Solid gains for grain-based shares amid extraordinary bull market
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KANSAS CITY — Shares of grain-based foods companies advanced widely in 2013, ending the year at a new record high. The Grain-Based Foods Share Index, calculated by Milling & Baking News, closed the year at 17373.92, up 23% for the year.
It was the largest single-year gain for the index since the year 2000, when the index jumped 36%. Additionally, 2013 marked the fifth straight year of advances for the index, coming on the heels of gains of 16% in 2012, 8% in 2011, 9% in 2010 and 13% in 2009. Over that five-year period, shares of what is often called a “mature” grain-based foods industry have nearly doubled from the 9146.77 mark for the index at the end of 2008.
In 2012 and throughout this period, strength in the grain-based index largely mirrored overall strength in the stock market. Still, for all the impressiveness of the industry’s performance in 2013, it fell considerably short of the breathless advances posted by the broader
Index up for fifth straight year but lags broader market measures market. The 23% gain by grain-based foods shares lagged a 32% gain by the S.&P.500 and a 38% jump by the Nasdaq composite. The grain-based industry shares were only a little behind the 26% gain posted by the Dow Jones index of industrial shares.
Compared to the performance of various sectors within the S.&P.500, the grain-based index gain of 23% barely lagged the 24% gain of the consumer staples sector, which includes beverages, food/staple retailing, food, household products, personal products and tobacco. The 32% gain of the food products subsector easily outpaced the grain-based index.
The grain-based foods index was outgained by 8 of the 10 S.&P.500 sectors, all but telecommunications, up 7.8%, and utilities, up 10.3%. The top performing sectors for the year were consumer discretionary, up 44%; health care and industrials, up 40%; and financials, up 35%.
The 23% gain for the grain-based foods index was not skewed by outsized performance of a handful or even a few of the largest companies in the index. In fact, not one of the 26 companies included in the index sustained a share-price decline in 2013. Only two of the 26 companies failed to post a gain of at least 10% over the course of the year. The median jump among the 26 companies was 24%.
One company, Flowers Foods, Inc., Thomasville, Ga., effected a stock split in 2013. The 50% stock dividend was issued in June. The action followed three-for-two stock splits by Flowers in 2011, 2007 and 2005. Stock splits were something of a rarity in 2013. A CNBC story in December noted that only 12 stocks in the S.&P.500 split last year. By contrast, about 100 stocks split in both 1997 and 1998. (Flowers is not part of the S.&P.500 index.)
Among companies included in the Grain-Based Foods Share Index, the widest jump, by far, was posted by Krispy Kreme Doughnuts, Inc., Winston-Salem, N.C., up 106%. The advance represented the continuation of a remarkable upward surge for Krispy Kreme shares over the past five years. The gain followed a 47% jump in 2012 when the stock also was the top performer in the grain-based sector. Krispy Kreme shares slipped 6% in 2011 but were up 137% in 2010. At the 52-week high of $26.63 reached in November, Krispy Kreme shares were up more than 2,500% from the stock’s low price reached in February 2009. Net profit for the company in the first nine months of 2013 totaled about $20 million on revenues of $348 million. Peak full-year profits at the company were achieved in 2004 with net income of about $50 million on revenues of $650 million (the company sustained a $157 million loss the following year).
Hain Celestial Group, Inc. was a top performer again in 2013. The company’s shares jumped 67%, the second widest gain among grain-based foods stocks. It was the fourth consecutive year of heady advances for Melville, N.Y.-based Hain shares, with leaps of 46% in 2012, 36% in 2011 and 59% in 2010. In each of the previous three years, Hain shares were the second best performer in the grain-based index. The share gain has been matched by strength in the company’s financial results, boosted in part by contributions from recent acquisitions. In the company’s most recently reported quarter, ended Sept. 30, net income was up more than 60% and sales were up 33%. Irwin D. Simon, Hain chairman and chief executive officer, said the company remains committed to a formula for success that has worked well in recent years — expanding sales and distribution while containing costs to bolster margins.
A 59% surge in shares of Archer Daniels Midland Co., Decatur, Ill., in 2013 offered considerable solace for the company in the face of a major corporate initiative that failed to move forward. In late November, the Australian government rejected ADM’s proposed acquisition of GrainCorp Ltd., stating that the transaction is contrary to the nation’s interest. In June, ADM had bid $3.5 billion for GrainCorp and had offered to invest large sums in Australia’s grain infrastructure. Also during the year, ADM announced plans to move its corporate headquarters from Decatur to Chicago, 180 miles to the northeast. More broadly, the company said it has achieved a goal of $150 million a year in cost savings and raised its dividend payout a whopping 26%. The large share price gain in 2013 followed a 3.5% decline in 2012 and a 5% drop in 2011.
