In the 2013 Barron’s Roundtable, Mario Gabelli, a successful investment manager, has shared his ideas about several businesses that are potential takeover candidates. In myprevious article I wrote about Patterson Companies, Inc. (NASDAQ:PDCO), a distributor of dental, veterinary, and rehabilitation products. In this article I will look closer at Boulder Brands Inc (NASDAQ:BDBD), a functional food marketer, to see whether or not investors should follow Gabelli into this company.
Boulder Brands, previously known as Smart Balance, is the marketer of functional food products in North America under several brands such as Smart Balance, Earth Balance, Bestlife, Glutino and Udi’s. The largest revenue contributor was the Smart Balance segment, accounting for 77% of the total revenue in 2011. The company’s largest customer was Wal-Mart Stores, representing around 18% of the total sales. The manufacturing of its products is mainly outsourced to third parties. It is operating only one manufacturing facility in Quebec for gluten-free products.
Boulder Brands’ Three Strategies
Going forward, Boulder Brands has three main strategies. First is to introduce new products and expand distribution in the natural segment under three brands: Udi’s, Glutino, and Earth Balance. The company estimated that the natural segment would account for 53% of the total revenue, while Smart Balance’s revenue share would decrease to 47% in 2013. Second, while expanding the growing natural segment, Boulder Brands would maintain steady profit in Smart Balance segment. The company has come up with innovative butter products that help block cholesterol absorption and maintain heart health. The third strategy is to promote health & wellness vision by acquiring brands that emanate from the natural channel. Overall, Boulder Brands brings health & wellness solutions to consumers. Smart Balance is for heart health, Udi’s and Glutino are for gluten-free diet, Earth Balance is for plant-based diet, and Bestlife is for weight management.
The CEO has a Great Record
Mario Gabelli liked Stephen Huges, the company’s Chairman and CEO. In 1997, he was appointed to be the CEO of Celestial Seasonings when the company was quite small, with only a $70 million market cap. After that, he restructured the company’s brand portfolio, innovated new products, generated a better return from existing products, better spent in marketing and shook up the distribution channel mix. In 2000, the Hain Food Group acquired Celestial Seasonings for $390 million to create The Hain Celestial Group, Inc. (NASDAQ:HAIN). For the last two years, Huges has been leading Boulder Brands into gluten-free market by acquiring Glutino and Udi’s.