Popularity of health foods continues to bolster company growth
FILE - In this Jan. 11, 2010 file photo, a shopper looks over frozen foods selections at a supermarket in New York. With sales slipping in the category, frozen food makers are in the final stages of preparing a major public relations campaign to defend the nutritional reputation of their products. The push will include what is said to be the first national TV ads on behalf of the industry as a whole, as well as social media and in-store promotions. (AP Photos/Bebeto Matthews, File)
Pepsi (PEP), General Mills (GIS), Kellogg (K) -- it seems nearly every major food brand wants in on the health and organic food trend.
As food companies experience slowing growth, they are searching for upside -- and the focus remains on natural food.
Tuesday's announcement that Pinnacle Foods (PF) would acquire Boulder Brands (BDBD), the gluten-free company known for its Udi's and Glutino brands, fits into this narrative. Pinnacle, which carries Birds Eye frozen vegetables, had been set to sell itself to Hillshire Brands last year but ultimately remained independent after Tyson Foods (TSN) acquired Hillshire. Boulder, which announced it would explore strategic alternatives at the end of the summer, has benefitted from the increasing popularity of diets cutting out gluten and dairy items, even amid skepticism by short-sellers that these trends represent a passing fad. (One in five Americans include gluten-free foods in their diets, according to a July Gallup survey.)
Campbell Soup (CPB) rose 3% on Tuesday after an earnings beat, largely driven by a focus on natural foods. At the outset of the conference call, CEO Denise Morrison emphasized Campbell's efforts to keep up with big shifts in the industry, including "changing consumer preferences for food with an emphasis on health and well-being."
Management emphasized its health imperative throughtout the company. Its new line of ultra-premium organic cold-pressed juices -- called 1915, under the Bolthouse Farms brand -- is meeting expectations. The company also highlighted other recent successes, including Campbell Organic Soups and the distribution of carrot snacks in the New York City School Lunch Program. While the beverage category remains challenged, Campbell emphasized a win with V8 Splash and benefit of its "Veggies For All Campaign."
Hormel Foods (HRL) also rose 3% after reporting an earnings beat, with an emphasis on strong demand for its Applegate natural and organic products. The Spam maker acquried Applegate earlier this year, building on other acquistiions including Wholly Guacamole, Skippy and Muscle Milk. Chairman and CEO Jeffrey Ettinger emphasized the company's proactive shift to natural foods.
The natural-organic products industry in the US is growing at close to 10%, versus traditional packaged food that is growing at 1%, accoring to Bank of America Merill Lynch. Plus, the increased focus on health and wellness from millennials to baby boomers and beyond provides an additional tailwind for the industry. Today's boosts courtesy of a health and wellness focus aren't going away any time soon.
While Whole Foods (WFM) has become the victim of its own success as the organic trend spreads to Costco (COST), Kroger (KR), Walgreens Boots Alliance (WBA) and beyond, names levered to growth in the space are poised for upside. Two well-positioned names? White Wave (WWAV) and Hain Celestial (HAIN).
