WhiteWave Foods (WWAV) is on the Hedgeye Consumer Staples Best Ideas list as a LONG
WWAV is set to report 2Q15 earnings this Friday; we are expecting to see another blockbuster quarter of robust organic growth in the high-single digits to low-double digits. Consensus estimates have EPS coming in at $0.25 an 8.7% increase YoY. Followed by total net sales of $928.1mm representing a 10.7% increase YoY. And gross income of $320mm which represents a 12.3% increase YoY and a 100 basis point margin expansion. To outperform these expectations would be tough, but realistically we believe that WWAV can match the street and that’s all they really need to do to.
During WWAV’s 1Q15 earnings call they raised adjusted diluted EPS guidance to $1.10 to $1.14 for the full-year 2015, increased from previous guidance of $1.08 to $1.12. Consensus estimates are currently projecting near the high end of the range at $1.13, leaving at least a penny of EPS on the table. We think WWAV will get the $1.14 and possibly more for the full year.
Within this earnings will be another quarter of Horizon center-of-store products on the shelf, So Delicious, as well as a better read on the China JV. On the Horizon front I think we will see positive results, with increased sales, as premium milk buyers notice the trusted brand on center-of-store products. So Delicious is such a dominating brand in the dairy-free category within the natural channel, and we really believe its success is really just beginning. The China JV admittedly is a wild card this quarter, although the sales will probably still be minor, the read they are getting on the business will be vital. We think it will be a positive outlook with some caution given the macro environment in the country.
It will be interesting to see if the droughts in the west continue to hamper the Earthbound crop. Although addressed in the 1Q15 call as a non-issue for 2015, conditions may have gotten worse than expected.
All-in-all we continue to believe that WWAV is performing without a hitch and that we will once again see strong organic growth within the business.
Turning onto possible investments in the near future, we continue to see consolidation within the food space, especially with smaller better-for-you brands. It is widely known that WWAV is on the hunt for smart acquisitions, and we believe Quorn would be the perfect fit.
Quorn is a meat alternative food producer that leads the market in the UK and has a rapidly growing presence in the U.S. In January it was stated that Quorn had £150mm in sales. Quorn would be a perfect fit into the WWAV portfolio and extend them into the increasingly popular meat alternative segment.
We highlighted this potential acquisition in our WWAV Black Book and have become more convinced it would be great for the company after Pinnacle Foods recently reported robust growth in their Gardein business. Plant-based alternative products across all segments are rising in popularity, and meat alternatives is a major segment in which WWAV does not participate at this time. There are a lot of potential targets in this industry but Quorn is currently one of the most recognized with a pre-built customer base. Additionally, Quorn’s UK business is their biggest driver of revenue making it a perfect tack on to WWAV’s Alpro business. This acquisition would yet again add a #1 or #2 player to WWAV’s robust portfolio that is built for consumer preferences that have yet to fully evolve. We continue to be long WWAV and excited about the multitude of acquisition that they can make out in the market.