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Mondelez International Inc (MDLZ), Pinnacle Foods Inc (PF) & The WhiteWave Foods Co (WWAV): Food-Producer Stocks for Your Portfolio

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A look at some of the major domestic processed and wholesale food-distribution companies finds businesses that appear to be taking initiatives in boosting their profits. The historically counter-cyclical industry may hit some bumps in the road during the near term as the economy improves. Still, their long-term strategies ought to support growth, and thus share-price appreciation.

The following overviews and recommendations are primarily of firms that offer a range of food products, as opposed to focusing on one item.

Former Kraft owner poised to grow as snack business

Mondelez International Inc (NASDAQ:MDLZ)On Oct. 1, 2012, Mondelez International Inc (NASDAQ:MDLZ) completed the spin-off of Kraft Foods, and the still-giant conglomerate is about two-thirds the size it would have been if it retained Kraft. Its four key operating segments are as follows:

1. Biscuits (cookies and crackers), delivering 27% of 2012 revenue

2. Chocolate, contributing another 27%

3. Gum and candy, 15%

4. Coffee, 11%

Mondelez International Inc (NASDAQ:MDLZ) is one company in this group that has realized increased sales and earnings per share through the first six months of this year. In fact, on a slight revenue gain, per-share earnings climbed a solid 43%, to $0.66, year-over-year.

I believe that this upturn was driven by acquisitions and divestitures that have served to optimize the performance of its various operating divisions. For instance, earlier this year, it bought out a biscuit operation in Morocco, while selling businesses in Turkey and South Africa.

Further such actions, facilitated by a relatively liquid balance sheet (the current ratio and long-term-debt to-equity about match the broader sector), ought to provide the basis for long-term margin and earnings improvements. At this juncture, Mondelez International Inc (NASDAQ:MDLZ)’s five-year average gross margins are just above industry norms.

In all, Mondelez International Inc (NASDAQ:MDLZ) shares, trading at a forward P/E of 18.5, offer three- to five-year price upside.

This recent IPO is highlighted by strong brands

Pinnacle Foods Inc (NYSE:PFlaunched its initial public offering in March. Its three operating divisions are:

1. Birds Eye Frozen distributes frozen vegetables, as well as owning numerous top food makers in other categories. Examples consist of Van de Kamp’s and Mrs. Paul’s (frozen seafood), Celeste (frozen pizza), Hungry Man and Aunt Jemima (frozen dinners and breakfasts). This unit contributed 43% of June-quarter sales.

2. Duncan Hines Grocery is famous for baking mixes and frostings, while also owning the likes of Vlasic (pickles), Mrs. Butterworth and Log Cabin (syrups), as well as several canned meat (i.e. Armour), pie and pastry fillings (i.e. Comstock), barbecue sauces (Open Pit), and salad dressing (Bernstein’s) brands. Divisional sales were 42% of the June-quarter total.

3. The specialty foods segment carries snack products under the names Tim’s Cascade and Snyder of BerlinAbout 15% of sales were derived from these brands.

Pinnacle Foods Inc (NYSE:PF) is making strides in lifting its gross margin through a higher-profit mix of offerings. Moreover, in a sign that it is aiming to broaden its product lines further and enhance long-term growth prospects, it has just agreed to acquire the Wish Bone salad dressing business from Unilever plc (ADR) (NYSE:UL).

Overall, Pinnacle Foods Inc (NYSE:PF) offers the likelihood of profit gains when the industry environment rebounds. Plus, the shares, trading at a forward P/E of 15.8, yield a solid 2.7% annually.

Higher-end and trendy beverage-based company

The WhiteWave Foods Co (NYSE:WWAV) is divided amongst four product categories:

1. North America coffee creamers and beverages contributed 36% of 2012 net sales.

2. North America plant-based foods and beverages delivered 24% of the total.

3. North America premium dairy contributed another 24%.

4. Europe plant-based foods and beverages added 16% to the total.

Its brand names include Silk, International Delight, Horizon Organic, Land O Lakes, Alpro, and Provamel.

The appeal here is in the company’s revenue growth trends (double-digit percentage to be precise) in the June quarter, at 10%. Across the board volume gains are driving margin enhancements.

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