Could WhiteWave Foods Be The Next Acquisition For Coca-Cola?

| About: WhiteWave Foods (WWAV)

Summary

Coca-Cola has been acquiring fast growing beverage companies and WhiteWave Foods fits the bill for an acquisition.

WhiteWave product lines include Silk brand soy and almond milk, International Delight coffee creamer, Horizon Organic dairy products and Earthbound Farms organic produce.

WhiteWave revenue increased 36% in 2Q14 and is expected to continue this pace through the remainder of 2014.

With interest rates remaining at historic lows and companies sitting on huge piles of cash, mergers and acquisitions have been red hot over the past 12 months and this trend is far from over. Recently Jim Cramer suggested Coca-Cola (NYSE:KO) could continue its acquisition spree by taking a stake in WhiteWave Foods (NYSE:WWAV). Regardless of your opinion of Cramer, this idea makes too much sense to not look into. Coca-Cola has made acquiring stakes in rapidly growing beverage companies a priority over the past 6 months. In February 2014, Coca-Cola acquired a 10% stake in Keurig Green Mountain Coffee (NASDAQ:GMCR) for roughly $1.25 billion. In May 2014, Coca-Cola increased its stake to 26 million shares, or 16%, making it the largest shareholder of the K-cup maker. Just last week Coca-Cola bought a 16.7% stake in Monster Beverage Corp. (NASDAQ:MNST) for $2.15 billion in cash. These acquisitions are only a drop in the bucket for Coca-Cola, which has a market cap of $181 billion and over $21 billion in cash on hand.

WhiteWave Foods was spun-off of Dean Foods (NYSE:DF) in May 2013. Since this spin-off, the company has flourished. WhiteWave is capitalizing on its impressive product line which includes, Silk soy milk and almond milk, Horizon Organic dairy products, International Delight coffee creamers and Earthbound Farms' organic produce line. Back in December 2013, WhiteWave bought Earthbound Farms, a top purveyor of organic produce, for $600 million. Earthbound had sales over $500 million in 2013 and is the largest organic produce brand in the US and is a major supplier of organic packaged salads. WhiteWave's Silk brand holds the #1 position in the rapidly expanding almond milk market.

Segment

WhiteWave Foods product line

Plant-based foods & beverage

Silk almond milk

Silk soymilk

Silk coconut milk

Coffee Creamers

International Delight

Dunkin Donuts creamer

Land O Lakes creamer

Premium Dairy

Horizon Organic

Horizon Organic DHA Omega-3

Horizon Organic Lactose Free

Organic Greens & Produce

Earthbound Farms brand

Click to enlarge

This broad product line-up could help diversify Coca-Cola's already tremendous product line. Coca-Cola's product line-up is too long to list here but includes names such as, Dasani, Fanta, Fresca, FUZE Tea, Vitaminwater, Minute Maid, Monster, Odwalla, POWERADE, Sprite, and Zico. What's missing from this list is any exposure to the dairy industry or the rapidly expanding non-dairy based plant beverages such as almond milk. The company has shown it's ready and willing to invest in rapidly expanding companies such as Keurig and Monster. WhiteWave Foods fits this bill, with total sales increasing 36% in 2Q14.

Three months ended June 30

($ Millions)

2014

2013

Y/Y % change

Net Sales

$ 838

$ 616

36%

Operating Income (Adjusted)

$ 71

$ 46

54%

Net Income (Adjusted)

$ 40

$ 28

43%

Adjusted EPS (diluted)

$ 0.22

$ 0.16

38%

Click to enlarge

Excluding Earthbound Farms' revenue of $153 million, net organic sales growth increased by 11%. The plant-based food and beverage segment was the biggest revenue growth driver with net sales increasing 13% year-over-year. This was driven primarily by the strong growth of Silk almond milk, which increased sales 45% year-over-year and maintained its #1 market position. The coffee creamers segment increased 5% based on higher volumes from new product introductions. The Horizon Organic dairy line increased 8%, driven by strong demand for value-added products such as Horizon Organic DHA Omega-3 and Lactose-free products. Horizon Organic also maintained its #1 position in the organic milk category. Earthbound Farms had total revenue of $153 million and continued its market leading share in the branded organic packaged salad category.

Buy-out possibility

With Coca-Cola driving revenue through acquisitions of rapidly growing smaller companies, WhiteWave fits the bill perfectly. WhiteWave is the leader across multiple product lines that are rapidly expanding. With Coca-Cola's distribution network, the company could further drive revenue by placing WhiteWave products in additional markets. WhiteWave has a market cap of $5.9 billion as of 8/18/14. If Coca-Cola wished to pursue a stake in WhiteWave as it did with Keurig and Monster, it would likely look to buy around a 20% stake in the company, making it the largest shareholder. A 20% stake would work out to be roughly $1.2 billion. This potential acquisition would only take approximately 6% of Coca-Cola's cash on hand and in return give the company a position in a variety of rapidly expanding markets.

Conclusion

With the ink not yet dried on the Monster acquisition, it's unlikely another buy-out is right around the corner. But given Coca-Cola's strategy of acquiring rapidly expanding beverage companies, WhiteWave makes the most sense as a buy-out candidate. Even if Coca-Cola doesn't make the move, another company like PepsiCo (NYSE:PEP) or General Mills (NYSE:GIS) would love the opportunity to establish a stake in this health food company. M&A continues to drive the market, and this trend is likely to continue in the foreseeable future. WhiteWave is prime takeover candidate based on its established product line in the rapidly expanding health drink market and rapid revenue growth. The company projects 2014 revenue growth to be over 30% with the inclusion of Earthbound Farms and adjusted diluted EPS between $0.98 and $1.00 for the full year 2014. This growth and profitability makes for a safe investment and attractive ROI.

While I don't recommend establishing a large position in WhiteWave based on buy-out speculation, the company is a great investment for long-term shareholders looking for exposure to the organic and health food market. Regardless of a buy-out, this stock is a long-term buy and is poised to expand over the next several years.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.