Earthbound Farm impacted by supply issues

Earthbound Farm impacted by supply issues

WhiteWave Foods raised its full-year earnings forecast after reporting growth across the majority of its businesses. However, the outlook for the Earthbound Farm and Silk owner's packaged fresh and premium dairy businesses in the US appears somewhat challenging.

The US group booked an increase in second-quarter sales and earnings on Friday (7 August) with net and operating profit rising 9% on the back of a 10% increase in sales. At constant currencies, revenue rose 14% the company said.

The group's strong top- and bottom-line momentum prompted WhiteWave to raise its full-year earnings guidance. The company said it now expects adjusted diluted earnings per share of $1.07-1.10, up from its previous forecast of $1.03-1.07. WhiteWave anticipates a 12-13% increase in net sales, compared to its prior guidance of a "low double-digit" rise. Stripping out foreign exchange, WhiteWave said revenue should increase by 15-16%.

In North America, WhiteWave's largest market, the group's performance was mixed. WhiteWave revealed sales from its Americas foods and beverages division was supported by the inclusion of recent acquisitions, particularly So Delicious, with revenue rising 15%. On an organic basis, sales were up 8%, representing a slight slowdown from the prior quarter when revenue growth stood at 10%.

The company added its prepared salad and fresh fruit businesses was hurt by supply constraints as the drought in California hits produce availability. "Although our organic packaged salads grew mid-single-digits, lower availability of fresh fruit, coupled with our decision to exit some low-margin relationships with fruit suppliers, resulted in a 1% overall sales decline in our Americas fresh foods segment," Engles noted.

"Mid single-digit growth in organic packaged salads was offset by a decline in the sales of fresh fruit due to lower crop availability. We also decided to exit low-margin agreements with certain fruit suppliers as we continue to make the appropriate strategic decisions to best position this business for long-term growth and profitability."

While sales were down in US fresh foods, which consists of the group's Earthbound Farm brand, WhiteWave stressed the performance represents a sequential improvement on the prior quarter, when sales dropped 4%.

Despite the lower top-line results in US fresh foods due to "difficult supply dynamics", Engles insisted the unit should grow "over the balance of the year".

"We remain positive on the continued long-term growth opportunities that we believe exist for the organic packaged salad category, as well as for our Earthbound brand as a whole."

WhiteWave is also facing challenges at its Horizon Organic brand in the US, management conceded. Premium dairy sales rose 15% in the US during the quarter but growth was supported by pricing and will likely slow over the next quarter as WhiteWave laps price increases. "We continue to expect solid growth in this platform over the balance of the year, but at a bit more moderated pace than the mid-teens growth that we have experienced year-to-date," Engles said.

WhiteWave's business in Europe propelled its growth, with sales jumping 23%, excluding currency exchange. Sales of nut and "other ingredient" beverages rose more than 80%, soy beverages grew in the "mid teens" and the group's plant-based yoghurt business expanded by more than 20%. Operating profit in the region increased by 18% in the period.

CEO Gregg Engles stressed it is the fourth consecutive quarter where its constant-currency sales growth in Europe exceeded 20%. Speaking to analysts during a conference call, he was upbeat about the firm's prospects in the region and highlighted the opportunity to expand in France where the company's business is "still in its early stages" and continues to pick up distribution wins.

Engles said WhiteWave's NPD pipeline should also contribute to continued expansion in Europe. "We have exciting new plant-based products launching over the balance of the year, including drinkable yoghurts, almond line extensions, and a variety of new desserts," he said.

"Overall, we are very pleased with the strong top and bottom-line results our Europe segment produced over the first half of 2015 and continue to have strong growth expectations for this business over the second half of the year."

Sanford Bernstein analyst Alexia Howard's assessment of the outlook for WhiteWave in Europe was somewhat more cautious. "Since this is the fourth quarter of over 20% growth... we are likely to hit tougher comparables going forward, even as distribution growth remains strong," she wrote in an investor note.