Grain-based foods shares beat broader market results in 2016

by Josh Sosland
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Grain-based foods
The Grain-Based Foods Share Index more than held its own for the full year.

KANSAS CITY — Despite a selloff in food-sector shares late in 2016, the Grain-Based Foods Share Index more than held its own for the full year, out pacing with major market indices. Closing the year at 24233.55, up 14.2%, the index calculated weekly by Milling & Baking News moved higher for a remarkable eighth consecutive year.

The advance of 14.2% was far greater than the 4.3% gain in 2015 but lagged 17.4% in 2014, 22.7% in 2013 and 16.2% in 2012.

At 14.2%, the Grain-Based Foods Share Index outperformed each of the major U.S. stock market indicies, including the S.&P.500, at 9.5%; the Dow Jones average of industrial shares, at 13.4%, and the Nasdaq composite index, up 7.5%.

The index also did better than all but three of the S.&P.500 sectors, topping consumer discretionary, up 6.9%; consumer staples, up 2.6%; health care, down 1.1%; information technology, up 12%; telecommunications, up 12%, and materials, up 14.1%. The index lagged financials, up 20.1%; industrials, up 16.1%; and transportation, up 21.2%.

Among the 28 companies included in the Grain-Based Foods Share Index, only four sustained share price declines during the year and many easily bested the S.&P.500 in 2015.

For a third consecutive year the perennially volatile MGP Ingredients, Inc., Atchison, Kas., posted the top share price performance within the Grain-Based Foods Share Index. MGP Ingredients shares leapt 93% in 2016, following a more “modest” gain of 64% in 2015 and a 206% surge in 2015. At a closing price of $49.98, MGPI shares have recovered 1,561% from the recent low of $2.98 per share in July 2012. Since management was replaced in 2013-14 after a bruising board of directors battle, MGPI shares have jumped 817%.

For the first nine months of 2016, MGP Ingredients net income rose 16% from the same period a year earlier. The company’s price-to-earnings ratio stood at about 30.

Ranking second within the Grain-Based Foods Share Index in 2016 was Seaboard Corp., Merriam, Kas. The share price gain of 36% followed a decline of 31% in 2015, when Seaboard ranked last in the index. During the first nine months of the company’s 2016 fiscal year (period ended Oct. 1), net income per share on the common stock was up 209% to $178.67. During the year the company announced plans to spend $29 million on a new flour mill in Zambia and on upgrades to existing facilities.

The third widest gain in 2016 was scored by Bridgford Foods Corp., Anaheim, Calif, up 32%. In 2015, Bridgford shares rose in the first three quarters of fiscal 2016 (period ended July 8), Bridgford earnings per share on the common stock were 57c, up 14% from 50c during the same period a year earlier.

The fourth widest share price gain in 2016 was posted by Post Holdings, Inc., St. Louis, also up 31% for the year. It was the second consecutive year in which Post was a standout in the index. The company’s shares rose 47% in 2015, the second strongest gains that year. In 2014, Post shares were the second poorest in the index, down 15%. During the company’s most recent fiscal year (ended Sept. 30) it sustained a net loss of $3.3 million but adjusted EBITDA of $933.9 million was up 42% from the year before. While Post was not an active acquirer of new business during the year, that could change in 2017.

“While not in evidence in 2016, M.&A. remains a central theme to Post’s strategy,” Rob Vitale, president and chief executive officer, said during a November earnings call with financial analysts. “We analyzed many opportunities this year. In fact, we spent approximately $6 million in expenses related to exploring acquisition candidates. Despite this commitment, our M.&A. during 2016 was modest. Be assured, we will continue to work to find 
opportunities at a sensible value.”

Shares of Ingredion, Inc. generated the fifth highest gains in the index, rising by 30% in 2016. The advance extends a solid run for the Westchester, Ill.-based ingredient supplier, following gains of 13% in 2015 and 24% in 2014. An active acquirer of businesses in recent years, Ingredion in August 2016 said it would purchase the rice starch and rice flour business of Sun Flour Industry Co., Ltd., based in Bang Len, Thailand. Four months later Ingredion said it was spending $400 million to acquire TIC Gums, Inc., White Marsh, Md. TIC Gums offers texture systems to food and beverage companies. In the nine months ended Sept. 30, 2016, Ingredion adjusted earnings were $5.46 per share, up 22% from $4.47 in January-September 2015.

