Milling & Baking News - January 5, 2016 - 28

Stock Market Analysis X

Alpine Valley Bread - two emerging leaders in the organic baked foods
marketplace.
"We think they are getting into
on-trend, premium brands that
resonate with consumers," she said.
"The pullback in Flowers' shares
over the last three months in our
view creates a great entry point for a
long-term investor. The issue in the
fiscal third quarter, likely to continue into fourth, is that the company
was not aggressive enough in their
pricing compared to the category.
Their competitors, including Bimbo Bakeries and Pepperidge Farm,
have been much more active in taking pricing up, compared to Flowers. Flowers has highlighted one of
the reasons their pricing has lagged
is that they are moving into new
markets, with introductory pricing
to attract trial.
"I expect their average pricing will
go up early next year. They have a
great opportunity to improve marketing and earnings."
More than on-trend acquisitions underpin Ms. Aslam's investment thesis
regarding Flowers.
"They are working to improve
their operations," she said. "They've
worked to increase the efficiency
of their plants. They've improved
execution in new markets as their
direct-store delivery sales force
has gotten more experience. There

is white space for them across the
United States. We think that creates
great growth opportunities for that
company."
Deutsche Bank has been wary of

'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 noise and forces them to do it.'
- Robert Moskow, Credit Suisse
recommending numerous other packaged foods companies, including
Campbell Soup Co., Camden, N.J.
"We've been cautious on Campbell
Soup for an extended period and continue to be," Mr. Katzman said. "They
have made some logical steps, including restructuring to cut costs. Their
hope is that with the cost cuts, that
prepared snacks and global snacking
and baking will drive growth. The
valuation appears pretty reasonable at
this point."
Mr. Katzman also used the term
"cautious" to describe the Deutsche
Bank view of the principal ready-toeat breakfast cereal companies - Kellogg Co. and General Mills, Inc.
"Our concern is that changing

Grain-based foods share price charts
J.M. Smucker Co.
$130

Snyder's-Lance, Inc.

per share

$40

2015

2015
$35

$115

$30
$100
$25

2014
$85
Jan. March May

2014

July Sept. Nov.

$20
Jan. March May

Starbucks Corp.
$65

July Sept.

Nov.

far cry from growth. We consider both
to be fairly valued."
A similarly wary Deutsche Bank
perspective exists toward Mead Johnson Nutrition Co., Glenview, Ill.; The
Hershey Co., Hershey, Pa.; and The
Kraft Heinz Co., Pittsburgh.
"You could almost call it a giant,
$90 billion market experiment," Mr.
Katzman said of Kraft Heinz. "Ownership clearly is taking a different
approach to costs, and they target
the food industry in general. We, for
the near term, are questioning that
strategy and impact on near-term results - whether investors are better
off looking elsewhere for now.
"Their approach is to really cut promotion where it is inefficient. That
makes a lot of sense. This is a competitive industry. But lots of companies
are ready to fill the competitive gap.
It remains to be seen how they will
navigate the competitive landscape.
The long-term strategy is more acquisitions. Over time, they will look for
more and more deals.
"I would say, looking at the food industry, you have very high valuations
relative to the market with fundamentals that are pretty challenging. One
has to be pretty cautious about how
and in what one invests."
While Mr. Moskow has favored investing in companies focused more on

George Weston Ltd.

TreeHouse Foods

per share

2015

per share

$98

$120
2015

2015

$58

$88

$100

$51

$78

$44

2014

$80

$68

$37
$30
Jan. March May

consumer has made the cereal business and a lot of carb-based product
more difficult in terms of driving volume growth," he said. "We could see
stabilization in the market, but that's a

2014
2014

July Sept.

28 / January 5, 2016 XMilling & Baking News

Nov.

$58
Jan. March May

July Sept.

Nov.

$60
Jan. March May

July Sept. Nov.

bakingbusiness.com / world-grain.com

http://www.bakingbusiness.com http://www.world-grain.com

Milling & Baking News - January 5, 2016

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