Milling & Baking News - January 5, 2016 - 30

Stock Market Analysis X

proteins and less on carbohydrates, he
cited one significant exception.
"I really like Mondelez (International Inc., East Hanover, N.J.)," he
said. "The main reason is they've been
the most aggressive in terms of reducing waste in overhead costs. They also
have one of the more dramatic supply
chain restructuring plans. Every time
they open a new production line in an
emerging market, it's an improvement
of 1,000 basis points versus domestic
markets."
Protein companies Mr. Moskow
favors include Tyson Foods, Inc.,
Springdale, Ark., and Hormel Foods
Corp., Austin, Minn.
"Consumers are giving themselves
permission to eat more fat," he said.
"I think that's due to shifts in thinking from nutritionists about whether
red meat is good for you or not. There
is a study showing there is a greater
risk of cancer from packaged meat,
but the risk was minuscule, and I
think it will be hard for it to gain traction. I think the meat processing industry tends to overproduce at times
like this. As of now they've been surprisingly rational."
A perennial overachiever that performed poorly in 2015, Hain Celestial
Group, Inc., New Hyde Park, N.Y.,
represents an excellent investment opportunity, said Mitchell B. Pinheiro, an

equity analyst at Wunderlich Securities, Philadelphia. Hain offers investors instant broad exposure to the natural and organic segment with large
brands across many categories.
"Their brands resonate in multiple
channels," Mr. Pinheiro said. "They
capture growth from a lot of different angles, including nearly 40% of
their sales are international. It's a
great backdrop, and the stock has
come down considerably in 2015, almost at the same rate that the natural
retailers went down - Whole Foods
and the like."
The share price decline at Hain also
30 / January 5, 2016 XMilling & Baking News

coincided with softness within some
of the company's core businesses, Mr.
Pinheiro said.
"Hain saw some pressure in the U.S.
grocery business - dry, center-of-the
store categories," he said. "When
you're trading at a hefty valuation

'Gluten-free is still
growing, part of the
"free from" trend.'
- Mitchell B. Pinheiro,
Wunderlich Securities
premium, the stock is going to be hit.
Hain was trading at 19 times forward
EBITDA. Now it's down to 12, similar
to what your large packaged foods
stocks trade for. Here you're getting
five times the revenue growth for the
same value as your larger, more mature food companies trade."
Hain continues to enjoy growth in
store perimeter categories, Mr. Pinheiro said.
"One of the more intriguing businesses is Hain Pure Protein," he said.
"Growth of antibiotic free poultry is
incredible. Consumers are favoring
branded products in what was typically an unbranded category: poultry,
chicken, poultry. They are turning
to brands because of the trust of the
supply chain. Hain Pure Protein was
selling 40% of its business branded
three years ago, now it's 60%. That's
obviously a positive for margins. It's a
reason Hain is one our favorite ideas.
"Places where it is struggling are
pretty good brands - Arrowhead
Mills, which is organic baking mixes; DeBoles, which is organic and
natural pasta. Conventional retailers
like Kroger are doing a good job in
center of the store on baking mixes
and pasta in natural and organic. It's
easier to replicate as a conventional
grocer looking for more natural and
organic items, it's easier to replicate
in a center-of-the-store business than
on the perimeter."
A longtime fan of Boulder Brands,
Mr. Pinheiro said the pending acquisition of the business appears like a
good move by Pinnacle Foods, Parsippany, N.J.
Like Hain, Boulder experienced
challenges in 2015, which pressured the
company's stock and made it an attractive takeover target, Mr. Pinheiro said.
"Boulder had a rough 2015," he said.
"It was driven primarily by increasing competition in gluten-free, which
has slowed. Smart Balance, their most

important category, is down 15%."
Mr. Pinheiro attributed the challenges experienced by Smart Balance,
a maker of vegan buttery spreads, to
a bifurcation within the category. As
Boulder looked to add value to Smart
Balance with attributes such as nonG.M.O., space saving packaging and
higher oil content, the leader in the
category, Unilever, has taken a different tack. He said the I Can't Believe
It's Not Butter has been adjusted with
lower prices and value formatting
(lower oil content, higher water).
"Boulder didn't have the money to
spend to communicate what they are
doing," Mr. Pinheiro said. "No one
knows they are non-G.M.O., unless
you are reading the package. No one
knows they are 66% oils, which is the
equivalent of butter and makes the
spread good for cooking. That was
their major problem."
Another front on which Boulder
Brands struggled in 2015 was in its
gluten-free Udi's and Glutino brands.
"It wasn't one particular competitor, but it was injury by a
thousand cuts," he said.
"They're getting
more competition in cookies,
more competition in bread,
more competition across the
board. They were
focused more on
increasing distribution than in
protecting their
flanks. They've
slowed down a little
bit, and putting a little more marketing focus on their existing business. In
the last quarter, they started showing
some positive results. The bread business is improving - they are getting
back shelf space. Gluten-free is still
growing, part of the 'free from' trend,
and for celiacs is extremely important.
Udi's is an excellent brand that sells
well across categories as well as across
channels. It sells in Whole Foods as
well as Kroger. It sells in cookies,
pizza and breakfast sandwiches, and
of course in bread. It reminds me
of Healthy Choice, which became a
lifestyle brand. Udi's could use Pinnacle's scale in terms of marketing. I
think these have been underinvested
brands that Pinnacle is getting. They
bought it at a very fair and reasonable
price. It was a great deal for Pinnacle
in a great category." MBN
- L. Joshua Sosland
bakingbusiness.com / world-grain.com

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

Milling & Baking News - January 5, 2016

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