Ending at record high, grain-based shares beat broader market in '11

by L. Joshua Sosland
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NEW YORK — Shares of grain-based foods companies scored solid advances in 2011, with gains easily outpacing major market indices. The Grain-Based Foods Share Index closed at the highest year-end level ever, 12154.32, up 7.5% for the year.

The 7.5% advance compared with a 5.5% gain for the Dow Jones average of industrial shares, which ended at 12,217.56. The S.&P.500 ended the year at 1,257.60, three one-thousandths of a per cent beneath the 2010 close. The NASDAQ exchange performed still worse, closing with a decline of 1.8%, at 2,605.15.
While ending at an all-time high, the 2011 performance of the Grain-Based Foods Share Index was less impressive by a number of other measures. The 7.5% gain was the worst showing in three years, eclipsed by the 9% advance by the index in 2010 and the 13.2% jump in 2009. The advance fell short of the 10.5% jump in the Consumer Staples sector shares within the S.&P.500, meaning grain-based foods shares overall did not fare as well in 2011 as stocks of other consumer products companies.

Still, the 7.5% gain bested most of the other individual sectors of the S.&P.500, including energy, up 2.8%; materials, down 11.6%; industrials, down 2.9%; consumer discretionary, up 4.4%; financials, down 18.4%; information technology, up 1.3%; and telecom services, up 0.8%. Sectors that outperformed grain-based foods shares were health care, up 10.2%, and utilities, up 14.8%.

Back to the plus side, 14 of the 24 companies in the Grain-Based Foods Share Index ended the year with a gain, with 10 losing ground.

Two companies, both baking, had stock splits in 2011. Flowers Foods, Inc., Thomasville, Ga., issued a 3-for-2 stock dividend in June, while Grupo Bimbo S.A.B. de C.V. (which is not included in the index) shares split 4-for-1 in April.

One company was added to the grain-based index — Dunkin’ Brands Group, Inc., Canton, Mass., which rose 29% following a July 26 initial public offering at $19 per share. Dunkin’ shares quickly surged as high as $31.94 per share, but have been gradually sliding since then. In November, additional shares were sold in a secondary offering from existing investors (not the company) at $25.62 per share.

One company, Tasty Baking Co., was deleted from the Grain-Based Foods Share Index in 2011, after its acquisition by Flowers Foods, Inc. Tasty had been included since the index and its predecessor indices were
created by Milling & Baking News several decades ago.

The top performer in the index in 2011 was a familiar name — Panera Bread Co., St. Louis, up 40%. The sharp gain followed a 51% advance in 2010, when the company ranked fourth. Gains were 28% in 2009 and 46% in 2008. Over the first nine months of 2011, the St. Louis-based company enjoyed a 19% gain in total revenues and a 34% jump in earnings per share. Growth in the number of bakery cafes in recent years has been moderate. As of September 2011, there were 1,504 Panera bakery cafes in operation, up from 1,026 in December 2006.

Ranking second in share price performance in the index was The Hain Celestial Group Inc., up 35% in 2011. The sharp advance followed a 59% gain in 2010, when Melville, N.Y.-based Hain again was the second best performer. By contrast, Hain was the worst performing stock in the Grain-Based Foods Share Index in 2009.
Hain made four acquisitions last year. In February, the company said it had acquired two companies in Europe — Danival SAS, a manufacturer of certified organic food products with facilities in France, and GG UniqueFiber AS, a manufacturer of all natural high fiber crackers in Norway. In October, Hain announced the acquisition of the Europe’s Best brand of all natural, frozen fruit and vegetable products in Canada. Later that same month, Hain bought Daniels Group in the United Kingdom, a maker of chilled foods.

