Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Acquisitions – A Shortcut To Achieving Rapid Growth

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

These days, women are becoming more and more career-oriented, and the ratio of women leaving home for work is increasing day by day. This has lead to an increase in the demand for packaged food items due to their ease of usage and reduced preparation time for time-constrained consumers. In addition, the gradual economic recovery we're experiencing will raise the demand for natural food items as the disposable income of consumers increases. Foreseeing this trend, many companies in the industry are opting for acquisitions as a shortcut to achieving quicker growth.

Recently, J. M. Smucker (NYSE: SJM  ) took over Enray in order to extend its natural foods product range in the U.S. In the following article, I will examine the implications of this acquisition, and I will also comment on the current status of JM's competitors, Campbell Soup (NYSE: CPB  ) and ConAgra Foods (NYSE: CAG  ) .

The expected synergies from the acquisition of Enray

The acquisition of Enray widens the existing natural foods product range offered by Smucker, and further strengthens its market position in the natural and organic beverages market. This combination is strategically compelling, as the privately-held company makes organic, gluten free ancient grain products, including pastas and cookies, which are mainly sold under its brand truRoots. Enray's products will complement the products supplied by Smucker's, which includes fruit spreads, packaged coffee, peanut butter, ice cream toppings, condensed milk and natural foods.

The addition of Enray will provide Smucker with an excellent opportunity to take part in the gluten-free food category, which is expected to have great future prospects. Smuckers also looks forward to utilizing its established infrastructure to spread the reach of Enray's truRoots brand, in order to increase its sales revenue.

Financial impact

Enray has generated $45 million in sales in the last twelve months. Staying conservative and assuming the sales figure will only increase by the current U.S. inflation rate and U.S. GDP growth rate of 1.96% and 1.7%, respectively, Enray will add a minimum of $46.66 million to the top line of Smucker in the next twelve months. Applying the net margin (ttm) of 9.2%, this acquisition is projected to add $4.29 million, or $0.04 per share, to the company's earnings in the coming twelve months.

The market position of rivals

Campbell, a key player in the packaged food industry, has recently made two acquisitions. The company acquired the Kelson Group to enhance its international foothold and to capture a larger chunk of the baked snacks growth potential in China. Kelson is the market leader of sweet cookies in China, where its sales have grown at a CAGR of 28% in the last three years. The acquisition has added a well established brand, Kjeldsens, to Campbell's balance sheet. Campbell's marketing and supply chain expertise will help Kelson's high quality snacks expand its reach in existing and new markets.

Campbell also took over the market leader of organic baby food, Plum Organics, in June 2013. The company looks forward to devoting its resources to this premium-priced organic food category in order to enhance the Plum brand's market presence.

ConAgra is another company operating in this industry. The company acquired Ralcorp Holdings, one of the largest packaged food companies in North America, in the beginning of FY 2013. The synergies resulting from this takeover are expected to fully materialize by the end of FY 2017. On comparable grounds, the diluted EPS is expected to be $2.40, up from $1.85 in FY 2014. The double-digit growth in the consumer foods segment, along with the substantial earnings contribution from Ralcorp, were the drivers of this 30% increase in earnings. The company is also looking forward to realizing pre-tax cost synergies of $300 million by 2017.


In the midst of the current market dynamics, Smucker has taken the right step by acquiring Enray to widen its product portfolio. The company's forward P/E is projected to be 15.7 times, compared to the industry average of 19.2 times. This indicates a return potential of 22.29% in this undervalued stock. The company is also expected to raise its dividend yield to 2.15%, from 1.99%, in 2013.

The recent acquisitions by Campbell ensure a bright future for the company. Although the company's leverage level is quite high, with its debt to equity currently reported at 2.2x, compared to the industry average of 1x, it is efficiently utilizing the funds to generate an exorbitantly higher ROE (ttm) of 57.4% in an industry where 21.6% is the normal ROE level. The company also provides a regular income stream to its shareholders and is expected to raise its dividend yield to 2.55%, from 1.28%, in 2013.

As per the statistics released by the management of ConAgra, the company's diluted EPS will grow at a minimum of 10% during FY 2015-17. However, keeping in view the industry average ROE of 21.6%, the company's current ROE (ttm) of 16% and the future earnings increase is an insufficient return for investors who can rather invest in Campbell.

The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.

Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2617276, ~/Articles/ArticleHandler.aspx, 9/26/2016 6:54:06 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 2 days ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:02 PM
CAG $43.55 Down -0.04 -0.09%
ConAgra Foods CAPS Rating: ****
CPB $54.89 Down -0.50 -0.90%
Campbell Soup CAPS Rating: **
SJM $137.18 Down -0.69 -0.50%
J.M. Smucker CAPS Rating: *****