21st Century Butchers, Bakers, and Candlestick Makers
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
It really wasn't that long ago that a quick trip downtown brought you to a host of trade people – the butcher, the baker, the candlestick maker - all nestled amongst each other on Main Street, rubbing elbows and sharing stories with each other on summer sidewalks.
Today, an easy way to find members of this group all together in one place is to check their ticker listings on the major indices. Butchers, bakers, and candlestick makers are still conducting business in the 21st century and some of them are major players in the world of business.
Tyson Foods (NYSE: TSN) is one of the globe's largest processors and marketers of beef, chicken, pork and prepared foods. The company is the second-largest food production company in the Fortune 500. With approximately 115,000 employees at over 400 facilities and offices in the U.S. and worldwide, Tyson provides their products and services to customers across America and in more than 90 countries.
The Butcher element of the company encompasses Tyson Fresh Meats. This is a subsidiary of Tyson Foods, and the leading supplier of premium beef and pork in the world. Tyson Fresh Meats (Dakota Dunes, South Dakota) has 17 production sites throughout North America, and they employ almost 41,000 people.
Concerning their Beef segment, the company expects to see a reduction of industry fed cattle supplies of 2-3 percent in fiscal 2013 compared to fiscal 2012. Tyson expects that there may be periods of imbalance of fed cattle supply and demand. The company, in general, expects adequate supplies in regions where they operate their plants, and they are anticipating that beef exports will remain robust.
It's important for investors to note that Tyson believes their Beef segment will remain profitable for fiscal 2013. However, the company does say this profitability could be below their normalized range of 2.5 percent-4.5 percent. Moreover, Tyson anticipates a profitable Chicken segment, but they believe it could be below their normalized range of 5.0 percent-7.0 percent. Nevertheless, the company believes their Pork segment will be in or above their normalized range of 6.0 percent-8.0 percent profitability.
An investor must look at the effects of the drought of 2012 that hit the industry and how it now manifests itself in fewer grain supplies and higher grain costs. Increased costs and pressure to keep prices competitive can put a squeeze on companies like Tyson. Demand is something for investors to consider as well – will the trend to chicken and less red meat have legs (so-to-speak), and how will this impact Tyson's overall performance, especially as they actually believe that the Chicken segment could provide the aforementioned less profit?
A premier baker on the Main Street of the major indices is Panera Bread (NASDAQ: PNRA). This bread-baking company operates 1,625 company-owned and franchise-operated bakery-cafes in 44 states and in Ontario, Canada as of Sept. 25, 2012. They operate these under the Panera Bread®, Saint Louis Bread Co. ® and Paradise Bakery & Café® names.
The aroma of succulent profits wafted through the corridors of the company during their fiscal third quarter ended Sept. 25, 2012. Panera Bread reported net income of $37 million, or $1.24 per diluted share, for the fiscal third quarter. This is in comparison to net income of $29 million, or $0.97 per diluted share, for the fiscal third quarter ended Sept. 27, 2011. This represents a 28 percent year-over-year increase in diluted earnings per share.
Quarter 3 2012 revenue increased 17 percent to $529 million. Company-owned comparable net bakery-cafe sales increased 6.2 percent; franchise-operated comparable net bakery-cafe sales increased 5.5 percent, and system-wide comparable net bakery-cafe sales increased 5.8 percent in comparison to the same period in fiscal 2011. One drag on bakery operations has always been the labor-intensive production costs and ingredient costs.
Investors should research a bakery-focused enterprise's devotion to streamlining processes to cut production costs, their commitment to sourcing quality but affordable ingredients, and their focus on waste reduction through not over-producing baked goods in their retail establishments each week. This, coupled with a devotion to retail pricing based on a deep analysis of precise costs helps bakery-type operations achieve forecasted profits more consistently.
