Seeking Alpha
Portfolio strategy, macro, research analyst
Profile| Send Message|
( followers)  

The companies in the Food Processing NEC sector serve as the intermediary between the farmer and the consumer. Growing and processing American food is a very resource intense endeavor, requiring vast amounts of distribution, warehousing, energy and water. The $266B sector ranges from large cap Archer Daniels Midland (NYSE:ADM) with $46.7B annual sales to micro cap Bridgford Foods (NASDAQ:BRID) with a mere $127M. Market performance in the sector has been relatively flat over the past six months, but profits have varied widely, with nearly half of the companies in the sector experiencing negative net income growth.

The 23 companies in the sector were analyzed through the lens of Financial Performance (NYSE:F), Resource Efficiency (NYSE:R) and Market Performance (NYSE:M). This FiRM analysis gives a thorough look at not only the fundamental and operational efficiencies of the companies, but also their management of the Big Four resources: Energy, Water, GHG, and Waste. There were 6 Food Processing companies that earned top marks in the sector due to their strong financial performance, excellent resource efficiency and solid market performance.

The Top Six

Listed below are the top six companies in the sector in order of performance:

(click to enlarge)

The 6 companies above represent the best performance across all three areas: Financial, Resources, and Market. Connections can be made between overall financial performance coupled with resource efficiency resulting in increased market value. The top performer, General Mills (NYSE:GIS), enjoyed a solid 22% market gain with solid financial increases and exemplary resource efficiency. Hershey Co (NYSE:HSY) enjoyed a 35% increase in stock value alongside healthy income growth and increased resource efficiency. For SunOpta (NASDAQ:STKL), a 63% increase in market value coincided with exceptional net income growth, even though that growth resulted in higher resource use.

Financial Performance

The sector as a whole suffered from an overall decrease in efficiency and performance over last year through increased Cost of Goods and lower margins, frequently caused by higher raw materials prices due to the drought in the Southern United States. The negative net income performance of both Nash-Finch (NASDAQ:NAFC) with a 362% drop and Penford (NASDAQ:PENX), which lost 287% over last year, dragged the sector down as a whole.

(click to enlarge)

The star financial performer was Annie's Inc. (NYSE:BNNY), which enjoyed 20% gains in both revenue and net income and exceeded the average net margin by 2% over last year. Industry heavy weight, ConAgra (NYSE:CAG), had a solid revenue increase of 16%, and a stellar net income increase of 64%, indicating more efficient operations. Smaller company, SunOpta, enjoyed a smaller revenue increase of 7%, but a whopping 357% net income increase, due to increased revenues and divestment of loss generating operations.

Resource Efficiency

Reporting by companies on resource use is still quite new and in the Food Processing Sector only 6 companies actually released resource use data. Of the remaining companies, 11 discuss internal resource reduction initiatives and 6 offer no resource use information. Sector-wide, the most resource efficiency gains were made by lowering carbon emissions and decreasing waste totals. It is worth noting that 82% of the companies that did not report resource use also demonstrated mediocre financial growth and market gain and in many cases suffered from decreased performance in both areas.

The star performers in resource efficiency are Campbell's Soup (NYSE:CPB) and General Mills, who demonstrated decreased resource use in all four categories. Hershey Co decreased water use by 49% and Annie's, Inc. lowered waste totals by 38%.

Market Performance

The overall market value of the Food Processing sector increased 24%. Fully 11 companies enjoyed 20% or greater stock price increases over last year. Relative Strength Index average for the sector is a stable 55.90, with only 9 companies being overbought or oversold.

The top market performers in the segment were SunOpta with a 63% price jump, Hershey Co with a 35% increase and General Mills with a 22% increase.

Using FiRM analysis for stock selection takes more time to research and understand. However, digging deeper into how a company manages the external resources that allow it to realize revenue gives the financial data more clarity. Also, agricultural commodities are wildly volatile, impacting profit margins if not managed or hedged well by a company. Each of the six companies on the list is enhancing their own ability to stay profitable by managing ALL of their resources well, which results in stable stock price growth.

Source: 6 Top Performers In The Food Processing Sector