Source: WhiteWave Foods Co.

Packaged and fresh organic and natural foods seller WhiteWave Foods Co. (NYSE:WWAV) reported financial results for its fourth quarter and full year on Feb. 12, and overall, the results were strong. The highlights:

  • Net sales increased 34% in the quarter, and 35% for the year on strong volume growth.
  • Operating income doubled in the quarter and increased 69% for the year.
  • Currency exchange impacts and investments in China are taking a bite out of earnings.

The business is performing well, but there are a few things investors should note. Let's take a closer look at the key takeaways.

Organic sales (and sales of organics) remains strong 
Over the quarter, organic sales -- meaning growth in businesses owned in the year-ago period -- increased 11% and were up 12% for the year, primarily on volume growth. The only segment of the business that didn't see significant volume growth was premium dairy, where the 11% sales growth was largely driven by price increases.

Management expects this to remain the case in 2015, saying, "Demand for organic milk continues to be at all-time highs and management anticipates 2015 growth in this platform to be primarily driven by price."

Acquisitions look to be paying off

One of WhiteWave's recent acquisitions. Source: WhiteWave Foods Co.

The recently acquired Earthbound Farm brand is experiencing strong sales growth and is already the No. 1 brand in the packaged salads category. WhiteWave management already has plans in place to expand the line-up of packaged salads, as well as frozen fresh fruits and vegetables. The So Delicious brand -- another recent acquisition -- adds to WhiteWave's stable of leading brands, which already included Silk and Horizon, as well as its Land O' Lakes, International Delight, and Dunkin' Donuts coffee creamers and ready-to-drink beverages. 

While it's still early in the story for Earthbound Farm and So Delicious, both products have wide brand recognition in their categories, and demand for non-dairy milks and organic fresh produce continues to grow. 

Chinese venture and currency impacts
WhiteWave's foray into the world's biggest market is just beginning, and in the short term, its joint venture with China Mengniu Dairy Company will impact earnings. Management's guidance for 2015 shows an expected impact of around $0.07 as the company invests in expanding its presence in China. While this will weigh on profitability in the short term, investing in growth in China -- a massive market for milk alternatives -- is a smart move that should pay off in a very big way.

It should also be noted that WhiteWave holds a minority interest in the Chinese JV, with a 49% stake. While this probably won't be an issue, investors should be aware that the company doesn't have a controlling interest in this business -- and that is less than ideal. 

The strong dollar (or weak euro) is also affecting the bottom line. Sales in Europe increased 23% last quarter, but that translated to 15% growth after currency exchange. For the full year, the impact actually flipped, with reported sales up 22%, while constant currency sales actually grew 20%. For 2015, management is expecting foreign exchange to cost the company about $0.05 per share in earnings. 

Combined, foreign exchange and Chinese investment will take a $0.12-per-share bite out of earnings. Investors should keep the long term in mind, here, as foreign exchange impact can swing to the positive as often as it can be a drag, and the investments in China are undoubtedly in the best interest of long-term shareholders. 

Financial housekeeping 
Investors should also note that the company's balance sheet isn't as pristine as it was one year ago. Long-term debt has doubled to $1.5 billion, and cash on hand is halved to $50 million. However, the debt is associated with acquisitions that definitely strengthen the business and should return far more value to shareholders than the cost of the debt.

As to the reduced cash level, WhiteWave holds about $43 million in equity investments as well as cash, while also having significantly more inventory and trade receivables versus the year-ago period. In all, it looks like the difference in cash on hand is more about timing than any real concern about liquidity.

The company also announced a new reporting structure, breaking out the Earthbound Farm business into its own segment, called "Americas Fresh Foods," while putting its other core businesses in "Americas Foods & Beverages" and "Europe Foods and Beverages." For now, China remains part of "Other Items."

Looking ahead 
While the unavoidable impact of taxes and the necessary investments in China will impact profits in 2015, it looks like the company is in great shape going forward. As of this writing -- about 10:30 a.m. on Feb. 12 -- the stock is up almost 7%, so it looks like Mr. Market is also pleased with the company's results and outlook. As long as management can continue to execute on the company's growth and expansion strategy, that's pretty likely to remain the case.