The company attributed strong financial results in 2011 to improving consumption trends in the natural and organic sectors served by Hain as well as better cost controls and inventory management and cash conversion.
The share price of Ralcorp Holdings, Inc., St. Louis, moved wildly through 2011, mirroring major developments at the company. That the company would be the third best performer in the Grain-Based Foods Share Index, with a 32% gain, seemed unlikely at various points during the year. Shares were drifting along through the first four months of 2011 within a range that had prevailed much of the previous five years. Everything changed May 4 when Omaha-based ConAgra Foods, Inc. offered to acquire Ralcorp in a $4.9 billion transaction. Ralcorp shares surged to an all-time high, but share prices tumbled when the company repeatedly, and ultimately with success, spurned the ConAgra bid. During the summer, Ralcorp management announced plans to spin off the Post cereal business the company had acquired only three years earlier. Additionally, Ralcorp announced it had reached an agreement to acquire the private label refrigerated dough business of Downers Grove, Ill.-based Sara Lee Corp. for $545 million. Shares recovered gradually but steadily from the August lows, gaining 24% by the end of 2011, at a closing price just 6% beneath the all-time high.

With a gain of 19% in 2011, the share price of Kraft Foods, Inc., Northfield, Ill., advanced solidly for a second consecutive year, following a 16% gain in 2010. The back-to-back gains mark the most impressive share price performance since the company’s initial public offering in 2001. Adjusted for dividends, the Kraft share price has climbed 48% since the end of June 2006, when Irene Rosenfeld returned to the company as chief executive officer. The S.&P.500 is up 10% over this same period of time.

Ms. Rosenfeld’s imprint on the company and the entire food industry has become dramatically more evident over the past two years. In 2010, Kraft completed a $20 billion acquisition of Cadbury P.L.C., sharply expanding Kraft’s exposure to the snack sector and international markets. That mega-takeover receded from the spotlight in 2011 with Kraft’s announcement of plans to split into two publicly-traded companies, with one focusing on its global snacks business and the other on its high-margin North American grocery business.

Late in the year Kraft announced leadership of the future companies, expected to separate by the end of 2012. Ms. Rosenfeld will be chairman and c.e.o. of the $31 billion global snacks company. W. Anthony Vernon, who is currently the executive vice-president and president of Kraft Foods North America, will be c.e.o. of the $17 billion North American grocery company.

Even as the company advanced in these transformational moves, Kraft’s operating results were solid in 2011. In the third quarter ended Sept. 30, 2011, net income climbed to $922 million, up 22% from the same period in 2010. Sales rose 12% in total with organic net revenues up 8%.

Also ranking fourth in share price performance in 2011 was The J.M. Smucker Co., Orrville, Ohio. The 19% share price advance followed a gain of only 6% the year before. Grain-based foods did not figure in Smucker’s merger and acquisition activities last year. In May, the company acquired a number of Hispanic coffee brands from Rowland Coffee Roasters, and in November the company bought a majority stake in the Sara Lee Corp. North American food service coffee business. In the most recent quarter (ended Oct. 31), U.S. Retail Coffee was Smucker’s largest division, with $617.5 million in sales, versus $615.2 million for U.S. Retail Consumer Foods. A year earlier, the latter category was 14% larger than the coffee business.

While share prices of ConAgra Foods, Inc. rose 17% in 2011, the company’s year certainly did not un-fold as planned. Three acquisitions were completed during the year, these deals were small in comparison to “the big fish that got away.” In May, ConAgra announced plans to acquire Ralcorp for $4.9 billion. The takeover effort continued through the balance of the spring and most of the summer but was consistently rebuffed by the Ralcorp board. During the year, ConAgra bought the Marie Callender’s brand trademarks from Marie Callender Pie Shops, Inc.; acquired National Pretzel Co., based in Lancaster, Pa.; and became the majority owner of Indian food company Agro Tech Foods Ltd.

While its merger/acquisition activities did not proceed as planned, ConAgra saw marked success in its financial results. Adjusted for special items, the company achieved strong profit growth in its most recent quarter (period ended Nov. 27), particularly in the company’s potato business, as the engine driving results. Gary Rodkin, the c.e.o. at ConAgra, expressed optimism over trends in the company’s larger Consumer Foods segment as well.

Shares of Corn Products International, Inc., Westchester, Ill., and General Mills, Inc., Minneapolis, each gain-ed 14% in 2011. The integration of National Starch, acquired in October 2010 for $1.3 billion, was a major area of focus for Corn Products last year. Separate from the acquisition, Corn Products enjoyed strong earnings growth, up 48% year-to-date (through Sept. 30), adjusted for special items.

