The WhiteWave Foods Company (WWAV) shares rose 1.5% after it reported another quarter of sales and margin outperformance beating the Zacks Consensus Estimate for both earnings and revenues in the second quarter of 2014. Moreover, the company raised its 2014 earnings per share guidance for the second quarter in a row.
In fact, this leading consumer packaged food/beverage company has surpassed the Zacks Consensus Estimate for both earnings and revenues for four straight quarters now.
WhiteWave Foods’ second-quarter adjusted earnings (excluding expected investments in a Chinese joint venture) of 23 cents beat the Zacks Consensus Estimate of 22 cents by almost 5% as well as management’s expectations of 21 to 22 cents. Earnings grew 42% year over year driven by solid sales and margins.
Top Line and Profits
Sales increased 36% year over year to $838 million and also beat the Zacks Consensus Estimate of $817 million by 2.5%. The top-line increase was also above management’s expectation of low 30% growth driven by strong organic growth and a larger contribution by Earthbound Farm (acquired in Jan 2014).
Organically (excluding Earthbound Farm), revenues grew 11% as both the North American and European businesses reported strong volumes. All the company’s brands experienced strong growth in the quarter led by Silk almond milk which grew 45% in the second quarter.
Operating profits grew 53% year over year to $71 million, much higher than management’s expectation of a low 40%. Adjusted operating margins expanded more than 100 basis points in the quarter driven by solid top-line growth, cost leverage from increased sales and realization of supply chain savings. The company is beginning to realize the benefits from its recent capital investments, especially in Europe.
Segment Discussion
Net sales grew 38% to $710 million, while operating profit grew 49% to $74 million in the North America segment.
The leading organic greens and produce brand — Earthbound Farms — contributed $153 million to sales in the reported quarter. Moreover, other platforms — plant-based beverages, premium dairy and coffee creamers — recorded strong top-line growth in North America. Excluding the Earthbound acquisition, the North America top line grew 8% organically.
Net sales grew 26% (up 18% on a constant currency basis) to $128 million, while operating profit grew 79% to $14 million in the European segment. Continued robust volume growth of plant-based almond beverages and double-digit growth in non-dairy yogurts and soy beverages pulled up quarterly revenues.
2014Outlook Raised
Buoyed by the solid first-half results and higher accretion from the Earthbound Farms acquisition, management increased its earnings outlook for the full year while maintaining the sales expectations.
Adjusted diluted earnings per share are expected between 98 cents and $1.00, much better than 95–98 cents expected earlier, excluding investments in the Chinese joint venture. The revised guidance represents growth of 33% to 36% over the full-year 2013.
Earthbound Farms is expected to benefit earnings by at least 9 cents this year, higher than 7 cents expected previously. For the third quarter, management expects adjusted diluted earnings per share to range within 25 to 26 cents, excluding the China joint venture costs.
Management expects adjusted total operating income to grow in the low-to-mid 40% range for 2014, higher than prior expectation of low 40% increase. Strong volume growth and cost savings are expected to fuel the margin expansion. Management expects a similar operating income growth rate in the third quarter.
For the full year, sales growth is still expected in the low 30% range. In the third quarter, reported sales are expected to increase around 30%, lower than the first half growth rates due to seasonality in Earthbound Farm’s business. Organically, however, revenues are still expected to grow in the range of 8–9% for the rest of the year.
Management also expects to increase production capacity in both North America and Europe this year to support the better-than-expected volume growth that the company has been witnessing lately. Construction of the company’s manufacturing facility in China is well on track and management expects to have products on shelf by year-end.
Other Stocks to Consider
The WhiteWave Foods carries a Zacks Rank #2 (Buy). This natural, organic and plant-based food/beverages maker saw earnings per share growth of 23.3% last year. We believe the company is poised well for this year as well as its products enjoy strong demand due to the natural/organic food revolution. Shares of WhiteWave Foods surged almost 45% year-to-date.
Other beverage companies that can be considered include Coca-Cola Amatil Limited (CCLAY), PepsiCo, Inc. (PEP) and Dr Pepper Snapple Group, Inc. (DPS). All the three stocks carry a Zacks Rank #2.
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