B&G Foods, Inc., Parsippany, N.J., ranked sixth in 2016 share price performance, advancing 25%, versus a 17% gain in 2015. The diversified food company has grain-based exposure through numerous brands, including Cream of Wheat, Devonsheer, New York Flatbreads, New York Style, Old London and Ortega.

Archer Daniels Midland Co., Chicago, was a strong performer in 2016, posting a 24% share price gain, seventh best in the index. The ADM advance represented a partial reclamation of value lost a year earlier when the company’s shares fell by 30%. The 2015 decline followed gains of 20% in 2014 and 59% in 2015. While the company struggled during the first half of 2016, the company posted strong earnings gains in the third quarter, with net income rising by 35%. Also during the year, the company announced plans to sell its stake in Australia-based GrainCorp Ltd. for $287 million. ADM has held the stake since 2012 and unsuccessfully tried acquiring all of GrainCorp in 2013 for $3 billion. The year was the first as chairman of the board for Juan R. Luciano and his second as chief executive officer.

Dunkin’ Brands, Inc., Canton, Mass., ranked eighth among grain-based companies in share performance in 2016. With a 23% advance, Dunkin’ shares bested 2015 performance when the company’s stock price slipped by 0.1%. The 2016 share price gain was in line with year-to-date earnings performance. In the nine months ended Sept. 24, Dunkin’ Brands net income per share rose 22% to $1.52. In its most recent quarter, donuts and sandwiches were not the principal growth drivers. Instead, Nigel Travis, chairman and chief executive officer, attributed strong results to “record-breaking beverage sales, with double-digit growth in the espresso and iced coffee categories.” During the year the company announced that David Hoffman, a longtime executive with McDonald’s Corp., would take over as president of Dunkin’ Donuts U.S. and Canada, effective Oct. 3, 2016.

Conagra Brands, Inc., Chicago, ranked ninth in 2016, with a 21% advance, up from the 16% gain scored in 2015. Once a giant in grain-based foods with its large heritage flour milling operation, the company largely has been depleted of its grain-based business. During 2016, Conagra sold two baking plants to Alpha Baking Co., Chicago. In addition to owning a stake in Ardent Mills, Conagra’s remaining grain-based brands include Andy Cap’s, Chef Boyardee, Crunch ‘n Munch, Jiffy Pop and Poppycock. Also during 2016, Conagra agreed to sell its JM Swank food ingredient business and Spicetec Flavors & Seasonings business. At the beginning of the year, Conagra completed the $2.7 billion sale of its private brands business to TreeHouse Foods, Oak Brook, Ill. Included in the divested business is American Italian Pasta Co.

Ranking tenth, The Kraft Heinz Co., Pittsburgh, one of the largest companies in the Grain-Based Foods Share Index, helped drive overall index performance with a 20% gain, lifting the company’s market capitalization to $105 billion. A year earlier, the corporation’s first as a publicly traded business, the company’s shares fell 9% from its opening trading price of $80 per share. In the first nine months of 2016, Kraft Heinz earnings per share were $2.06, up 329% from pro forma earnings per share of 48c during the same period of 2015. Bernardo Hees, Kraft Heinz c.e.o., in November said the company was “doing a good job in a difficult environment, working effectively to navigate a combination of headwinds from deflationary commodities to increased retail competition in some of our biggest markets.”

Shares of Campbell Soup Co., Camden, N.J., rose 15% in 2016, a bit shy of the 19% advance in 2015. The parent of Pepperidge Farm, Inc., Norwalk, Conn., said during the year it was aggressively adapting to “tectonic generational shifts” and a rapidly changing competitive landscape in the food industry. During the year ended July 31, Campbell took a $141 million, or 41c per share, non-cash impairment charge on its Bolthouse Farms carrot and carrot ingredient business. Adjusted for special items, including the charge, 2016 net income per share was up 11% from the year before. Earnings in the first quarter of fiscal 2016 were strong as well.

J&J Snack Foods Corp., Penn-sauken, N.J., posted a solid 14% share price gain in 2016, double the company’s 7% gain in 2015 but less than the 23% gain in 2014 and 39% in 2013. Late in 2016, J&J acquired Hill & Valley Inc., a baking company specializing in sweet goods with a particular focus on the sugar-free market. Hill & Valley has more than $45 million in annual sales.

