Profit From the Many Going Nuts Over All Things Almond

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I love almonds, so when I discovered WhiteWave Foods (NYSE: WWAV), Blue Diamond Growers, and others produced almond milk, it was bye bye soy milk. And when I tasted Hain Celestial's (NASDAQ: HAIN) almond butter, it was adios to peanut butters, such as J.M. Smucker's (NYSE: SJM) All Natural.

I'm hardly alone, as global demand for almonds and almond milk is soaring, while demand for almond butters and almonds as ingredients in various food products is rising. This increasing demand is attributed to taste reasons and health-related benefits. Let's look at the investment implications of this tasty topic. 

The world is nuts for nuts – specifically, almonds

Supply and demand figures:

  • California produces 80% of the world's and 100% of the U.S.'s almonds
  • Demand for California's almonds has increased 51% in five years
  • Demand from Asia for California's almonds has increased 154% in five years
  • U.S. per capita consumption of almonds has increased more than three-fold since 1997
  • U.S. per capita consumption of almonds surpassed that of peanuts in 2011

Almond milk making big moo-ves on cow and soy milk

Consumption of cow milk has been on a long decline in the U.S, primarily due to health concerns over antibiotic content and lactose intolerance issues. 

Soy milk has largely had the plant-based non-dairy beverage category to itself. That's changed. While almond milk has long been on some grocer's shelves, it was in the shelf-stable area. It's only been since 2010 that almond milk has invaded the refrigerated dairy section.  

U.S. retail sales of plant-based nondairy beverages, such as soy, almond, rice, coconut and hemp milk, hit $1.33 billion in 2011, and are expected to top $1.7 billion by 2016.

Soy milk had 68.7% of the dairy alternative beverage market in 2011, followed by almond milk at 21.2%, rice milk at 7.2%, and coconut milk at 2.6%. Almond milk sales increased 79% from the previous year. 

The almond milk players

Blue Diamond and White Wave's Silk brand are duking it out for almond milk supremacy. Silk Pure Almond sales skyrocketed more than 500% in 2010 and 69% in 2011. Blue Diamond's Almond Breeze sales jumped 240% in 2010 and 59% in 2011. 

Whole Foods Market (NASDAQ: WFM) and other grocers carry almond milk under their private labels. Whole Foods is largely viewed as just a retailer. I think some miss the fact that it's steadily becoming a food producer, as it offers items from almond milk to spices under its "365" brand. Some shoppers might be hesitant to substitute traditional supermarket private label brands for brand-name products due to perceived quality issues. However, I don't think this is much of an issue with Whole Foods' brand. The company's quality image likely carries over to its store-brand products. 

The almond butter players

Hain Celestial sells almond butter (and other nut- and seed-based butters) under its MaraNatha label. Many are organic, some are not. 

Smucker's needs to "up" it butters game and offer a couple almond butters. It's no doubt losing market share. Some consumers are switching to almond butter for taste and/or health-related reasons. Peanuts are more likely to be tainted with a toxic mold (aflatoxins) than are almonds and other nuts. 

Whole Foods carries almond butters under its 365 brand. 

Business profiles

WhiteWave was spun off from Dean Foods. It began trading late last year, with Dean selling its remaining interest in May. WhiteWave produces and sells plant-based foods and beverages, coffee creamers, non-organic and organic dairy products. Its better known brands include Silk, International Delight, Land O'Lakes, and Horizon Organic.  

Hain Celestial produces and sells a wide range of natural and organic products. It offers grocery, snack, and personal care products. It also distributes fresh prepared foods, such as sandwiches and appetizers.

J.M. Smucker produces and sells coffee, fruit spreads, peanut butter, oils, baking mixes, beverages, frozen sandwiches, dessert toppings, etc. Its brands include Smucker's, Jif, Folgers, Millstone, Crisco, Pillsbury, and others.

Whole Foods operates natural and organic foods supermarkets in the U.S., Canada, and the U.K.

The numbers

Whole Foods is a retailer, while the others are packaged food producers. So, this isn't meant to be an apples-to-apples comparison. 

<table> <tbody> <tr> <td><strong>Company     </strong></td> <td><strong>PE          </strong></td> <td><strong>Fwd PE          </strong></td> <td><strong>5-Yr PEG </strong></td> <td><strong>Profit Margin (ttm)           </strong></td> <td><strong> ROE (ttm)                </strong></td> <td><strong>Debt/Equity (mrq)            </strong></td> </tr> <tr> <td>WhiteWave</td> <td>28.2</td> <td>22.4</td> <td>1.3</td> <td>4.5</td> <td>10.7</td> <td> 1.0</td> </tr> <tr> <td>Hain Celestial</td> <td>31.3</td> <td>25.5</td> <td>1.8</td> <td>6.9</td> <td>12.6</td> <td> 0.6</td> </tr> <tr> <td>J.M. Smucker</td> <td>22.4</td> <td>17.8</td> <td>2.6</td> <td>9.2</td> <td>10.6</td> <td> 0.4</td> </tr> <tr> <td>Whole Foods</td> <td>40.1</td> <td>32.3</td> <td>2.2</td> <td>4.1</td> <td>14.6</td> <td> close to nil</td> </tr> </tbody> </table>

Yahoo! Finance; data to July 29

I'd pass on WhiteWave until it has a couple more quarters of operating as an independent entity under its belt. It has a low profit margin, high debt load, high beta (2.3), and high short interest. It reports quarterly earnings on August 9.

Hain is in the right market -- organic products. It posted solid results last quarter: revenue and EPS up 21% and 61%, respectively. Drawbacks include a relatively high short interest (17% of float). It reports quarterly earnings on August 19.

Smucker's has a nice profit margin, strong FCF (120% of reported net income), and pays a 2% dividend. While its revenue was flat last quarter, EPS were up 31%, due to good pricing power plus declining coffee bean costs. A 2.6 PEG indicates the stock is pricey. It reports quarterly earnings on August 21.

Whole Foods' profit margins and ROE are strong for its business. Its growth continues to be solid. Last quarter's revenue and EPS were up 13.4% and 18.8%, respectively. It reports fiscal third quarter earnings on July 31. 

Bottom line

Sales of almond-based products are on the rise for both taste and health-related reasons. Sales of products, in general, that provide health benefits -- especially organic ones -- are increasing. Companies that produce and/or sell these products should benefit.  

Of the companies highlighted, Whole Foods and Hain Celestial appear the most attractive. They're both heavily involved in organic products. Whole Foods is king of natural and organic food retailing, and offers many products under its private label brand. Hain Celestial offers a wide product mix. 


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BA McKenna has no position in any stocks mentioned. The Motley Fool recommends Hain Celestial and Whole Foods Market. The Motley Fool owns shares of Hain Celestial, WhiteWave Foods, and Whole Foods Market. 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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