3 Stocks to Benefit From the Organic-Food Opportunity

Organic- and natural-food demand has been growing thanks to the diminishing use of industrial fertilizers, the support of local farmers, environmental concerns, food safety, animal welfare, and increased health awareness. This trend has vaulted Whole Foods Market to the top of the organic-grocery food chain.

The U.S. organic-food market is expected to grow at a compound annual growth rate, or CAGR, of 14% from 2013 to 2018. As the battle for market share heats up in the organic- and natural-products segment, companies go out shopping for growth, and United Natural Foods (NASDAQ: UNFI  ) , Hain Celestial (NASDAQ: HAIN  ) , and Annie's (NYSE: BNNY  ) have been doing the same.

United Natural continues its run
United Natural Foods had a good start to fiscal 2014. Last year, the company acquired certain assets of three distributors. During the first quarter of fiscal 2014, United Natural also inked a deal to acquire Trudeau Foods, a Minneapolis-based distributor of natural, organic, and specialty-food products, and the company now has plans to build a new facility for Trudeau.

United Natural Foods' four acquisitions made in the past year, including Trudeau Foods, contributed $10.7 million to the company's first-quarter revenue, which increased 13.6% year over year to $1.6 billion and was inline with consensus estimates. Excluding these four acquisitions, net sales increased by $181 million, or 12.9%. Its adjusted diluted earnings per share grew 21.7% versus the same period last year and came in at $0.56, beating the consensus estimate. Hence, the acquisitions made by the company are proving to be good growth drivers.

Hain Celestial: the serial acquirer
Hain Celestial has also been on a shopping binge for quite some time, acquiring businesses in an attempt to grow aggressively in the organic- and natural-products market. Recently, it announced the acquisition of U.K.-based basmati rice business Tilda , a company founded in 1972 and the first company to bring basmati rice to the Western world.

Rice products are gluten-free and do not contain genetically modified organisms. Hain plans to develop the Tilda brand in the U.S., and it expects to boost earnings by $0.06 to $0.10 per diluted share in the second half of fiscal 2014. Moreover, it provides Hain Celestial a perfect platform to expand its reach further into the international markets and thus drive growth going forward.

Hain's acquisition of Tilda came on the heels of another acquisition. Earlier last year, Hain acquired Ella's Kitchen Group . Ella's Kitchen had generated revenue of $70 million in fiscal 2012, and it is expected that this will fuel earnings growth by $0.05 to $0.08 per diluted share from fiscal 2014 onward. Hain Celestial continued its terrific run of 13 straight quarters of double-digit profit growth and posted stellar numbers in its fiscal 2014 first-quarter report, registering more than a 26% rise in earnings per share to $0.52 per share. Going forward, the company expects sales to jump 17% and earnings to be in the range of $2.95 to $3.05 per share -- a 16% to 20% year-over-year gain.

Annie's is doing it differently
Annie's doesn't follow the acquisition path like Hain Celestial and United Natural Foods, and its growth is less inorganic in nature. Annie's second-quarter revenue soared 24% as compared to the same period last year, and this was fueled by 22% year-over-year growth in consumption of Annie's products at the retail level. More than acquisitions, Annie's is focusing on growth through its key 33 items. With most sales channels carrying just 13 out of its 33 key items, there's ample room for growth going forward.

However, Annie's acquired a plant for $6 million from a subsidiary of Safeway. This plant has been the primary manufacturer of cookie and cracker products since the introduction of Cheddar Bunny more than 10 years ago. This acquisition will allow Annie's to more than triple its current cookie and cracker production volume, and thereby gain from the inherent advantages of economies of scale and also push its snack business aggressively.

Bottom line
United Natural and Hain are focusing on acquisitions to grow their businesses. On the other hand, Annie's is focusing on inorganic growth and is looking to boost production. All companies have performed well and have room for growth going forward due to the opportunity in the organic-food market. Hence, investors looking to profit from this market should definitely take a look at these three players.

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