The WhiteWave Foods Co. (NYSE:WWAV) reported record results for the second quarter ended June 30, 2014, driven by continued growth across all platforms.
WhiteWave reported second quarter 2014 adjusted diluted earnings per share of $0.23, a 42 percent increase compared to second quarter 2013, excluding investments associated with its China joint venture. Including joint venture investments, WhiteWave reported second quarter 2014 adjusted diluted earnings per share of $0.22.
Net sales for the second quarter of 2014 were $838 million, a 36 percent increase from net sales of $616 million in the second quarter of 2013. This growth reflects the inclusion of Earthbound Farm and strong organic growth in both the North America and Europe segments. Excluding Earthbound Farm, net sales increased 11 percent due primarily to strong volume growth in both segments.
Adjusted operating income for the second quarter of 2014 increased 53 percent to $71 million, compared to $46 million in the second quarter of 2013.
“We continued to experience strong growth across our businesses in the second quarter, with several of our platforms reporting record revenue,” said Gregg Engles, chairman and chief executive officer. “The increasing cost leverage as a result of our growth, along with the benefits we are starting to realize from the investments in our supply chain, led to strong operating margin expansion in the quarter. We are pleased with our performance and believe our innovative, on-trend and market leading brands will continue to fuel our growth, leading us to again increase our EPS guidance for the full year.”
NORTH AMERICA SEGMENT
WhiteWave’s North America segment consists of four platforms: Plant-based Foods and Beverages, Coffee Creamers and Beverages, Premium Dairy, and Organic Greens and Produce. In the second quarter of 2014, net sales for the North America segment were $710 million, an increase of 38 percent over the second quarter of 2013. Growth in the North America segment reflects the inclusion of Earthbound Farm’s results, and increased net sales across the other North America platforms. Excluding Earthbound Farm, net sales for the second quarter of 2014 increased 8 percent from the second quarter of 2013. Adjusted operating income for the North America segment increased 49 percent to $74 million for the second quarter, compared to the same period in 2013, driven by the addition of Earthbound Farm and by operating margin expansion of 110 basis points from the North America segment’s historical platforms.
Plant-Based Foods & Beverages
In the North America Plant-based Foods and Beverages platform, which includes Silk® soymilk, almondmilk, coconutmilk, and soy yogurts, net sales increased 13 percent in the second quarter of 2014 compared to the second quarter of 2013. Growth in the platform was driven primarily by the continued strong growth of Silk® almondmilk, which increased sales 45 percent in the second quarter 2014 compared to the same period in 2013. The overall Plant-based Foods and Beverages category remained strong with more than 17 percent category growth in the second quarter 2014. WhiteWave’s Silk® brand has the #1 market position in almond, as well as in all of its other product subcategories.
Coffee Creamers & Beverages
In Coffee Creamers and Beverages, which includes coffee creamers and iced coffee under the International Delight®, Dunkin Donuts® and Silk®brands, as well as half and half dairy creamers under the LAND O LAKES® and Horizon Organic® brands, net sales increased 5 percent in the second quarter 2014 compared to the second quarter 2013. Growth was due primarily to increased volumes behind new product introductions and growth of half and half dairy creamers. Volumes in the refrigerated flavored creamer category grew by double-digits in the second quarter, with increased promotional activities lowering the dollar growth of the category to 6 percent.
In Premium Dairy, Horizon Organic® net sales increased 8 percent in the second quarter of 2014 compared to the second quarter of 2013. Growth in the platform was offset by a 1 percentage point impact from the previously communicated exit of certain private label manufacturing arrangements and discontinuation of servicing a national coffee chain. Volume continued to be the primary sales driver due to continued growth in value-added offerings, such as Horizon Organic® DHA Omega-3 and Horizon Organic® Lactose-Free products, along with some contribution from price increases implemented in the fourth quarter of 2013. The organic milk category grew by 8 percent in the second quarter, with Horizon Organic® maintaining its leading market share.
Organic Greens & Produce
In Organic Greens and Produce, Earthbound Farm’s second quarter 2014 net sales were $153 million. Sales were driven primarily by low-double-digit growth in organic packaged salads, which comprises the majority of Earthbound Farm’s business. Organic packaged salads’ share of the total packaged salad category grew by 2 percentage points to 24 percent in the second quarter. Earthbound Farm continues to hold the leading share in the branded organic packaged salad category.
The Europe segment consists of a Plant-based Foods and Beverages platform that operates primarily under the Alpro® brand name. Net sales in the segment increased 26 percent on a reported basis in the second quarter of 2014 compared to the second quarter of 2013, and increased 18 percent on a constant currency basis. Operating income in the segment increased 79 percent to $14 million for the second quarter of 2014, compared to the same period in 2013, with operating margin expansion of 323 basis points.
Net sales growth in Europe was driven by continued strong growth in almond beverages, non-dairy yogurts and creams, as well as low-double-digit growth in soy beverages. Alpro® holds the leading market position across its core Western European geographies, with a composite share of 42 percent.
Management expects net sales growth of approximately 30 percent in the third quarter of 2014, which reflects typical seasonality in Earthbound Farm’s business. Excluding Earthbound Farm, management expects net sales on an organic basis to increase 8 to 9 percent over the balance of 2014. Management continues to expect net sales growth in the low-thirties percent range for full year 2014, consistent with previous guidance.
Management now expects an adjusted total operating income percentage growth rate in the low to mid-forties for both the third quarter and full year 2014, driven by continued strong volume growth, cost leverage and further progress on cost improvement and margin expansion initiatives.
Management is forecasting interest expense in the third quarter 2014 to be approximately $8 to $9 million and continues to expect interest expense for the full year to be approximately $30 to $32 million. WhiteWave estimates an annual tax rate of approximately 35 percent for 2014, with potential for variability in quarterly rates.
Management now expects to deliver adjusted diluted earnings per share between $0.98 and $1.00 for full year 2014, an increase from its previously forecasted range of $0.95 to $0.98, excluding investments in its joint venture in China. Management still anticipates the joint venture in China will result in a reduction of approximately $0.05 per diluted earnings per share in 2014, as operating investments in the joint venture are expected to increase somewhat in the second half of the year. For the third quarter, management expects adjusted diluted earnings per share to range between $0.25 to $0.26, excluding a reduction of approximately $0.02 diluted earnings per share from estimated China joint venture investments. The China joint venture is in the process of being commercialized and there are numerous factors that may impact the amount of WhiteWave’s estimated investment on a quarterly basis, as well as for the full year.
WhiteWave continues to project capital expenditures will be approximately $275 million for the full year 2014. Timing of capital projects may vary and impact the amount of investments actually made in 2014.
“Our second quarter 2014 results reflected strong operating performance all around,” said Kelly Haecker, executive vice president and chief financial officer. “We delivered another quarter of robust topline growth, driven by strong organic growth in North America and Europe, as well as the addition of Earthbound Farm. We are pleased with Earthbound Farm’s solid results, and we now expect this acquisition to deliver at least $0.09 of accretion in 2014. In the quarter, we delivered strong margin expansion across our segments driven primarily by the continued cost leverage from our growth, coupled with the benefits from our past capital investments that are beginning to yield results, as well as some benefits from past pricing actions. We remain focused on increasing our sales and improving our cost structure and look forward to continuing to build on our strong momentum over the balance of the year.”