During the year General Mills acquired a 51% controlling interest in Yoplait S.A.S. and a 50% interest in a related entity that holds the worldwide Yoplait brands for approximately $810 million.

The 6% decline in the share price of Krispy Kreme Doughnuts, Inc., Winston-Salem, N.C., showed that
strong earnings alone do not guarantee like share price trends, at least in the short term. Krispy Kreme was the top performing company in the index in 2010, surging 137%. In the company’s 2011 third quarter, Krispy Kreme earnings were up 97% from the same period a year earlier on 9% growth in revenues. Over the first nine months of the year, Krispy Kreme earnings were up 151%. The strong results prompted the company to raise its fiscal 2012 outlook for operating income, exclusive of special charges, to between $24 million and $26 million, up from $22 million and $24 million projected during the second quarter. Shares hit a 52-week high not long after announcing strong results in the summer, but then gave ground steadily during the balance of the year, even in the absence of major financial announcements.

While achieving a more than respectable 6% advance in its share price, the year 2011 was anything but an easy one for Flowers Foods, Inc. In April, Flowers announced plans to acquire Tasty Baking Co. for $165 million, and the transaction was completed a month later. Throughout the year, though, Flowers share price and financial results appeared heavily influenced by the extremely challenging competitive environment prevailing in the fresh baking industry as well as by margin pressure resulting from strong ingredient markets. Uncertainty about ingredient markets and the baking industry outlook prompted the company late in the year to defer issuing earnings guidance. Looking forward, the company was hopeful about prospects for expansion in 2012, both because of the Tasty acquisition and other forces.

“We think 2012 will be a good environment for future acquisitions as independent bakers, in particular, continue to look at new investments, or succession planning or look at tax rates which they might think will change,” George E. Deese, Flowers chairman and chief executive officer, said late in the year.

Of the 10 companies that sustained share price losses in 2011, three were processing companies — MGP Ingredients, Inc.; Bunge Ltd.; and Archer Daniels Midland Co.

Foreign grain-based foods performance slightly weaker in 2011

Although share price performance for grain-based foods companies outside of North America was mostly mixed during 2011, performance has been worsening steadily over the past three years. Of the 38 companies tracked by Milling & Baking News, 17 recorded year-over-year increases in share price while 21 posted decreases. By comparison, 16 companies posted year-over-year declines in 2010 and only 7 companies posted declines in 2009.

On the London Stock Exchange, Associated British Foods finished the year at 1107p, down 4% from 1156p in 2010. Operating profit during the year rose 3% to £842 million, and for the first time total sales exceeded £11 billion. The company achieved revenue growth in each of its business segments, including a record year for AB Agri.

Carr’s Milling Industries P.L.C. closed at 790p, up 30% from 609p in 2010. Chairman Richard Inglewood said the company’s food business remains focused on cost control to mitigate the negative impact on sales growth and margins from the continued excess capacity in the flour milling industry.

Tate & Lyle P.L.C., the global sweetener company, had a 52-week low of 449.5p, but ultimately ended the year up 36%, closing at 708.5p. During the year, Tate & Lyle restarted production of Splenda sucralose at a facility in McIntosh, Ala., and signed an exclusive, worldwide license agreement to commercialize Soda-Lo, a salt reduction technology from Eminate Ltd., a subsidiary of The University of Nottingham in the United Kingdom. Soda-Lo enables salt reduction of up to 30% in such applications as bread, pizza bases, pastries, savory pie fillings, cheese and baked snacks, according to Tate & Lyle.

Premier Foods, the U.K.’s largest food producer, finished 2011 at 5.81p, down 70% from 19.28p, in 2010. In December, Premier Foods signed an agreement with The Boyne Valley Group to sell its four Irish Brands comprising Chivers, Gateaux, McDonnells and the Erin license (“the Irish Brands”) for a gross cash consideration of €41.4 million. The agreement represents a further step in the group’s strategy to focus investment behind its core brands and follows the announcement on Dec. 8 of its intention to sell its chilled food division, Brookes Avana, to the 2 Sisters Food Group for €30 million.

