3 Stocks Investors Bought in the Second Quarter

Why did investors flock to Hillshire Brands, Hanesbrands, and Skechers in the second quarter?

Jul 6, 2014 at 7:00AM

Source: Skechers

The second quarter has drawn to a close, and three consumer-goods companies ended the period with sizable share-price boosts. Investors shopped Hillshire Brands (NYSE:HSH) and Hanesbrands (NYSE:HBI) because of pending acquisitions and shoe company Skechers (NYSE:SKX) based on appearances in two historic sports events.

What were the stories behind the stock stories investors loved this quarter?     

Hillshire's food fight 
Hillshire Brands was up 69% in the quarter and led the month of May as one of the most shopped consumer stocks. The boost came from an acquisition battle that began innocently enough when Hillshire made a bid for Duncan Hines and Hungry Man owner Pinnacle Foods -- a move that was quickly jeopardized when fresh-meat producer Pilgrim's Pride (NASDAQ:PPC) made a $6.4 billion cash offer -- or $45 per share -- for Hillshire.

Pilgrim's Pride was then topped by Tyson's offer of $6.18 billion, or $50 per share. Hillshire sat back to consider its options, accepting a binding second bid from Tyson valued at $8.55 billion. Pilgrim's might've dropped out of the race, but Pilgrim's share price still saw a 39% lift during the quarter, while Tyson finished down nearly 13%.

Skechers went to the races 
Skechers was up more than 30% thanks to a pair of high-profile races. The company first made headlines in April when Boston Marathon winner Meb Keflezighi won wearing shoes from Skechers' up-and-coming GoRun athletic shoe line. Keflezighi has long had a partnership deal with Skechers, but his Boston Marathon win had the most attention in the race's history due to last year's bombings. 

Headlines touted Skechers' place in the win and raised questions about whether the company was now positioned to create serious competition for traditional athletic-shoe companies such as Nike

Skechers' other high-profile racing move came in early June when the company sponsored racehorse California Chrome ahead of the Belmont Stakes race. California Chrome had already won the Kentucky Derby and Preakness Stakes, which made the Belmont a bid for the Triple Crown. The Triple Crown potential gained the event additional attention, and California Chrome and team were bedecked in Skechers-branded materials. California Chrome ended up falling short at Belmont with a fourth place finish, but Skechers still received some high-profile press.

Hanesbrands reunites with European sister
Hanesbrands shares traded up 30% in the quarter thanks to the announced acquisition of a former sister company. News broke late last month that Hanesbrands will acquire DBApparel for about $545 million in cash. DBApparel holds the European rights to the brands Wonderbra and Playtex, which Hanesbrands markets in other regions, and the brand DIM.

The buy follows last year's acquisition of Maidenform in solidifying Hanesbrands' lingerie market presence worldwide. Hanesbrands and DBApparel were formerly both subsidiaries of Sara Lee -- now known as Hillshire Brands domestically before Sun Capital purchased DBApparel in 2006 and Hanesbrands was spun off into a solo company. 

The company expects the DBApparel acquisition to add $0.25 to earnings per share next year and up to $1 in EPS within the next three to four years. Hanesbrands should also at that point see an additional $875 million in net sales per year and an added $125 million in adjusted operating profit. 

What's next?
The Hillshire and Tyson merger will close by Sept. 24-the last day of Tyson's fiscal year. Tyson will report third-quarter results on Mon., Aug. 4. Analysts expect $9.4 billion in revenue and $0.78 EPS. Tyson has met or beat revenue estimates for four of the past five quarters and missed EPS estimates in two of those quarters.  

Skechers should report second-quarter results in late July. Analysts estimate $509 million in revenue and $0.43 EPS. Skechers has met or beat revenue estimates for the past five quarters but missed on EPS in one of those quarters. 

Hanesbrands should also report earnings before July's end. Analysts estimate second-quarter revenue of $1.4 billion and $1.50 EPS. Hanesbrands has met or beat both metrics for the past five quarters. 

Foolish final thoughts 
Skechers had a solid quarter thanks to its high-profile presence in two historic races, which will prove hard to replicate in another quarter. Tyson and Hanesbrands are better positioned for further growth if the acquisitions of Hillshire and DBApparel, respectively, complete as planned.

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