just-food looks back at the companies who made the headlines for the right – and wrong – reasons in 2019.
It’s the time of year for lists and, given your correspondent has (he thinks) completed his Christmas shopping, attention turns to putting together a look back at 2019 and suggesting companies (or parts of the industry) that had a good 12 months – as well as others that may not remember this year too fondly.
2019 was a good year for:
At the time of writing, Nestle’s share price is up more than 27% in 2019 after a year in which the market welcomed – up to the end of September at least – a sales performance in line with the company’s own targets and roughly matching analysts’ consensus forecasts. Nestle’s sales growth in 2019 fares favourably to, for example, its fellow European stock heavyweight Unilever.
The KitKat and Maggi maker’s shares would, of course, have been given a boost by the news in October of a larger-than-expected share buyback to cover the period 2020 to 2022.
But, as well as Nestle’s sales showing standing up to estimates (for all the issues in China), the Swiss food giant has won plaudits for the way it has sought to reshape its portfolio, work that has picked up over the last couple of years and continued in 2019.
Naysayers will point to the pressure Third Point may have placed on Nestle in the summer of 2017 but, nonetheless, market watchers have welcomed the company’s moves to make what are sometimes difficult decisions in its bid to adapt to a food industry in a state of flux – which, this year, saw the group shift more of its ice-cream assets into its Froneri venture with PAI Partners.
The California-based company has become something of the poster child of the burgeoning industry for meat alternatives – and May 2019 saw Beyond Meat announce its entry onto the public markets with a bang.
When Beyond Meat’s shares started trading in the US on 2 May, the value of its stock more than doubled. According to Bloomberg, the jump in Beyond Meat’s share price on day one was the best debut of any company listing in the US since at least 2008 when IPOs that raised at least US$200m are considered.
The closing-day share price of $65.75 gave Beyond Meat a market capitalisation of $3.9bn. The stock rose further throughout the summer to an August high of just short of $235. Yesterday (18 December), Beyond Meat’s shares closed at $77.30 down from that over-heated level at the height of summer but still up sharply from the IPO – and a sign the market believes Beyond Meat can continue to ride the wave of growing consumer interest in meat alternatives.
Some of the meatiness in Beyond Meat’s share price may, of course, be linked to the fact it is the only publicly-listed pure-play.
On the horizon, there will be concerns about growing competition in the category and, linked to that, whether meat-eaters will continue to come back to meat alternatives when the products aren’t exact replicas of conventional meat and the foods in the market can be of varied quality.
There’s also the growing scrutiny some consumers are starting to pay about the health and sustainability credentials of the meat-alternative products on the market.
Nevertheless, in October, Beyond Meat CEO Ethan Brown said the company was seeing “about a 45% repeat rate” in sales, which is not too bad at all.
On 7 February, the UK-based food manufacturer saw its shares fall more than 12% in a day after how a key margin metric could fare in the company’s upcoming financial year.
Cranswick, the pork, poultry and prepared-food supplier, said its operating margin was “likely to decline” in the 12 months from April.
In the first six months of the new financial year, Cranswick’s operating margin stood at 6.2%, compared to the 6.4% the company generated in its previous financial year as a whole.
And, at the time of writing, investors don’t seem to have punished Cranswick over the year as a whole, with the group’s shares up 28% from the start of 2019 to the close of play yesterday.
Cranswick, which accounts for more than half of the UK’s exports of pig meat, has been able to capitalise on growing demand from China, which has seen domestic production decimated by the African swine fever outbreak.
However, international sales remain a small part of Cranswick’s business and market watchers are likely to have taken greater satisfaction from two acquisitions the company made in 2019.
In July, Cranswick announced the purchase of London-based Katsouris Brothers, a supplier of Mediterranean food products, a move that further broadened the protein major’s portfolio.
And, this week, Cranswick rounded off 2019 with the acquisition of one of its pig suppliers, Packington Pork. The move for Packington spoke to Cranswick’s ambition to have more control over its supply chain to meet UK retailer demands for security of supplies.
The UK-based private-equity firm, a long-standing investor in the food industry, made some significant deals in 2019.
In July, CapVest, already the owner of UK pork supplier, moved to create what it called a “multi-protein food group” with the acquisition of Young’s Seafood.
The transaction came 11 years after CapVest sold Young’s Seafood to another UK private-equity firm, the London-based Lion Capital.
The deal created a business generating sales of around GBP1.2bn (US$1.57bn) and employing more than 5,000 people in the UK and Ireland. A wider context explained why the Karro-Young’s deal was done, with mainstream UK grocers looking to drive costs down in order to keep shelf prices low to keep with discount retailers. Moreover, the transaction was the latest to see another business in a mature category (in the shape of Karro) look for opportunities in complementary areas (seafood).
In September, another CapVest asset, the Ireland-based Valeo Foods Group, signed an agreement to acquire US food giant Campbell Soup Co.’s European snack assets.
That deal gave Valeo brands such as Kettle Chips (outside the US) and Metcalfe’s popcorn, adding to its existing assets in other snack categories like confectionery.
The UK savoury snacks market is intensely competitive, marked by rounds of deep promotions but the deal highlighted how the well-regarded CapVest continues to invest in food, which it did again a month later, moving for 2 Sisters Food Group’s Matthew Walker Christmas pudding business.
And 2019 was perhaps less enjoyable for:
In November, Dean Foods, the under-pressure US dairy major, announced it had started voluntary Chapter 11 proceedings – and a possible sale of the business.