Northern Foods P.L.C. was delisted from the London Stock Exchange in 2011 after the company was acquired by Boparan Holdings. The acquisition of Northern Foods increased Boparan’s sales to more than £2 billion, and has transformed the group into one of the biggest players within the British convenience foods market.
Finsbury Food Group P.L.C., a U.K.-based maker of cake, bread and gluten-free bakery goods, finished 2011 at 27.45p, up 17% from 23.50p in 2010.

Greggs P.L.C., an operator of retail bakery shops and cafes in the United Kingdom, finished 2011 at 506p, up 9% from 465p in 2010. During 2011, the company’s new £4.5 million specialist confectionery bak-ery in Penrith became fully operational, while its £16.5 million bakery in Newcastle upon Tyne commenced production.

All three of the leading U.K. retail chains sustained share price declines in the past year. Tesco, the leader in U.K. food retailing, closed at 404p, down from 425p a year earlier. Marks & Spencer, meanwhile, finished the year at 311p, down 16% from 369p. Sainsbury, P.L.C., which posted year-over-year gains between 2010 and 2009, finished the year at 302.9p, down 16% from 376.3p in 2010.

In Ireland, Greencore Group P.L.C., a European maker of convenience food and malt products, finished at €0.63, down 50% from the 2010 close of €1.27. Greencore substantially strengthened its position in chilled convenience foods in its chosen markets of the United Kingdom and the United States during the financial year through the acquisitions of Uniq P.L.C. and On a Roll Sales.

Kerry Group finished the year at €28.28, up 13% from €24.97 at the end of 2010. The company in early December completed the acquisition of Cargill’s global flavors business. Cargill Flavor Systems, with annual revenues of approximately $200 million, was acquired for a total consideration of $230 million.

Origin Enterprises ended 2011 at €3.05, down 5% from €3.20 in 2010 and compared with €2.13 at the end of 2009. Origin Enterprises P.L.C. is a food and agribusiness group based in Dublin.

In Australia, GrainCorp Ltd. closed the year at A$7.85, up 19% from A$6.60 at the end of 2010, while Goodman Fielder Ltd. finished 2011 at A$0.44, down 67% from A$1.345 in 2010. In July, Chris Delaney took over as chief executive officer at Goodman Fielder Ltd. Mr. Delaney most recently was president of Asia Pacific for the Campbell Soup Co. since 2009, and earlier he was vice-president of sales and president of emerging markets. Before joining Campbell he held various management roles at Procter & Gamble Co. in the United States, the Middle East, Ukraine, Belgium and Poland.

Agrium Inc., which acquired AWB Ltd. in December 2010, closed 2011 at $67.11, down 27% from $91.75 in 2010.

In France, Groupe Danone S.A., the country’s largest food and beverage company, closed 2011 at €49.24, up 5% from €47.02 in 2010. The Dannon Company, Inc., a business unit of Groupe Danone, Paris, opened a $9 million Discovery & Innovation Center in White Plains, N.Y. Located within the company’s headquarters, the center centralizes Dannon’s R.&D. team.

In The Netherlands, Unilever, the Anglo-Dutch food and personal products business, closed 2011 at €26.57, up 12% from €23.80 per share in 2010. The company late in 2011 completed the sale of its Mrs. Dash, Molly McButter, Sugar Twin, Baker’s Joy, Static Guard and Kleen Guard brands to B&G Foods, Inc. for $325 million in cash.

Ahold, the Dutch-based company with global food retailing and food service operations, finished the year at €10.36, up 5% from €9.88, while DSM, the Dutch chemical company with food ingredient interests, fell 16% for the year, closing at €35.85. CSM, the Dutch company with a strong presence in baking ingredients in North America and in Europe, finished sharply lower, ending down 53% at €12.32. CSM in May opened a new bakery ingredients facility in Shanghai, China. The facility is expected to serve the markets in China, Hong Kong and Taiwan.

In Switzerland, Nestle S.A., the world’s largest food company, closed at 54 Swiss francs, down 8% from 58.82 Swiss francs in 2010. Nestle was active on the investment front, including spending €45 million in a Wagner factory in Otzenhausen, Germany, that will strengthen the frozen pizza business of Nestle S.A.; entering an agreement to acquire 60% of Hsu Fu Chi, a manufacturer and distributor of confectionery products in China; and investing $13.6 million to produce different varieties of chocolate in Spain.