A candlestick maker (and more) on Main Street of the stock market is Reckitt Benckiser Group (NASDAQOTH: RBGLY). That unique-smelling candle accentuating the air and the mood in your home just may be one of their Air Wick® Color Changing or Scented Candles. The company's health, home and hygiene brands sell in more than 180 countries worldwide.
Reckitt Benckiser had Europe North America (ENA) Q3 Like-for-Like (LFL) growth of +2 percent. Their Year-To-Date global growth was driven by Dettol/Lysol, Harpic, Finish, Gaviscon, Durex and Vanish. The Company's ENA segment comprises 55 percent of its core net revenue.
Attractive to some investors is Reckitt Benckiser's broad market reach and plethora of everyday products that are staples of the supermarket environment. Along with ENA, their market reach includes RUMEA (Russia / CIS, Africa, North Africa, Middle East and Turkey) and LAPAC (Latin America, North Asia, South Asia and ANZ).
Don't discount the appeal of their Air Wick and other well-known brands. Consumers who buy an ample supply each year of Crackling Fire & Log Cabin or Vanilla Sugar Cookie candles, among the company's other offerings, are the types of consumers that can have investors raising a toast to consistent profits that justify their investments. The company reported that Air Wick produced a strong performance behind Air Wick® Freshmatic® Ultra Automatic Spray, Aqua Mist, candles, and the launch of innovations including Filter & Fresh.
In addition, if you're looking for strong products with a rich history, you have the company's French's Mustard and Frank's Red Hot Sauce products. These can make investors salivate for more reasons than taste alone.
As an addendum to the above, investors may want to look at companies like Kraft Foods Group (NASDAQ: KRFT), whose products are the type people gladly grab, almost without thinking, as they peruse supermarket aisles. Newly public and independent as of Oct. 1, 2012, the new Kraft Foods Group is North America's fourth largest consumer packaged food and beverage company. The company has name brand products such as Kraft, Maxwell House, Oscar Mayer, Planters and JELL-O in the beverages, cheese, refrigerated meals and grocery categories.
Recently, the company's Board of Directors declared a quarterly dividend of $0.50 per share of common stock. It paid out on Jan. 14, 2013, to shareholders of record as of Dec. 31, 2012; it was their first dividend paid out as a newly independent entity. Kraft, in previous incarnations, has a strong history of dividend payouts and this first one as a new Group continues their trend. It speaks to investors of this company's confidence in their wide-ranging product line-up, akin to the plethora of household name goods found at grocers from Tyson Foods and Reckitt Benckiser.
Kraft Foods Group reported quality third quarter 2012 results for the period ended Sept. 30, 2012. Their net revenues in the third quarter grew 3.0 percent to $4.6 billion. Operating income in the third quarter increased 7.6 percent to $762 million.
Organic Net Revenues (net revenues excluding the impact of acquisitions, divestitures, accounting calendar changes (including a 53rd week in 2011) and foreign currency rate fluctuations) increased 3.2 percent from volume/mix gains of 2.6 percentage points and constructive pricing of 0.6 percentage points. These numbers reflect their major gains from new products.
New products are vital to food companies. Investors should consider enterprises that continually innovate to meet the changing tastes of consumers. It's often not enough to rely on an old product mix. Sales of foundational products for Kraft Foods Group form a solid platform for returns. However, tweaking this mix with brand new products or updated variations of "old–guard" products is important for sustained growth. In addition, consider a food company that backs product innovation with aggressive advertising and marketing campaigns. As always, research companies that address productivity, whereby they tweak in this area as well through becoming more efficient through controlling manufacturing expenses and optimizing their actual production processes.
Today, it's still nice to find a butcher, baker, and a candlestick maker on Main Street doing business and thriving together. It's the essence of creative small business in America. In addition, from an investment standpoint, it's also nice to see innovation in all three industries and the major corporate entities that have arisen that give investors opportunities to gain a return on investment from basic products that consumers use everyday.
MichaelONTARIO has no position in any stocks mentioned. The Motley Fool recommends Panera Bread. The Motley Fool owns shares of Panera Bread. 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!