Also posting double-digit gains in 2016 was Snyder’s-Lance, Inc., Charlotte, Inc. The 12% gain for the salty snack, cookie and cracker maker was the same as the gain the company scored in 2015. In November, the company said it had signed a definitive agreement to sell its Diamond of California culinary nut business to a private equity investment fund. Eight months earlier, the company completed its $1.9 billion acquisition of San Francisco-based Diamond Foods, a business that included the Kettle Chips and Pop Secret popcorn brands.

The largest share price setback among companies included in the index was Starbucks Corp., Seattle, down 8%. The decline followed a 46% jump in Starbucks shares in 2015 and a 5% gain in 2014. After largely withdrawing from baking with the shuttering of its La Boulange retail bakeries, Starbucks has moved back toward baking with a partnership announced in July 2016 with Princi, a high-end Italian bakery and cafe based in Italy.

Among the few other grain-based foods companies that sustained declines in 2016, Flowers Foods, Inc. weathered the largest setback, down 7%, versus a 12% gain in 2015. Still, the $19.97 closing price represented a marked recovery from the Thomasville, Ga.-based baking company’s 52-week low of $14.35, when Flowers shares were down 33% for the year. The first half of the year was particularly difficult for the company, beginning with an earnings announcement in February that fell shy of guidance that already had been revised downward. As the year progressed, numerous lawsuits related to the company’s distribution network hung over Flowers stock, and in August the company said it was dealing with a Department of Labor review under the Fair Labor Standards Act. Flowers Foods shares rallied in December after the company announced it had settled a class-action lawsuit, raising expectations it would be able to work through its legal woes. In November, the company announced the launch of Project Centennial, a company-wide operations review and potential restructuring program. Accenture has been engaged to assist Flowers with this initiative.

Also contending with difficulties during the year was TreeHouse Foods, Inc. TreeHouse shares slid 6% in 2016 after falling 8% in 2015. For much of the year, TreeHouse’s stock price appeared poised for a strong year. As late as July, the company’s shares were trading above $104 per share, up more than 20% from the 2015 close. The company’s share price slid in August as it became clear the private brands business acquired from Conagra Brands would not contribute to profitability as quickly as hoped. In November, the company’s president, Christopher D. Sliva, announced his resignation three months after his promotion. TreeHouse said it was reorganizing its operating companies into a single, customer-facing approach and realigning sales teams to a product category basis.

Shares of The Hain Celestial Group, Inc., Lake Success, N.Y., were down 3% in 2016, after dropping 31% in 2015. Like TreeHouse, Hain was in the midst of a share price recovery for most of 2016. The company’s stock price peaked at $56.99, up 41%, before falling abruptly. The company delayed release of its fourth-quarter and full-year financial results. Separately, the company stated it does not expect to achieve its previously announced guidance for 
fiscal 2016.

A startling performance in 2016 was posted by a newcomer to the Grain-Based Foods Share Index — AdvancePierre Food Holdings, Inc. AdvancePierre shares were first listed in July 2016 and rose in value by 25% in less than six months of trading. Based in Cincinnati, AdvancePierre is a producer and distributor of ready-to-eat sandwiches, sandwich components and other products. On July 14 the company raised $219 million in an initial public offering in which a total of 21,390,000 shares were sold at $21 per share, for a total offering value of $449 million (including 10,300,000 shares sold by existing shareholders). In December, the company raised its quarterly dividend by 14% to 16c per share from 14%. In early January, the company’s effective dividend yield was about 2.3%.

Columbus, Ohio-based Lancaster Colony Corp., also new to the index, posted a gain of 22% in 2016 compared with a like gain of 23% in 2015 and 6% in 2014. Lancaster Colony is a food products company with a growing presence in grain-based foods. In addition to its Marzetti dressings and dips, the company has a number of baking businesses, including Sister Schubert’s rolls and biscuits, New York Bakery frozen toast and bread and Flatout flatbread. During 2016, the company announced plans to acquire Angelic Bakehouse, Inc., a Cudahy, Wis.-based maker of sprouted baked foods. In April, the company announced David A. Ciesinski has been named president and chief operating officer. Mr. Ciesinski most recently was president of the meals solutions division at Kraft Foods Group, Inc.

Shares of Hostess Brands, Inc., Kansas City, rose 7% after the company’s November listing on the Nasdaq stock market. The listing followed the acquisition of Hostess by Gores Group L.L.C.

Shares of Grupo Bimbo S.A.B. de C.V., Mexico City, rose 3% in 2016, following a gain of 12% in 2015. George Weston Ltd., Toronto, ended 2016 with a 6% gain, versus an 8% advance in 2015.

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