It’s a tale that caught the eye – but it is also one that felt, in many ways, grimly inevitable.
Amid falling milk consumption and rising competition – particularly in the private-label market – Dean Foods has seen sales and profits hit. The owner of the DairyPure milk brand and TrueMoo flavoured milks posted a net loss of US$327.4m last year based on revenues of $7.76bn. In 2011, Dean Foods generated sales of $13.1bn.
In February, the company announced a strategic review of the business. Seven months later, Dean Foods said it had decided to press ahead with an internal transformation programme under recently-appointed chief executive Eric Beringause rather than pursue previously-suggested options of a sale or joint venture.
However, come November, alongside news of the Chapter 11 proceedings, Dean Foods revealed it was in talks to sell up to local peer – and supplier – Dairy Farmers of America.
Dairy Farmers of America, which generated a net income of $108.5m in 2018 on the back of net sales of $13.6bn, has brands of its own including the regional Borden Cheese and Keller’s Dairy. Owning 42 plants across the US, Dairy Farmers of America also acts as a supplier of dairy ingredients to food processors, including Dean Foods.
To take on a business like Dean Foods, no matter how little Dairy Farmers of America may have to pay and strategically further embed itself downstream in the more consumer-facing parts of the US milk market that’s had its challenges for a number of years, seems an interesting move.
Spring saw what could have been the biggest shake-up of the UK food retail market for more than a decade hit the buffers.
In April, The UK’s competition watchdog blocked the proposed merger between supermarket giants Sainsbury’s and Asda a year after the retailers announced the proposed deal. After months of consultations, the Competition and Markets Authority argued the transaction would push up prices for consumers.
Sainsbury’s and Asda were, to say the least, disappointed. Mike Coupe, the CEO of Sainsbury’s, argued the CMA is “effectively taking GBP1bn out of customers’ pockets” by rejecting the deal.
“The specific reason for wanting to merge was to lower prices for customers,” he said in a filing submitted to the London Stock Exchange. “The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market.”
In July, the CMA said it would prohibit ban Sainsbury’s and Asda from merging for at least a decade. Suppliers, no doubt, were cock-a-hoop.
As of the close of trading in New York yesterday, the ketchup and baked beans giant and seen its shares slide by more than 26% this year.
Kraft Heinz’s stock price tumbled in February instigated a multi-billion dollar writedown on some of its major brands – resulting in a huge fourth-quarter loss – compounded by an announcement the US food group was under investigation by securities regulators.
As a consequence of the SEC subpoena, the Heinz ketchup owner launched its own investigation into procurement practices. In May, Kraft Heinz announced it was to restate its financial statements for 2016 and 2017, as well as the nine months ended 29 September, 2018. The SEC investigation is ongoing.
In April, Kraft Heinz announced a new chief executive, hiring Miguel Patricio from brewing giant Anheuser-Busch InBev. Patricio described Kraft Heinz as “an incredible company with iconic brands that are loved around the world”.
Three months later, one of Kraft Heinz’s co-owners, 3G Capital, grabbed the headlines, with one of the private-equity firm’s founders calling its investment in the soup supplier a “failure”.
And Kraft Heinz has attracted further less-than-favourable headlines as the company moved through 2019, reportedly only attracting lukewarm interest for certain assets and, in August, booking lower half-year sales and profits – and another round of impairment charges.
In Kraft Heinz’s third quarter, which ran to 28 September, the company’s net sales fell 4.8% to $6.08bn, weighed down by asset disposals and exchange rates. On an organic basis, net sales dropped 1.1%.
The company’s operating income rose 9.8% to $1.18bn. Net income was 45.4% higher at $899m.
Sanford Bernstein analyst Alexia Howard said at the time: “Given all the disappointing news earlier this year and low valuation, this set of results is likely to be favourably received. These results suggest that we may be seeing some stabilisation of the EBITDA margin and top line. This is likely to be encouraging news for investors worried that this was a falling knife situation, particularly in the US. From here, all eyes will now turn to the company’s strategic plan to be unveiled in early 2020.”
China’s pork industry
China, the world’s largest producer and consumer of pork, has continued to see its domestic industry severely impacted by African swine fever in 2019.
African swine fever, or ASF, is a devastating infectious disease of pigs, usually deadly. No vaccine exists to combat the virus. The outbreak has spread through parts of Asia and has been found in Europe but it has been China most affected.
Analysts at Rabobank believe the disease will continue to spread in China. “Restocking will likely take around five years, but hog herd levels may find it difficult to recover to pre-ASF levels,” they wrote earlier this month.
Companies like Danish Crown, the UK’s Cranswick and US behemoth Tyson Foods have been able to capitalise, upping exports and securing deals in China.
“I think African swine fever is the biggest single event that will affect global protein supply and demand for the best part of the next five to ten years potentially,” Cranswick CEO Adam Couch told just-food this autumn.
There is, however, a lack of clarity about what the effects will be. The spread of African swine fever across Asia, a possible second wave of outbreaks in northern China, and continuing occurrences in Europe “confirm the disease remains the dominant issue in global animal protein”, Rabobank says.
Justin Sherrard, the global strategist for animal protein at Rabobank said this month: “The ongoing spreading of the disease, and the price response to the impacts of ASF are rightly under the spotlight. The market is improving its understanding of the issue and its near- and longer-term implications, but uncertainty is just as much a part of the picture.”