A Fine Buffet Designed for Profit: 3 Food Company Stocks
Michael is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At one of my favorite all-you-can eat restaurants I recently indulged in an array of foods that comprised all I enjoy in dining out. The experience was replete with flavorful, innovative foods from all of the major food categories. What came to mind was how the investing experience can be the same way; how precise research can lead you to choose a buffet of quality food stocks designed for profit.
B&G Foods (NYSE: BGS) and their subsidiaries manufacture, sell, and distribute (across the U.S, Canada and Puerto Rico) a varied selection of high quality, shelf-stable foods. A sampling of their many brands includes Ac’cent, Baker’s Joy, Cream of Wheat, Emeril’s, Grandma’s Molasses, Maple Grove Farms, Mrs. Dash, New York Style, Sugar Twin, Vermont Maid and Wright’s. Additionally, their products include the household non-food products, Static Guard and Kleen Guard.
The company's most recent results reported were for the third quarter of 2012. Highlights compared to the same quarter in 2011 included net sales increasing 15.9 percent to $154.2 million., and net income increased 39.8 percent to $16.9 million. Diluted earnings per share increased 40.0 percent to $0.35. For the third quarter of 2012, EBITDA increased 37.7 percent to $42.8 million from $31.1 million for the third quarter of 2011.
Investors should note the robust growth in net sales and the healthy net income increase driven by the company's well-known brands. Of course, researching a company like B&G Foods involves taking into account the effect that sales of comparable generic brands will have on the company's performance. However, there's something to be said for solid name brands with a history of consistent performance in kitchens across America and internationally.
The fruit of this performance often manifests itself in stock price appreciation and dividend increases. In fact, B&G Foods' Board of Directors increased the company’s quarterly cash dividend rate by 7.4 percent from $0.27 per share of common stock (payable on Jan. 30, 2013) to $0.29 per share of common stock. The dividend increases from $1.08 per share to $1.16 per share on an annualized basis.
Something else for investors to consider is dividend payment consistency. For B&G Foods, this is the 33rd consecutive quarterly dividend declared by the Board of Directors since the company's IPO in October 2004.
ConAgra Foods (NYSE: CAG) is one of North America’s foremost packaged food companies. Their brands include Banquet, Chef Boyardee, Egg Beaters, Healthy Choice, Hebrew National, Hunt's, Marie Callender's, Orville Redenbacher's, PAM, Peter Pan, Reddi-wip, Slim Jim, and Snack Pack among others.
Fiscal 2013 second quarter highlights include the company's Consumer Foods segment (branded and non-branded food sold in retail and foodservice channels) posting sales of $2,423 million and an operating profit of $286 million. Sales increased 11 percent, comprising an 11 percent contribution from acquisitions, a 4 percent favorable price/mix, and a 4 percent organic volume decline. Sequentially, organic volume improved by a very small amount on an unrounded basis. Considering that ConAgra Foods has brands in 97 percent of America's households, it's important that investors research food companies with deep (multiple products) and widespread (most households) market penetration. Furthermore, look for companies with products that run the gamut from breakfast to lunch, supper, and the snack times in between these times. ConAgra has products waiting in consumers' cupboards for whenever they wish to eat.
Sales for their Commercial Foods segment were $1,312 million, which is 5 percent above the year prior amounts. This segment encompasses specialty potato, seasonings, blends, flavors, and milled grain products sold to global foodservice and commercial channels. The sales growth was less than half of the percentage increase of their Consumer Foods segment. The company's Commercial Foods segment moderate profit increase (operating profit of $169 million, 5 percent above year-ago period amounts) was somewhat impacted by higher wheat costs and by extension higher flour prices for their milling operations. Investors need to consider the rising input costs that food companies face.
The J. M. Smucker Company (NYSE: SJM) is a top marketer and manufacturer of fruit spreads, retail packaged coffee, peanut butter, shortening and oils, ice cream toppings, sweetened condensed milk, and health and natural foods beverages in North America. Their portfolio of brand-name products in the U.S. includes Smucker's®, Folgers®, Dunkin' Donuts®, Jif®, Crisco®, Pillsbury®, Eagle Brand®, R.W. Knudsen Family®, Hungry Jack®, Café Bustelo®, Café Pilon™, White Lily® and Martha White®. In Canada, they include Robin Hood®, Five Roses®, Carnation® and Bick's®. On Jan. 3, 2012, the company completed the acquisition of the North American foodservice coffee and hot beverage business from Sara Lee Corporation.
The company's results for the second quarter ended Oct. 31, 2012, of their 2013 fiscal year include net sales increasing 8 percent, compared to the second quarter of 2012. The acquired Sara Lee foodservice business and a favorable sales mix influenced their revenue. Again, a broad offering of everyday products and the corporate will and resources to make acquisitions is something investors should consider in a food company. This aggressive "going after growth" is sometimes just the right thing to do to increase market share. Building a new stable of "seasoned" products with a proud history behind them, instead of always relying on new product development is something to consider.
J. M. Smucker realized volume gains in Folgers® coffee, Robin Hood® and Five Roses® flour in Canada, and Dunkin' Donuts® packaged coffee. However, these were offset by decreases in Pillsbury® baking mixes, Crisco® shortening and oils, Jif® peanut butter, and Smucker's® fruit spreads. Overall volume, based on weight and excluding acquisitions, decreased 2 percent in the second quarter of 2013, compared to the second quarter of 2012. Therefore, investors should research a company's overall product mix when looking at overall volume numbers. A prudent company continually monitors and adjusts their product mix to meet market demands as necessary.
Health and weight conscious consumers may be trending towards eating less white bread, evidenced by the volume drops in peanut butter and fruit spreads – less bread eaten equals less spreads used on those breads. That's why it's important to look at recent company acquisitions. An even more varied family of products, hopefully in growing product categories, could offset declines in other categories. Still, an investor should consider the aggressiveness of a company's marketing programs and their commitment to revamping and even eliminating non-performing products that may be in their line-up. Can everyone say "New Coke" one more time?
A small buffet of major food company stocks means you're likely investing in the performance of products you typically find in your grocery-shopping cart. As you indulge your investing palette with these types of stocks, look for continued product innovation and strong marketing initiatives from companies that you desire to accelerate your ROI.
MichaelONTARIO has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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!