The Sky's The Limit for WhiteWave Foods

Organic dairy producer WhiteWave Foods is poised to rocket into orbit following its $600 million acquisition of Earthbound Farm, an organic salad and packaged fruits and vegetables purveyor. Like the Colossus of Rhodes straddling the entrance to the ancient city's harbor, WhiteWave will stand athwart the gateway to the growing organic foods market.


There are usually two portals by which consumers enter the organics market: dairy and produce. The Agriculture Dept. says those two segments alone account for 58% of total organic sales in 2012, with fruits and vegetables accounting for 43% and dairy the other 15%. Packaged foods, beverages, and breads and grains have market shares ranging from 9% to 11%. According to the industry analysts at Transparency Market Research, organic food and beverage sales are expected to reach about $188 billion by 2019, a compounded annual growth rate of 15.5%.

Spun off from Dean Foods just over a year ago, WhiteWave recorded sales of $638.5 million last quarter and $2.47 billion over the last 12 months. Earthbound's revenues are expected to exceed $500 million this year, and the dairy producer says it expects the acquisition will add $0.07 per share to its earnings in the first fiscal year after the deal closes, which is expected to happen in the first quarter of 2014.

Unlike the traditional milk market that is experiencing annual declines in volumes sold, organic milk sales are on the rise, hitting $4.4 billion in 2012, a 7% increase over the year before. According to data from Nutrition Business Journal, sales of organic foods reached $26.3 billion last year, up 10.8% from 2011. Dean Foods, on the other hand, saw milk volumes fall 8.5% in the third quarter to 685 million gallons, leading to a 35% drop in adjusted operated income.

The Agriculture Department says total conventional fluid milk sales are down 2.6% year to date as of September, the most current data available, with fat-free milk experiencing the worst of it, falling 8.8% in 2013. In contrast, total organic milk products are up 5.3% with 2% milk up more than 13% this year and whole milk up over 15%.

And the organic produce division is looking just as green with the proliferation of organic grocery store IPOs. Sprouts Farmers Market and Fairway Group Holdings went public earlier this year, Natures Grocers by Vitamin Cottage hit the market last year, and The Fresh Market did so in 2010.

Of course, the granddaddy of organic produce, Whole Foods Market is still plugging away. Though it experienced its slowest increase in same store sales last quarter as a result of the burgeoning grocery choices consumers now have, it still expects revenues to increase between 11% and 13% in 2014. Sure that's down from prior estimates for growth, but it is also a reflection of the maturation of the organics industry.

And that is also reflected by this M&A event. The merger of WhiteWave and Earthbound is really a union of two industry giants, an unparalleled occasion in the world of organic foods, which has a counterculture and small farm image that's as carefully cultivated as the foods it brings to market. WhiteWave, as a titan of the industry, seem to run counter to that, but its opportunities for organic growth no longer seem to be earthbound.

Organic growth opportunities
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John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Fool contributor Rich Duprey owns shares of Dean Foods Company and WhiteWave Foods. The Motley Fool recommends The Fresh Market and Whole Foods Market. The Motley Fool owns shares of Dean Foods Company, WhiteWave Foods, and Whole Foods Market. 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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