Milling & Baking News - January 5, 2016 - 24

Stock Market Analysis X

has made a number of smaller but strategically logical acquisitions to change
their portfolio around."
Beyond efforts of investors to "try
to get ahead" of the changing landscape and prospects for consolidation,
management teams have been hard
at work in an effort to better position
their companies for this change. These
initiatives include deep cuts and steps
in recognition of changing consumer
attitudes and purchasing patterns, Mr.
Katzman said.
"On a fundamental basis we think
the group is fairly to slightly overvalued," he said. "Fundamental steps
have not been enough so far to get
volume to grow, which is critical to the
industry. What will happen in 2016 remains to be seen. We think you'll see
stabilization after six to seven years
of decline in sales volume. From an
m.&a. standpoint, I think it's almost
inevitable that the industry consolidates. Whether that creates value in
the long term remains to be seen."
A critical part of corporate repositioning in the food industry must be
adjusting top-line growth forecasts,
Mr. Katzman said.
"To assume you are going to grow
at the same rate you were growing historically isn't realistic and doesn't lead
to good outcomes," he said. "Food
companies need to lower expectations for top-line growth. They need
to change products to meet with what
consumers want today."

These product changes may touch
a wide range of themes, Mr. Katzman
said, including health and wellness, a
recognition of the increasing ethnicity

'Food companies need to
lower expectations for
top-line growth. They
need to change products
to meet with what
consumers want today.'
- Eric Katzman,
Deutsche Bank
in the United States, the growth of millennials and organic products.
"Those areas are where there is
growth," he said. "No one is saying
it's easy. If you want to be seen as a
growth business, that focus is what is
necessary."
Against this backdrop of specialized
areas of growth, traditional brands
have lost equity value, Mr. Katzman
said. Brands that have replaced this
lost value include Silk within the
WhiteWave Foods Co., Bridgeton,
N.J., portfolio and Annie's at General
Mills, Inc., Minneapolis.
"Or any number of brands, albeit
smaller and lower margin," he said.
"Any number of brands you would
see if you took a tour down the aisle at
Whole Foods. It isn't that consumers
have moved aggressively from brands

toward private label. They have shifted from large traditional brands to
smaller, newer brands."
While meaningful, often major, cost
cutting has been central in the business
plans of packaged foods companies
for many years, such efforts are now
accelerating, said Robert Moskow, an
analyst with Credit Suisse, New York.
"All of these big branded companies
are coming to the realization that they
need to reduce their cost structure to
cope with a much slower algorithm for
growth," he said. "The early success
3G (Capital) has had in the industry
with the acquisition of Heinz, brutally
ripping out overhead and cutting back
on spending has raised the bar for the
rest of these companies. They want to
make these adjustments before an activist or a private equity firm makes

Grain-based foods share price charts
ConAgra Foods, Inc.

Dunkin' Brands Group, Inc.

per share

$58

$48

per share

2015
$42

$53

$36

$48

$30

$43

Flowers Foods, Inc.
$30

per share

2015

2015
$25
$20

2014
$24
Jan. March May

July Sept.

Nov.

General Mills, Inc.

July Sept.

Nov.

$50

$40

$50

$35

$70

$30
Jan. March May

2015

$60
2014

$50
$40

2014

24 / January 5, 2016 XMilling & Baking News

per share

2015

$54

Nov.

Nov.

$80

$45

July Sept.

July Sept.

Hain Celestial Group

per share

2015
$58

$46
Jan. March May

$15
Jan. March May

Grupo Bimbo S.A.B. de C.V.

per share

$62

2014

2014
$38
Jan. March May

July Sept.

Nov.

2014
$30
Jan. March May

July Sept.

Nov.

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Milling & Baking News - January 5, 2016

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