MGP Ingredients, Inc., Atchison, Kas., the fourth best performing grain-based stock in 2013, experienced another tumultuous year, gaining 52%. The gain represented a recovery of lost ground following a 32% decline in 2012. The company struggled during the year with a proxy battle led by the founding Cray family and culminating in early December with the dismissal of Tim Newkirk as chief executive officer. Mr. Newkirk had been c.e.o. since March 2008. In May 2013, members of the Cray family took steps to remove Mr. Newkirk, citing “a growing concern with the lack of profitable growth, deterioration in the corporate culture, efforts to sell certain parts of the company’s business, efforts to amend the bylaws that would limit accountability to shareholders and increase the power of the chief executive officer, and the level of compensation paid to the chairman of the board of directors and the c.e.o. of the company.”
In the days following the announcement Mr. Newkirk would be leaving and resolution of the dispute between the board and Mr. Cray, MGPI shares edged upward a little more than 5% in trading on the Nasdaq Global Select market.
Extending the company’s strong streak of performance since its initial public offering in 2011, shares of Dunkin’ Brand Groups, Inc., Canton, Mass., jumped 45% in 2013, making the company the fifth best performer in the grain-based sector. The sharp rise followed a gain of 35% in 2012. During the year Dunkin’ continued its geographic expansion, most recently announcing plans to develop a dozen stores in the Memphis, Tenn., area over the next six years.
Wall Street reacted favorably to the merger and acquisition activities of Post Holdings, Inc. in 2013. The company’s shares during the year were up 45%, the sixth strongest performance in the index. While the company was spun off from Ralcorp Holdings, Inc. during the year as a stand alone, branded, ready-to-eat cereal company, Post has been reinventing itself rapidly as a more diversified food company — one that is more like Ralcorp.
More recently, Post in December agreed to pay more than $680 million for Golden Boy Foods Ltd., a producer of private label peanut butter, and Dymatize Enterprises, L.L.C., a nutrition bar maker. On Jan. 2, Post completed the acquisition of Dakota Growers Pasta Company, Inc. from Viterra, Inc., for $370 million. In August, Post signed an agreement to acquire Premier Nutrition Corp. for $180 million. Premier Nutrition markets and distributes protein bars and shakes under the Premier Protein brand, high protein bars and cookies under the Titan brand, and nutritional supplements under the Joint Juice brand. The buying spree began in May with the acquisition of the branded and private label cereal, granola and snacks business of Hearthside Food Solutions. The seller, for $158 million, was Wind Point Partners, a private equity firm.
Shares of Bridgford Foods Corp., Anaheim, Calif., jumped 41% in 2013 after slumping 29% in 2012 and 33% in 2011. In the first nine months of fiscal year 2013, the period ended July 12, pre-tax income was $2,021,000, up 25% from the same period a year earlier. The company’s products include biscuits, bread dough items, roll dough items and sandwiches.
Tied for ninth among grain-based gainers was Mondelez International, Inc., up 39% for the year. The gain compared with a 32% decline in 2012 and a 19% gain for Kraft Foods Inc., in 2011. The 39% gain was nearly double the 22% advance posted by Kraft Foods Group Inc., what used to be the U.S. grocery business of Kraft Foods Inc.
For Mondelez, net income in the nine months ended Sept. 30 was $2,208 million, or $1.24 per share on the common stock, down 12% from $2,494 million, or $1.40 per share, in the same period a year ago. Net sales climbed 1.1% to $25,811 million from $25,520 million.
Announcing third-quarter results, Mondelez said lower coffee prices and a slowdown in emerging market snack sales have prompted the company to lower its full-year forecast for organic net revenue to about 4%, down from the prior view of growth at “the low end” of a range of 5% to 7%.
J&J Snack Foods Corp., Pennsauken, N.J., with a 39% advance in 2013, was tied for ninth for the year. The advance eclipsed the 22% jump in 2012 and followed a gain of 8% in 2011. The share price gain exceeded the 19% increase in J&J profits in the fiscal year ended Sept. 28. After the fiscal year ended, J&J said it acquired the assets of New York Pretzel in Brooklyn, N.Y. The company makes soft pretzel products sold primarily in the Northeast, to both retail and food service. Also during the year, J&J doubled its dividend payout rate to 32c per share from 16c.
In midst of the company’s most aggressive expansion ever in the market for fresh baked foods, Flowers’ Foods, Inc., Thomasville, Ga., appeared to receive high marks for its overall performance from Wall Street, with a 39% share price gain in 2013. The advance, tenth best among grain-based foods companies, followed gains of 23% in 2012 and 6% in 2011.
