Leading Brands (LBIX) reported first quarter earnings Thursday and led me into deeper research in this natural beverage company. The company prides itself in being the only North American fully integrated healthy branded beverage company. The company has key brands that are naturally flavored and have less sodium and carbohydrates than other beverages. (See nutritional information on the company's website)
Leading Brands owns several brands of beverages including:
· Pure Blends
· Babyblue juices
· True Black
· TrueBlue 100
Along with its owned brands, Leading Brands also licenses the Stewart's fountain beverages. Leading Brands uses Canadian wild berries including blueberries, blackberries, raspberries, grapes, and black currants. The Canadian blueberries are one of the most potent superfruits in the World.
The TrueBlue line of drinks has one third the amount of sodium in apple juice. The Babyblue line is being marketed at parents as healthier for children. The drinks are also high in polyphenols. The company's Unwine brands allow customers to experience the taste of wine, while consuming 0% alcohol. The wine drinks still use key ingredients and flavors like syrah, merlot, and sauvignon blanc.
Recently, Leading Brands announced its intent to hold a dutch auction to tender up to $800,000 of its outstanding shares. After preliminary findings, the company will now be buying 259,854 shares at a price of $4.10 each. The deal is good for $1.1 million worth of stock and will retire 8% of outstanding shares. After this deal, Leading Brands will still have $588,990 left in share buybacks.
First quarter revenue was $4.9 million, vs. $5.3 million in last year's first quarter. Revenue was negatively impacted by wetter weather conditions in Canada, changes in packaging sizes, and shortening of order lead times before the summer season. Net income was $411,000, a decrease from last year's $448,000. Earnings per share were reported as $0.13. The company also has $1 million in cash and less than $350,000 in long term debt.
Leading Brands has a small market capitalization of $12.7 million, and is thinly traded with average volume in the thousands. Shares were unchanged on Thursday's earnings report and sit at $3.92. There is minimal analyst interest in the stock and any analyst action could send shares much higher. The company could also become a takeover target. Here is a list of possible takeover targets:
· Coca-Cola (KO) - Coke made a big splash in the juice market by acquiring Del Valle last year, a large juice company in Latin America. Coke is always looking for brands that could boost sales and international sales. With natural ingredients, Pure Blue drinks could sell well overseas with a better distribution system.
· Pepsi (PEP) - Pepsi owns brands like Tropicana, Dole Juices (licensed), and Naked Juice, an integration of Leading Brands juice portfolio would be a natural fit.
· Campbells (CPB) - Campbells just acquired Bolthouse Farms for $1.55 billion. The company now has a huge share in the drink market with V8 and Bolthouse helping the company dominate the vegetable drink market.
· Nestle - Nestle owns Juicy Juice and is one of the largest food and drink companies in the world.
· Cott (COT) - Cott is a smaller beverage company that could greatly benefit from a deal for Leading Brands assets.
· Kraft (KFT) - Kraft has assets like Country Time, Tang, Capri Sun, Crystal Lite, and Kool Aid. The company is trying to shift to healthier juice options like Capri Sun 100% Juice. Although the pending split of shares is likely not leading to acquisition interest right now.
· National Beverage (FIZZ) - Known as an off label soft drink company, National Beverage also has a brand called Clear Fruit. The company could expand its non carbonated beverage options through a deal here.
· Dr. Pepper (DPS) - Dr. Pepper Snapple distributes Welch's and Mott's throughout its network of brands. The company, which plays third wheel to Coke and Pepsi, could benefit through growing its non carbonated beverage offerings.
The Campbell's acquisition could be the beginning of a buyout market in drink offerings. Pop companies and food companies continue to expand their offerings in natural products to cater to customer interests. The TrueBlue brand and other offerings from Leading Brands could be a huge expansion plan for a larger rival.
Leading Brands' shares are underfollowed and thinly trading, setting up the potential for a breakout stock. Any investor interest, increased earnings, or buyout interest, could send shares much higher. Even without a buyout, Leading Brands shares are a buy here as they continue to expand their product offerings and distribution model.