The February meeting of the Consumer Analysts Group of New York (CAGNY) is an annual pulse-check of the bigger companies in the food and beverage industry. The CEOs in attendance are either beaming as their financial slides hit the big screen behind them or promising a turnaround.
If there was one word mentioned more often than EBITDA it was snacks. From established snack makers like PepsiCo and Mondelez to candy maker Hershey to soup canner Campbell Soup, everybody wants to be in snacks, and on a global basis. And they all seem to be getting there.
This February, 11 companies fully invested in consumer food and beverages and a half dozen more tangentially connected pleaded their cases to the Wall Street analysts. Based on the presentations and the CEOs' swagger (or shuffle), it looked (to us, anyway) that the current high fliers are Mondelez, WhiteWave and Hain Celestial. Apologists were Campbell Soup and Kellogg.
Also of note were the companies that did not attend this year. ConAgra and Kraft had been annual attendees, but each is undergoing changes starting with new CEOs.
"I stand here today more confident than ever," began Irene Rosenfeld, chairman and CEO of Mondelez International. After being cautious at last year's CAGNY meeting, she had nothing but positives to say about the performance and direction of her company.
She ticked off new plants being built around the globe, new products being launched and new statistics, especially in emerging markets, that point to considerable opportunity in snack foods. She even mentioned a brand-new acquisition: Enjoy Life Foods.
"Every 10 days we're starting up a new line somewhere in the world," added Daniel Myers, Mondelez's executive vice president of integrated supply chain.
Hain Celestial had not been to CAGNY in a few years, but Irwin Simon, the casual chairman, CEO and founder, impressed with growth rates in sales and profits. He pointed out the company's established and profitable niches in attractive categories such as Greek yogurt, baby food and plant-based foods. He promised 100 new products to be unveiled at this month's Natural Products Expo West, and claimed that 99 percent of the company's products already are GMO-free.
Chairman Gregg Engles noted WhiteWave Foods participates in "seven of the eight highest-growing food and beverage categories." At last year’s CAGNY meeting, he had just announced a joint venture in China and the purchase of Earthbound Farm. Now, he says the China Mengniu Dairy plant is up and running and will begin supplying that market with traditional dairy products and WhiteWave’s signature nondairy products. And Earthbound Farm is stretching its organic produce base into frozen fruits and vegetables and smoothies.
Blaine McPeak, president of WhiteWave’s American business, promised Horizon branded launches in macaroni & cheese cups, gluten-free mac & cheese, fruit snacks and berry squeezes. The company renovated a building in DuBois, Pa., into a new production plant, and its first stand-alone R&D center will open soon near Broomfield, Colo., headquarters.
Like Mondelez, Hershey bought a snack company just weeks before the CAGNY conference. But Krave is quite a stretch, taking the chocolate company into meat jerky. Shanghai Golden Monkey, the late-2013 acquisition, was less of a stretch, bringing Hershey some nonchocolate candies and general snacks but most importantly a doorway to China, which apparently has been a gold mine for the company. Bert Alfonso, president of international operations, said global sales will break $1 billion this year and will represent half of Hershey's growth by 2018, up from 30 percent today (Mexico is big, too).
It seems like the biggest and most diversified companies were somewhere in the middle. General Mills looks solid and well-positioned, and Chairman and CEO Ken Powell last year was beaming at CAGNY. This year, however, he talked of the company's multi-year cost savings program and predicted operating profit would decline in the current fiscal year (which ends May 31). Net sales are expected to grow slightly above the 2014 base of $17.9 billion.
Likewise, PepsiCo continues to put up respectable numbers but must fend off calls for a split of the company into a beverage business and a snack business, "Better together" was the theme expressed by Albert Carey, CEO of Americas beverages.
Also in the middle group, J. M. Smucker executives asked patience while they digest the biggest acquisition in company history, the $5.8 billion purchase of Big Heart Pet Brands. It will grow Smucker by nearly a third (to $8 billion in FY2016). David West, who's staying on as CEO of the acquired company, impressed with the high growth rates for premium pet foods and especially snacks (see, that word even applies to pet food).
Kellogg was among the apologists. Despite the Pringles acquisition outperforming expectations, the rest of the company is slowing. CEO John Bryant said Special K brand, on which high hopes are pinned, is undergoing a thematic transformation from dieting to general wellness. CFO Ron Dissinger predicted FY 2015 sales would be flat and profits down 2-4 percent as the company completes its Project K supply chain reorganization.
In a tacit acknowledgement that Campbell probably has taken soup as far as it can, CEO Denise Morrison unveiled a reorganization and cost reduction program meant to "invest more of our resources in the areas of our business that can deliver the greatest growth." She said the company is reorganizing into three divisions.
Americas Simple Meals and Beverages will include the legacy soup business, the new cooking sauces, the Plum Organics baby and toddler foods and V8 shelf-stable beverages. Sales were approximately $4.5 billion last year, about 55 percent of total company sales but 70 percent of total operating earnings. Mark Alexander will be president.
Global Biscuits and Snacks will unify Pepperidge Farm, both cookies and crackers, with the more recent and global acquisitions: biscuit-makers Kelsen in Europe and Arnott's in Australia. With sales of approximately $2.8 billion, this division will be about one-third of company sales and one-quarter of operating earnings in fiscal 2014. Luca Mignini will be president.
Packaged Fresh will house the products acquired with Bolthouse Farms, including refrigerated drinks, carrots and salad dressings, plus Campbell's new refrigerated soups business. These businesses accounted for approximately $1 billion of net sales – about 11% of company sales – and generated 5% of company operating earnings in fiscal 2014. Jeff Dunn will be president.
"The changes now under way at Campbell have far-reaching implications for the conduct of our business and the future of our company," Morrison said. She said the company was responding to "seismic social shifts," including "revolutionary changes in the definition and composition of the family," and a growing suspicion of "Big Food."
Perhaps as part of that, the company plans to launch "super-premium cold-pressed beverages" later this year under the brand "1915" – the year the original Bolthouse carrot farm was started in Michigan.