Unlatched from Dean Foods and two years removed from its initial public offering, WhiteWave Foods Co. has forged its own path in a way that has both the natural and organic industry and Wall Street taking notice.
WhiteWave, the operator of brands such as Horizon Organic and Silk, has bolted on segment-leading brands like packaged-salad leader Earthbound Farm and the vegan-friendly So Delicious Dairy Free for a combined $800 million.
The Denver-based WhiteWave, which operates its North American headquarters out of Broomfield, also is building out a new test kitchen and research-and-development facility in Louisville’s Colorado Technology Center.
Nine months through 2014, WhiteWave tallied a net income of $107 million on revenue of $2.53 billion, up from $79.5 million in net income and $1.82 billion in the first nine months of 2013. Earthbound Farm, of which WhiteWave finalized its acquisition a year ago, contributed $38.5 million in operating income and $439.6 million in revenue during that time.
Shares of WhiteWave (NYSE: WWAV) were trading in the $33-per-share range last week. For its October 2012 IPO, shares opened at $19.
WhiteWave’s financial success has stoked speculation that the company could itself be an acquisition target.
Blaine McPeak, WhiteWave’s president, would not comment on the rumors, instead saying that the company’s focus is to continue growing through acquisition and also expansion with its existing products.
“In many ways, it’s a fulfilling experience for WhiteWave as a company to really embrace who we are without a larger sibling, per se,” said Blaine McPeak, president of WhiteWave Foods. ” … For a whole host of different reasons, we didn’t necessarily have the spotlight shined directly upon us.”
WhiteWave’s identity — built from a heritage that goes decades back to Boulder’s White Wave Inc. and Horizon Organic — has not seen a significant transformation, he said. However, being a stand-alone firm has allowed the company to invest in areas such as innovation and diversification, McPeak said.
In addition to acquisitions, WhiteWave has made efforts to evolve its cadre of brands — Silk, Alpro, Horizon Organic, International Delight, Land O Lakes, Earthbound Farm and So Delicious — by releasing new products such as cashew-based milk and making packaging and ingredient changes to its International Delight line so that products are more responsibly produced, McPeak said.
WhiteWave also is building out a 50,000-square-foot facility that will serve as a hub for research and development, a test kitchen and a culinary center where certain ideas can be shown to clients, McPeak said.
The facility, which would be about three times the size of WhiteWave’s current test kitchen in Broomfield, is expected to be operational in May.
McPeak said he’s optimistic about the potential for new-to-WhiteWave brands such as So Delicious. The company that built a dairy-free line out of coconut-based products has some overlap with WhiteWave’s legacy Silk brand; however, the transaction got WhiteWave into the freezer cases.
“It’s not like it’s a big, massive play, but it’s a step into a new territory,” he said.
And in terms of the overlapping products such as almond milk, WhiteWave officials are evaluating how best to proceed.
“We find it’s advantageous to have multiple brands in that (non-dairy milk) category,” he said.
Outside forces
The slow-and-steady approach also is working well for WhiteWave, said Philip Van Deusen, senior research analyst for New York-based Tigress Financial Partners LLC. Neither Van Deusen nor Tigress Financial Partners have a financial interest in WhiteWave.
The company has been methodical in both its acquisitions as well as its internal product expansion, he said, noting the expansion of the Horizon Organic brand into the macaroni and cheese segment.
“I don’t want to see them get too aggressive and have to pull back on some of the directions they’re going in,” he said.
Van Deusen, who has a “buy” rating on WhiteWave, said WhiteWave’s leadership position in natural and organic could face pressure as larger, multinational firms make further pushes into the growing industry.
Last summer, General Mills snapped up Annie’s Inc. for $820 million. Last week, Post Holdings Inc. announced a $1.15 billion deal to acquire MOM Holdings, a maker of value-priced cereals that also has branched out to natural ready-to-eat hot cereals.
“There’s a lot of cash out there in general; clearly, the credit markets can be favorable to making an acquisition, too,” Van Deusen said. “… While the conditions are right, that’s not really my forecast for WhiteWave at this moment.”
Van Deusen, however, said he’s keeping an eye on the Coca-Cola Co.
The beverage giant has gravitated in the direction of strategic partnerships, taking minority stakes in firms such as Monster Beverage Corp. and Keurig-maker Green Mountain Coffee Roasters and enacting distribution and product development arrangements.
Coke also is launching Fairlife, a high-end milk brand, this year.
“There’s the possibility of Coca-Cola partnering up (with WhiteWave),” he said. “If that should be the case, that would indicate there might be some synergies.”
On the flip-side, if a Coke or General Mills decides to throw the weight of its marketing and research-and-development budget behind natural and organic offerings or continue to acquire brands in the sector, WhiteWave could lose market share, he said.
The other concern, he said, is “WhiteWave might bite off a little more than it can chew with these acquisitions.”
But so far, so good, he said, noting the integration with Earthbound Farm has gone smoothly.
Local growth
The stability and growth of WhiteWave and brand-aggregators such as Boulder-based Boulder Brands Inc. and the New York-based Hain-Celestial Group could be beneficial to the overall natural and organic industry, said Steve Hoffman, president of Boulder-based Compass Natural Marketing.
As opposed to the Fortune 500 firms such as General Mills, Kraft and Kellogg’s, companies “like Boulder Brands, like WhiteWave, have more intimacy, a greater level of experience around the natural and organic products in which they work.”
And as M&As become even more important to capitalize on the industry’s growth and bring natural and organic products to a wider audience, maintaining that history and dedication to responsibly produced products becomes even more key, he said.
The bigger issue, he said, would be the widespread adoption of products that contain genetically modified organisms.
“A lot of these bigger companies … they were donating millions to kill the (GMO labeling bills),” he said. ” … So that does have a certain backlash with a core audience. I will say, I know WhiteWave Foods is a supporter of Just Label It.”
WhiteWave also appears to be held in a different regard than mainstream consumer products aggregators such as General Mills and Kraft, said Carlotta Mast, who oversees publications such as Natural Foods Merchandiser for Boulder-based New Hope Natural Media.
“I don’t feel that it has the same sense of it’s considered a sell-out because all of these brands in the portfolio, in the most part, really are based on the same values set … the natural and organic and better-for-you (heritage),” she said.
New Hope and Natural Foods Merchandiser are projecting that the natural and organic industry could have an annual growth rate in the 8 percent to 10 percent range through 2018. Helping to buoy those bullish expectations is a highly active start-up environment, resulting in a flurry of new companies — especially on the food side, she said.
“Especially as the economy continues to be pretty strong, things are looking good for the natural and organic industry overall,” she said.
A potential hurdle for the $110 billion industry, particularly on the organic side, would be supply issues, Mast cautioned.
“I don’t think we’ll see any slowdown in the M&A,” she said.
Strategic aggregators such as WhiteWave are on the hunt for new acquisitions and the industry is seeing a rise in private equity activity.
“There’s just more and more money going into the space,” she said. “I think what’s really great for Boulder, we now are building these hubs of strong natural and organic brands.”
Alicia Wallace: 303-473-1332, wallacea@dailycamera.com or twitter.com/dc_alicia
