Numerous hedge fund managers purchased Class A shares of WhiteWave Foods Co (NYSE:WWAV) during the fourth quarter of 2013, including Phil Gross and Robert Atchinson of Adage Capital Management, David Shaw of D E Shaw and Glenn Russell Dubin of Highbridge Capital Management. Other shareholders of the food products company include Donald Chiboucis of Columbus Circle Investors, Arthur B Cohen of Healthcor Management LP and John Paulson of Paulson & Co.
WhiteWave Foods Co (NYSE:WWAV) is a $5.0 billion market cap company that sells plant-based foods and beverages, coffee creamers and beverages, and premium dairy products throughout North America and Europe. Its brands include Silk plant-based foods and beverages, International Delight and LAND O LAKES coffee creamers and beverages, and Horizon Organic premium dairy products. The company generated $2.5 billion of net sales in 2013, 84% of which was in North America and 16% in Europe.
WhiteWave Foods was spun-off from Dean Foods Co (NYSE:DF) in an IPO in late October 2012 at $17.00 per share. Following additional distributions of its stake in 2013, Dean Foods is no longer a shareholder in WhiteWave. Since its debut as a public company, the stock has been a strong performer, appreciating by 75%, driven by increased consumer demand for organic foods and premium dairy products that has generated a 12% compounded annual growth rate in net sales and a 22% growth rate in operating income over the past three years. With the household penetration of such product categories industry-wide ranging from 13-36%, management sees continued opportunities for future growth.
In addition to internal growth, management has also been looking externally to expand its business. In early January 2014, WhiteWave Foods closed on its $600 million acquisition of organic produce company Earthbound Farm, broadening its portfolio of brands into salads as well as fruits and vegetables (both fresh and frozen) while generating roughly $0.07 of EPS accretion in 2014. WhiteWave Foods Co (NYSE:WWAV) also entered into a joint venture with a leading Chinese dairy company, Mengniu Dairy, to expand into China, the world’s largest consumer group, with product manufacturing expected to begin by the end of 2014.
For 2014, management expects net sales growth of over 20% (7-8% organic growth plus the impact from the Earthbound Farm transaction), operating income growth in the around 30% and EPS of $0.85-0.89 (or $0.90-0.94 excluding the impact from the Chinese JV). Consensus estimates of 29% revenue growth and EPS of $0.93 are at the high end of guidance, implying confidence in management’s ability to execute on its internal initiatives while integrating its recent acquisition.
Relative to its peer group of packaged foods companies, WhiteWave Foods Co. is clearly a more growth-oriented stock, given the category it focuses on. Over the next 12 months, analysts expect WhiteWave to generate 29% revenue growth versus only 4% for peers, which is also reflected in WhiteWave’s valuation multiples (31.5X forward P/E versus 20.2X for peers and 14.4X EV/EBITDA versus 11.1X for peers). The company’s margins are roughly 200-400 basis points lower than peers, given the continued investment WhiteWave Foods Co (NYSE:WWAV) makes in its business, but as it matures, profitability and cash flows should improve over time. While leverage will be elevated due to additional debt incurred to finance the Farmbound acquisition, we do not see this as problematic due to WhiteWave’s strong and stable earnings base.
With a leading brand, increasing distribution and healthy financials, WhiteWave Foods Co (NYSE:WWAV) is well-positioned in a fast-growing category to benefit from the secular trend of increasing consumer demand for healthier foods and beverages globally. Additional strategic acquisitions as well as partnerships in international markets with growing middle classes should enhance the company’s long-term growth prospects.
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