Aryzta A.G. closed 2011 at 45.40 Swiss francs, up 5% from 43.15 Swiss francs in 2010. Aryzta continued to benefit from the 2010 acquisitions of Fresh Start Bakeries, Great Kitchens and Maidstone Bakeries.
Danisco A/S in Denmark was removed from the Copenhagen Stock Exchange after the company was acquired by E.I. du Pont de Nemours & Co. for $6.3 billion in June 2011.

Share price changes in Japan were mostly moderate. Nisshin Seifun, the Japanese holding company that includes Nisshin Milling, Japan’s largest flour miller, closed at Y933, down 8% from Y1010 a year earlier, while Nippon Flour Mills Co. Ltd. fell 13% for the year, closing at Y340, and Nissin Foods Holdings, a leading manufacturer of instant noodles, rose 6%, closing at Y3015.

Baking leaders Yamazaki Baking and First Baking were a mixed bag in 2011. Yamazaki closed at Y1011, up 5% from Y965 in 2010; First Baking, meanwhile, finished at Y83, down 12% from Y94 in 2010.

Indonesia’s Indofood, one of the largest food producers in Asia, fell back 4% to R4600 after gaining 37% in 2010 and 282% in 2009.

In South Africa, Tiger Brands Ltd. posted its third straight year of gains, finishing up 35% at R25088. The increase followed a 14% gain in 2010 and 19% gain in 2009.

Egyptian companies engaged in flour milling mostly were lower with the exception of Middle and West Delta Flour Co., which rose 13%, and East Delta Flour Co., which was up 11%. Egyptian Starch fell 53%, Middle Egypt Flour was down 36%, Alexandria Flour was down 33%, South Cairo & Giza Flour Mills fell 28%, and North Cairo Flour fell 11%. Upper Egypt Flour was flat.

In Africa, Flour Mills of Nigeria P.L.C. fell 3% after climbing 111% in 2010. Flour Mills of Nigeria is involved in flour milling, pasta production and cement production.

In Spain, Ebro Puleva S.A. shares fell 7% to €14.70 from €15.83. Ebro, which is the parent of New World Pasta Co., in December agreed to acquire the No Yolks and Wacky Mac dry pasta brands and certain assets from Bannockburn, Ill.-based Strom Products Ltd. for $50 million.

In Chile, Quinenco closed the year down 21%, while Molinos Rio Plata in Argentina closed up 8% from its 2010 finish.

Bloomberg World Food Index shines compared to all equities

NEW YORK — The Bloomberg World Food Index, a capitalization weighted index of the leading public companies in the food business around the globe, posted a minimal 0.9% decline in 2011. That was a much less severe setback than the 9.3% fall registered in the Bloomberg World Index, which measures the performance of the worldwide equity market.

The World Food Index closed 2011 at 178.26, compared with 179.29 a year earlier. The index comprises 143 publicly-listed companies. The index reached its 2011 high on May 31 at 193.22, while the low for the year came on Sept. 22, at 164.54.

For the overall measure of equities, the Bloomberg World Index finished 2011 at 144.04, contrasted with 158.88 a year earlier. Its high for the past year was 173.57, reached on May 2, and the low was 129.73 on Oct. 4.

The World Food Index reflected a price-earnings ratio for the 143 member food companies of 17.15, while it was 23 times EBITDA. The World Food Index was 2.52 times book value and 71% of sales. This p.e. ratio for the World Food Index was sharply higher than the 12.3 multiple calculated for the World Index of all equities.
The largest publicly-listed global food company was Nestle, which has capitalization accounting for 15.3% of the index’s value. In second place was the largest U.S. food company, Kraft Foods Inc., at 5.4% of the index value. Other leaders included Unilever n.v., at 4.8%; Tesco, the U.K. grocery chain, at 4.05%; Danone, at 3.3%; General Mills, Inc., at 2.1%; and Kellogg, at 1.5%.

Among the 143 companies with share capitalization in the index were eight Chinese companies.
No explanation was given for companies listed or not listed. Notably missing were Archer Daniels Midland Co. and Bunge Ltd. Wal-Mart Stores, Inc., which has become the largest U.S. food retailer, was not included, while Wal-Mart Chile was.

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