Organic & Natural Food Producers: How Do The Players Stack Up?

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Consumers' appetites for organic foods have been voracious, driving U.S. sales from $11 billion in 2004 to $27 billion in 2012. Given that organics account for less than 5% of overall grocery sales, there's still plenty of growth potential left.

An increasing number of food producers are eager to stock their products on Whole Foods Market's and other retailers' shelves in order to get a bigger piece of the growing organic spending.

It can be hard to keep track of who's on first, so this article provides an overview of producers in the organic and natural niche, just as my recent article covered the retailing end.

Major pure-play (or close) players

Hain Celestial (NASDAQ: HAIN) 

Hain's a $3.4 billion market cap company that produces a wide range of natural and organic foods, beverages, and personal care products. Its better-known brands include Celestial Seasonings (herbal and other teas), Greek Gods (Greek yogurt), Arrowhead Mills (organic whole grain foods), and Jason Natural (personal care products).

It's Whole Foods' largest supplier, and so has ridden Whole Foods' growth wave. The company's current form is the result of a merger between Hain Food and Celestial Seasonings in 2000.

WhiteWave (NYSE: WWAV) 

WhiteWave's a $3.3 billion market cap company that produces plant-based foods and beverages, coffee creamers, non-organic and organic dairy products. It's probably best known as the maker of Silk soy and almond milk. Its other brands include International Delight, Land O'Lakes, and Horizon Organic.

WhiteWave was spun off from Dean Foods. It began trading in late 2012, with Dean selling its remaining interest in May.

Annie's (NYSE: BNNY)

Annie's is a $744 million market cap company that produces natural and organic foods, primarily meals and snacks, under the Annie's Homegrown and Annie's Naturals brands. It's probably best-known for its macaroni and cheese meals and snack crackers. The company went public in March 2012. 

Lifeway Foods (NASDAQ: LWAY)

Lifeway is $268 million market cap family-operated business. It produces probiotic and cultured dairy and non-dairy products. Probiotic means "good bacteria," such as the ones found in yogurt. Its flagship product is kefir, a fermented milk product similar to yogurt. It also produces yogurts, cheeses, and seasonings.  

It's in the right niche. Yogurt is a $6.2 billion business in the U.S., and the fastest-growing dairy category, with Greek yogurt in particular experiencing tremendous growth. There's plenty of room for further growth, as per capita consumption among Americans is about half that of Europeans.

Danone has about a 20% stake in Lifeway. Danone is the French food giant that produces Dannon yogurt, the best-selling yogurt in the U.S., and owns 85% of Stonyfield Farm, which produces organic yogurts. Obviously, there's been chatter about a Danone buyout.

How healthy have stock price performances been?

Only Hain and Lifeway have traded for at least five years. While Hain has had a great run, those investing in the retailing end -- via first-mover and biggie Whole Foods -- have done better than those investing in the producing end.   

<img alt="" src="http://media.ycharts.com/charts/cec23a9e7327be5fda78a6026cbdeb7c.png" />

HAIN data by YCharts

Lifeway has a great 10-year performance. However, it peaked in 2007 and fell hard, thus negatively affecting its 5-year performance. 

WhiteWave hasn't traded for a year, so let's look at YTD performances. Lifeway got its mojo back, while Hain and Annie's have solidly beaten the market. 

<img alt="" src="http://media.ycharts.com/charts/33926d604ed8de681d9e5c2aae2e0a80.png" />

HAIN data by YCharts

How do the players stack up by the numbers?

<table> <tbody> <tr> <td><strong>Company </strong></td> <td><strong>Trailing P/E</strong></td> <td><strong>Fwd P/E</strong></td> <td><strong>5-Yr PEG </strong></td> <td><strong>1-Yr Rev Growth</strong></td> <td><strong>1-Yr EPS Growth                  </strong></td> <td><strong>Net Margin (ttm)</strong></td> <td><strong>ROE (ttm)</strong></td> <td> <p><strong>Debt/Equity (mrq)</strong></p> <p><strong>        </strong></p> </td> </tr> <tr> <td><strong>Hain Celestial</strong></td> <td> 30.4</td> <td>24.7 </td> <td>1.8 </td> <td>21.9%</td> <td>40.7%</td> <td>6.9% </td> <td>12.6</td> <td>0.6 </td> </tr> <tr> <td><strong>WhiteWave</strong></td> <td> 32.1</td> <td>24.0</td> <td>1.5 </td> <td>13.0% </td> <td>5.9%* </td> <td>4.5%</td> <td>10.7</td> <td>1.0 </td> </tr> <tr> <td><strong>Annie's</strong></td> <td> 67.8</td> <td>36.2 </td> <td>2.0 </td> <td>11.3% </td> <td>150% </td> <td>6.6%</td> <td>16.6 </td> <td> 0</td> </tr> <tr> <td><strong>Lifeway</strong></td> <td> 39.3</td> <td>33.5</td> <td>1.5 </td> <td>16.3% </td> <td>100%</td> <td>8.0% </td> <td>17.7 </td> <td> 0.1</td> </tr> </tbody> </table>

Sources: Yahoo! Finance & Morningstar; annual numbers are for last full fiscal year; *net income. Data to Aug. 16.

Hain posted solid results last quarter, with revenue and EPS up 21% and 61%, respectively. It reports quarterly earnings on Aug. 21. 

WhiteWave reported second-quarter results on Aug. 9. Adjusted net sales and EPS rose 10% and 28%, respectively. EPS was flat on a GAAP basis. The plant-based food and beverage category was the growth driver, increasing 14%, primarily on strength of almond milk sales. This isn't a surprise to me, given my recent, "Profit From the Many Going Nuts Over All Things Almond." I'd look for strength in that segment to continue. That said, WhiteWave needs to "organic up" its Silk line, or it will eventually lose market share, in my opinion. For instance, it offers soy milk in organic, but not almond milk.

Annie's missed analysts' estimates on both revenue and earnings when it reported second-quarter results on August 8. Sales increased 14%, while EPS was flat. Annie's valuation is too pricey for my liking.

Lifeway's stock dropped considerably – 12% over the next two days -- after the company reported disappointing second-quarter results on Aug. 14. Net sales were up 12%, while EPS was down 31% from $0.13 to $.09. That's still solid revenue growth for a food company, but down quite a bit from the 30% growth in the first quarter. Earnings decreased due to an increase in operating expenses and decreasing gross margins, primarily attributed to the 20% increase in the cost of milk. 

Bottom line

Organic food sales are projected to grow at about an 8% annual clip for at least the next five years. That growth rate increases if the more ambiguous "natural" and "healthy" foods are included.

Investing in the retailing end -- via Whole Foods -- could be the best way to go given Whole Foods has the muscle to squeeze producers' pricing in exchange for golden shelf space. That said, Hain Celestial looks appealing. As Whole Foods' largest supplier, it likely can't get as squeezed as much as smaller suppliers. Additionally, Hain has been posting some solid numbers. WhiteWave and Lifeway also bear watching, as both are in attractive niches (plant-based beverages and probiotics, respectively).

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BA McKenna 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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