“This acquisition provides us entry into the emerging growth segments of the broader yogurt category. These segments include Greek and Australian, organic and drinkable yogurts, which have been growing at significantly higher rates than the overall category,” Gregg Engles, chairman and CEO of WhiteWave told investment analysts Aug. 7 during the firm’s second quarter earnings call.
Engles acknowledged there are many players in the U.S. yogurt category and competition is tough, but he does not believe it is saturated, yet. Rather, he sees significant room to grow in carefully selected sub-categories.
“There’s a fistfight in this category … because it’s a several billion dollar category that’s still growing in the upper half of the single digits,” and “people perceive there’s a big prize here,” he said. But, he added, “It’s a category that when you compete against other Western marketplaces against the world is still significantly underdeveloped from a U.S. perspective.”
In addition, Engles said, WhiteWave is unlikely to take a hit or go down in the fight because “we’re not in the middle of that slugging it out in the more commoditized parts of the category, where the vast majority of the volume is. But we are trying to pick places in the category that frankly are the highest growth portions of the category and the highest value-added portions of the category that frankly leverage some of our unique capabilities in places where we have differential competitive advantages.”
For example, the company’s existing organic milk supply will complement the organic yogurt well, executives said.
The deal, which is expected to close in the third quarter, also expands WhiteWave’s manufacturing capabilities with the addition of a West Coast production facility that complements the new yogurt plant the company opened last year in Pennsylvania, Engles said.
This in turn will bolster the firm’s supply chain, he added.
He also noted that Wallaby is the leading brand in the natural channel with a loyal customer following. In the last 12 months, it sold more than $45 million, which is a 20% increase from the prior year.
Vega deal closes
The company also announced the same day that it completed the acquisition of Vega on Aug. 1.
Canadian Vega is a plant-based nutritional company that opened the door for WhiteWave to enter the fast-growing nutritional powder and bars category and strengthens its presence in the plant-based food and beverage category.
The on-the-go nutrition category currently exceeds $8.5 billion in the U.S. alone and is growing double-digits, Engles said.
“The plant-based sub-category has been growing even faster at a 15% compound annual rate over the past five years,” and has “significant opportunity for future growth,” he added.
Based partly on the $100 million in U.S. sales, Vega generated in the past 12 months and its more than 60% constant-currency in the first half of 2015, WhiteWave expects Vega to enhances its margins.
Overall business is strong
Acquisitions aside, WhiteWave’s business is strong.
In the second quarter, total net sales increased 10% to 4924 million compared to the same time last year. The total operating income also increased 20% to $85 million, the company reported.
Riding this growth, the company raised its full year guidance to $1.14 to $1.17 earnings per share, the Denver-based firm said.