Clarkston Consulting analyzed information from the latest earnings releases of eleven dominant players in the U.S. snack manufacturing category including: chips, crackers, cookies, nuts, and other sweet or savory packaged snack foods. The companies included in this analysis are Campbell Soup Company, ConAgra, Diamond Foods, Flowers Foods, General Mills, The Hain Celestial Group, Kellogg Company, Kraft Foods, Mondelez International, PepsiCo (Frito-Lay North America), and Snyder’s-Lance. The Snack Industry continues to show robust growth both in the U.S. and internationally. Emerging Markets continue to be an area of growth for most companies, despite a recent slowdown, and several companies have seen growth in Europe. Multiple companies continue to report a shift in consumer preferences toward healthy snacks and are making strong pushes toward that segment, as evidenced by HAIN’s recent acquisition of Rudi’s Organic Bakery Inc. Recent increases in commodity costs (see Figures 3-6) in early 2014 provide a strong headwind for companies in the industry, after seeing a relatively favorable environment in 2013, when many companies reported gains on derivatives used to hedge these costs. Multiple companies expect to continue seeing gross margin expansion as revenues begin to reflect pricing adjustments due to rising commodity costs, in addition to cost savings from productivity projects. The companies in this report are trading at a median 20 times forward earnings, higher than the S&P 500’s current forward P/E multiple of about 16.
As we presented in our 2014 Food Trends paper in December of 2013, a few key trends are driving the discussion and direction of companies in the food industry, specifically the health conscious consumer, innovative packaging, and data sources to track promotional and marketing spend.
Health Conscious Consumers
Sixty-four companies made direct statements in their most recent presentations of the increased consumer interest in better-for-you products. Frequent snacks are replacing meal occasions for consumers, giving the snack segment a tremendous opportunity to serve consumer needs. Continued success will come to the portfolios that include snacks with natural ingredients, a wholesome, healthy taste, or are sensitive to dietary restrictions like gluten-free or low-fat. GIS saw 35% growth in 2013 U.S. retail sales in their organic and natural foods division, Small Planet Foods, compared to 1% growth in all other divisions. Since 2010, MDLZ has seen their belVita products double in revenue, currently generating $0.5 billion. Manufacturers will not continue to win during the next five years in developed markets if they do not capitalize on the natural and healthy trends. All-natural is the fastest growing segment of the ready to eat category, and the current MDLZ portfolio is not deep in better-for-you snacks. Especially after the merger announcement of their coffee business with D.E. Master Blenders and their increased focus on snacks, MDLZ shows potential for acquisition activity for a natural line, such as TH Foods out of Illinois. TH Foods makes Crunchmaster crackers and private label snacks that can make a number of nutritional claims, like gluten-free or non-GMO, as well as allow access to custom private label goods with international flavorings.
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