in the high-single digits, and operating income is forecast to grow in the mid-teens. The company anticipates earnings in the next quarter to be between $0.17 and $0.18 per share. Last year, WhiteWave earned $0.16 per share in the third quarter.

The other big event for WhiteWave is that its former parent Dean Foods sold its remaining stake in the company. WhiteWave was spun-off from Dean Foods last October, but WhiteWave is now a standalone entity.

Going forward

The fastest-growing segment for WhiteWave is the almond category. In terms of its sales in the plant-based category, almonds now represent the majority of sales in the segment with a 55% share, while soy is at 35%. WhiteWave's Silk almond saw 50% sales growth in the second quarter. Compared to its competitors, Silk owns roughly 60% of the plant-based food and beverage category.

Down the road, WhiteWave will benefit from its investments in marketing, supply-chain and distribution channels. WhiteWave has started production in two more plants to accommodate the strong growth in the almond category. This is an investment the company is making for a return in the future as almond sales continue to grow. In terms of distribution, WhiteWave is working to get its products into more locations besides just the grocery store. It is working to get its products into convenience stores, drug stores and dollar stores to achieve greater distribution and increase sales.

WhiteWave is also focused on innovation and new product offerings. In the next quarter, the company will launch a new ice-latte line in conjunction with Green Mountain Coffee Roasters. On the company's earnings call, CEO Gregg Engles said of the new product

It is packaged in a unique crash-shaped bottle for the coffee consumer who is interested in a stronger, great tasting premium ice-coffee option and we're excited about its potential.

Competition

In the natural- and organic-food segment, WhiteWave competes with Hain Celestial (NASDAQ: HAIN) and Annie's (NYSE: BNNY). Hain Celestial is the larger of the two, with products in natural foods, natural beverages, natural snacks, refrigerated and frozen goods, antibiotic-free turkeys and chicken, and organic personal-care items. Annie's produces all-natural and organic pizza, pasta, snacks, dressings and oils, condiments, and products for vegan and gluten-free eaters.

For Hain Celestial, its top customer is Whole Foods. The two companies have a symbiotic relationship, and Whole Foods has helped Hain Celestial with its product roll-outs and increased awareness with Hain's products on its grocery-store shelves.

Going forward, Hain Celestial is looking to grow through two methods. The first way is via acquisitions. Chief executive officer Irwin Simon looks at 20 or so potential acquisitions every month and is looking to spend a minimum of $100 million on a potential deal. A case in point is the recent acquisition of Ella's Kitchen. Ella's Kitchen will complement the company's Earth's Best brand in the infant and toddler food segment.

The second phase of growth for Hain Celestial is in international markets. The company's plan is to build global brands. By increasing distribution into new international markets, Hain Celestial can increase the sales of its brands. Currently, the company's sales are 60% in the U.S. and 40% internationally. The company's goal is for the ratio to be 50/50.

For Annie's, the company sees growth in its meals and snack businesses. According to Annie's, its aggregate household penetration rate is only 6.5%. Mac and cheese is its top product, with a household penetration rate of 3.7%.

To increase its penetration rate with households, Annie's is working with the different grocery chains to get its products out of the organic section and into the mainline aisle. Not every customer shops in the natural-foods section, but when a healthier option is placed in the mainline aisle, customers tend to go with the healthier option. For mac and cheese, when Annie's was placed in the mainline aisle, year-over-year sales rose 38.9% compared to an increase of just 12.4% in the natural-foods section only.

Annie's is also continuing to innovate with new products. Consider that in 2012, 19% of net sales came from products introduced from the start of 2010. This year, the company rolled out new microwaveable mac and cheese and also frozen entrees. Frozen entrees represent a $12 billion business, and there's strong demand for healthier frozen entrees from a company like Annie's.

Foolish assessment

My favorite play in the natural and organic sector is WhiteWave Foods. The company trades at a forward P/E of 23 and has an enterprise value/EBITDA of just under 15. Hain Celestial has a forward P/E of 25 and an enterprise value/EBITDA of 19. Annie's trades at a forward P/E of 35 and an enterprise value/EBITDA of 34. Based on these metrics and the growth potential in the almond category, WhiteWave looks to be the best bet in the space.

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Mark Yagalla has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial. The Motley Fool owns shares of Hain Celestial and WhiteWave Foods. 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!

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