Are These 3 Snack Companies Worthy Investments?

A good brand creates identity for a company's products, serving as a magnet for consumers and creating demand that increases revenue and fuels superior shareholder returns. Let's take a look at three snack companies to see if they belong in your portfolio.

The ultimate brand portfolio
Snack and beverage company PepsiCo (NYSE: PEP  ) owns one of the most well-known portfolio of brands in the world, including: Pepsi, Frito Lay, Quaker, and Gatorade.  Familiarity with these popular brands stirs a desire to buy these products.

Despite the huge size of the company in terms of revenue ($29 billion so far in 2013) its portfolio of brands still serves as a draw for consumers, with revenue growing 2%. The company raises prices and they still keep coming .

You may argue that brands don't solve all problems and you're right. An increasingly health conscious consumer base serves as friction in its American carbonated soda segment. In the PepsiCo Americas Beverages segment, organic revenue without the effects of currency, acquisitions, and divestitures declined 1% in its most recent quarter.

Currently snacks serve as PepsiCo's strength, with its Americas Foods' division growing organic revenue 6% in the most recent quarter.

Investors should pay attention to the consumer shift away from traditional sodas and how PepsiCo adapts its product strategy in healthier drinks and snacks.

Icee anyone?
J&J Snack Foods
  (NASDAQ: JJSF  )  sells branded items such as ICEE and Luigi's frozen beverages along with Superpretzel and Churros, a Mexican snack .

A strong brand portfolio resulted in market beating returns of 141% for shareholders over the past five years. Ironically, even though Icee represents one of the company's most well-known brands it belongs to the company's weakest segment, frozen beverages, which grew only 4% .

The power of strong brands led J&J Snack Foods to purchase Kim & Scott's Gourmet Pretzels . So far in 2013, pretzels and churros  represent its highest growing products . 

Fundamentally, J&J Snack Foods improved operating margins 130 basis points for the year due to higher volume and lower ingredient costs . Revenue increased 7% due mainly to robust pretzels and churros growth .

Restaurants wanting to use pretzel buns to differentiate products will serve as a catalyst for growth. Look for this company to continue to capitalize on pretzel momentum and ride the churros wave. Also, look for J&J Snack foods to leverage brand name recognition to improve its beverage segments.

Flawed strategies?
You may recognize Snyder's-Lance  (NASDAQ: LNCE  )  famous sandwich crackers and its Cape Cod potato chip brand.

Snyder's-Lance is in the process of abandoning some of its brands, which may not represent a good idea for a snack foods company that wants to grow. In its most recent quarter, it suffered an impairment charge of $1.9 million in connection to one of its trademarks . 

Another weakness stems from private label brands. Year to date, private brands comprised 16% of the company's overall revenue. Price increases in this segment led to a 74 basis point drop in revenue.

However, operating margins improved 139 basis points due to efficiency gains from its Snack Factory acquisition. Snyder's-Lance's revenue grew 8% year to date .

Snyder's-Lance new product releases planned for 2013 include variations on its sandwich crackers, cookies, and wafers. Moreover, its acquisition of Snack Factory should provide additional market opportunities .

New products and acquisitions should provide consumer engagement and serve as catalysts for future top and bottom line growth. However, its trademark writedowns represent an issue worth watching.

Conclusion
On the whole, PepsiCo represents the best bet here due its ubiquity and strong portfolio of brands. J&J Snack Foods will continue to capitalize on strong pretzel demand and brand recognition stemming from well-known names such as Icee and Luigi. Snyder's-Lance harbors some issues such as its writedown of trademarks, indicating that it may be giving up on valuable brands. However, product innovation and acquisition of Snack Factory may prove its saving grace.

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