Milling & Baking News - January 28, 2020 - 26

Stock Market Analysis

Grain-based foods share price charts
Kellogg Co.

J&J Snack Foods Corp.
per share

$200

2019

$180

$62

$140

$56
2018
March May

July

Sept.

Nov.

2019

$50
Jan.

March May

July

Sept.

Nov.

Lancaster Colony Corp.

Kraft Heinz Co.
per share

$80

2018

$68

$160

$120
Jan.

per share

$74

per share

$200

2018

$175

$60

2019
$150

$40

2019

$125
2018

$20
Jan.

March May

July

Sept.

Nov.

MGP Ingredients, Inc.

March May

July

Sept.

Nov.

Mondelez International, Inc.

per share

$100

$100
Jan.

$59

$85

$53

per share

2019

2018
$70

$47
2019

$55
$40
Jan.

March May

July

Sept.

2018

$41
Nov.

$35
Jan.

March May

July

Sept.

Nov.

Data ended Dec. 31, 2019

need greater distribution, and that's
where the geographic expansion story
comes in."
Mr. Pinheiro, who has covered Flowers Foods intermittently for decades and
has known each of the last four chief
executives, said he is positive about the
most recent leadership transition.
"Ryals is a really sharp guy," he
said of A. Ryals McMullian, who became c.e.o. in 2019. "I've had numerous conversations with him, and I have
to agree that Project Centennial, the
whole strategy behind it, is spot on.
This is a Ryals initiative."
Mr. McMullian's father Amos McMullian led Flowers through the late
1900s, and Mr. Pinheiro said the "familial culture" of the company is a plus.
"They have realigned their management structure, but I do think a lot of
what made Flowers really special will
26 / January 28, 2020

Milling & Baking News

continue to be there," he said.
A cautious view of Flowers was offered by Mr. Holland, who rates the
company a neutral.
"I think that there's work to be done
there," he said. "We keep waiting
for some of the operating initiatives
that they put in place to really flow
through. They just haven't yet. Maybe
2020 is an inflection point, but we were
hoping 2019."
Mr. Holland acknowledged that
some of the difficulty faced by Flowers
represents forces beyond the company's control, citing freight and a tight
labor market.
"That's not really going to go away,
so that makes it harder for the operating
initiatives they've had to generate some
margin expansion," he said. "I think
the next step is for them to optimize
their bakery manufacturing footprint

and/or rationalize it. If and when they
can do that, they could increase, grow
their earnings power. But we understand from speaking with the company,
that's a pretty complex process. So we
continue to wait for updates."
Among Mr. Moskow's list of food
companies with a promising outlook,
Mondelez International stands out,
mostly because of the company's impressive international footprint, he said.
"I also think they are doing well with
Nabisco domestically," he said. "It's
Oreos mostly. They just continue to
come up with new flavor varieties, limited editions, new packaging formats.
They've really pushed that brand in a
positive way.
"They've also integrated Tates well.
Tates is growing and has been a way
to learn the specialty segment a little
better. I think they gained a little bit at
Keebler 's expense as Kellogg prepared
that business for divestiture."
Kellogg Co., Battle Creek, Mich., was
upgraded by Mr. Moskow during 2019
because he has been increasingly impressed by the growth generated by the
company's snack brands, such as Pringles, Cheez-It and Pop-Tarts. Investments in new packaging formats, flavor
varieties and expansion into new channels have been successful, he said.
"The thing that's missing is North
American cereal," he said. "Now that
that category has stabilized, I feel like
they have a pretty good opportunity to
fix that part of the portfolio as well."
The upside for ready-to-eat cereal
going forward has been undercut by a
trend Mr. Moskow has emphasized for
a number of years - consumers' preference to increase intake of protein. Tyson Foods, Inc., Springdale, Ark., has
been a beneficiary of this shift.
"It's especially true with breakfast," Mr.
Moskow said of the protein preference.
"The cereal category is starting to stabilize. I think its growth longer term will
be impaired by consumer desire for more
protein in the morning. Tyson has done
a great job leveraging the Jimmy Dean
brand. Extending it in different convenience formats. I don't see that stopping."
Mr. Moskow also emphasized the powerful potential for plant-based protein.
"I'm a strong believer that these small
start-up firms like Impossible Foods
and Beyond Meat will have big brands
in the category," Mr. Moskow said.
He is less certain about whether
traditional branded foods companies,
including Kellogg's, with brands that
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