Hillshire Brands, J&J Snack Foods, and Lance: 3 Companies to Watch

These three relatively obscure food companies may provide some good investment potential.

Feb 15, 2014 at 7:30AM

Food companies Hillshire Brands (NYSE:HSH), J&J Snack Foods (NASDAQ:JJSF), and Snyder's-Lance (NASDAQ:LNCE) represent good places to start when looking for a worthy investment. It's obvious these companies fall the under the radar in terms of Wall Street excitement; however, investors can find good companies by looking in the proverbial attic of obscurity. The market caps of these companies reside in the mid-cap range, which suggests they possess room to run via product innovation and geographic expansion. Investigating what these companies sell, their financials, and strategy will aid investors in assessing their future potential as investments.

A meat-focused business
Hillshire Brands sells meat products under iconic labels such as Ball Park, State Fair, Jimmy Dean, and Hillshire Farms. In the most recent quarter, products from Jimmy Dean and Aidells showed considerable strength. People seem to enjoy Jimmy Dean's frozen breakfast sandwiches and Aidells' meatballs. Jimmy Dean's convenience sausage also gave the company a boost in its food service markets. Overall, Hillshire Brands grew revenue and net income 2% and 77%, respectively, with bottom-line growth coming from cost-cutting measures in the most recent quarter. However, investors may want to pay attention to Hillshire Brands' balance sheet, which harbors debt equating to 148% of stockholder's equity. The company paid out 34% of its year-to-date free cash flow in dividends. Currently, it pays $0.70 per share per year, translating into a dividend yield of 2%.

Pretzel mania
J&J Snack Foods manufactures and sells snacks and beverages under names such as Readi-Bake Superpretzel, The Funnel Cake Factory, Icee, and Luigi's. The soft-pretzel craze in fast-food restaurants helped drive robust growth in J&J Snack Foods' food service business and its overall business in the most recent quarter. J&J Snack Foods is building out manufacturing capability in "anticipation of continued growth" in demand for soft pretzels as restaurant chains experiment with pretzel buns for their burgers and more. In the most recent quarter, J&J Snack Foods grew revenue and net income 6% and 22%, respectively.  It sits on $106 million in cash on its balance sheet, representing 20% of stockholder's equity, with a minuscule long-term debt balance. Last year, J&J paid out 22% of its free cash flow in dividends. Currently, the company pays $1.28 per share per year in dividends, yielding 1.5%.

Potato chips and crackers
Snyder's-Lance sells snacks such as potato chips, crackers, and pretzel crisps under the names of Snyder's of Hanover, Cape Cod, and of course, Lance. The company drives growth by investing in innovation, capacity, quality, and marketing. Last year, Snyder's-Lance's revenue and net income grew 9% and 33%, respectively. Balance sheet-wise, Snyder's-Lance maintains a low cash balance equating to a mere 1.5% of stockholder's equity; however, it lowered its long-term debt balance by 7% during the same time frame. Snyder's-Lance's dividend to free cash flow equated to 59% last year. Currently, the company pays its shareholders $0.64 per share per year and yields 2.5%.

Foolish takeaway
Product differentiation such as Hillshire's Jimmy Dean's flatbread should provide plenty of potential for that company. The pretzel bun craze should drive increasing cash flow for J&J Snack Foods, translating into capital gains and dividend increases for that company. For Snyder's-Lance, look for continued commitment to product quality resulting in distribution gains and ultimately profits for its shareholders. Feel free to add these companies to your Motley Fool Watchlist to track their progress.

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William Bias has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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