A spate of acquisitions began in May 2011, when Flowers acquired Tasty Baking Co., building its presence in the snack cake market, and a year later in July 2012, when the company acquired Lepage Bakeries, expanding its geographic reach deep into New England. Three months later, Flowers announced an agreement with Grupo Bimbo S.A.B. de C.V., giving Flowers a perpetual license to the Sara Lee and Earthgrains brands for sliced bread, buns, and rolls in the state of California, a $134 million business. Flowers also received a perpetual license for the Earthgrains brand in Oklahoma City. Capping this string of acquisitions, Flowers announced in January 2013 it had signed asset purchase agreements with Hostess Brands, Inc. as the “stalking horse bidder” for the majority of the bankrupt company’s assets. In July, Hostess completed the acquisition of most of these assets, paying $355 million.
In September, the company began reintroducing the brands associated with the transaction. The company said the reintroduction process will continue well into 2014.
The year was not without its bumps at Flowers. In the most recent quarter, earnings were adversely affected by challenges in the company’s warehouse delivery segment. With one quarter remaining in 2013, Flowers cut its full-year earnings-per-share guidance to 90c to 93c, down from 92c to 98c. No change was made in the sales guidance, still up 24.5% to 25.5% from 2012.
Three other large companies scoring gains exceeding 20% during the year were Campbell Soup Co., Camden, N.J.; General Mills, Inc., Minneapolis; and PepsiCo, Inc., Purchase, N.Y.
Campbell Soup shares were up 24% during the year, versus a 5% gain in 2012 and a 4.3% decline in 2011. During the year, the company sought to tighten its business focus with acquisitions and a divestiture. In June, the company bought Plum Organics, an Emeryville, Calif.-based maker of foods and snacks for babies, toddlers and children. Plum will be a separate business within the Campbell North America division. In August, Campbell strengthened its grain-based foods exposure with the acquisition of Kelsen Group A/S, a Danish producer of baked snacks, including the Kjeldsens and Royal Dansk brands. The company’s products are sold in 85 countries, and the company is a leader in the sweet biscuits category in China and Hong Kong. In August 2012, Campbell acquired Bolthouse Farms, a maker of dressings and juices and marketer of produce, for $1.55 billion.
In October, Campbell sold its European simple meals business to London-based private equity firm CVC Capital Partners (CVC) for €400 million.
General Mills, Inc., which has experienced a challenging financial situation in the first half of its fiscal 2014, had a 23% share price gain in 2013, up from essentially unchanged in 2012 and a 13% advance in 2011. In the six months ended Nov. 24, General Mills net income was $1,009.2 million, down 9% from $1,090.5 million over the same period a year earlier. Ken Powell, the company’s chairman and chief executive officer, said the weak results reflect a challenging competitive environment but also difficult comparisons with the year before.
“Our bottom-line results through the first half of the year are broadly consistent with our plans,” Mr. Powell said.
He said the company expects earnings growth to accelerate in the second half of the year, to $2.87 to $2.90 per share, up from an adjusted $2.69 in fiscal 2013 and $2.56 in fiscal 2012. A focus through the year for the company was looking to gain momentum in the ready-to-eat cereal category, looking to gain share largely through new product innovation.
PepsiCo shares advanced 21% in 2013, a gain more impressive because of the modest advances of 4% achieved both in 2012 and 2011.
Quiet in the mergers and acquisition realm in 2013, PepsiCo was newsworthy during the year because of pressure received from an activist shareholder looking for the company to take dramatic action to add value for shareholders. In July, Trian Fund Management L.P., which at the time owned 1.3 billion shares of PepsiCo stock, described the company as sitting at a “strategic crossroads” and describing the “status quo as unsustainable.”
Trian in 2013 published a white paper outlining two strategic alternatives PepsiCo’s management may adopt in an effort to improve shareholder value. The options include breaking up the company to create two pure play beverage and snack food companies or merging with Mondelez International to create a global snack food company and spinning off the beverage business.
Indra Nooyi, the chairman and c.e.o., has said PepsiCo was created as an integrated snack and beverage business, and that its success is tied to that combination.
Nearly two years after acquiring the North American Fresh Bakery business of Sara Lee Corp., Mexico City-based Grupo Bimbo S.A.B. de C.V. continued to shape its U.S. portfolio in 2013. The company, which is not included in the Grain-Based Foods Share Index, advanced 20% in 2013, which compared with gains of 18% in 2012 and 8% in 2011.
Grupo Bimbo’s U.S. subsidiary, Horsham, Pa.-based Bimbo Bakeries USA (B.B.U.), detailed several plant closings during the past year. The company will cease operations at its bakery in Nashville, Tenn., by Jan. 14, part of an ongoing consolidation that includes the closing of plants in Easton, Pa.; Elk Grove, Calif.; and Wichita, Kas.