WhiteWave Foods Moves Up in Stock-Market Debut

   By Chris Dieterich 
 

NEW YORK--Investors hungry for exposure to the latest natural-foods business ordered up shares in WhiteWave Foods Co.'s (WWAV) $391 million IPO, as the stock notched modest gains in its trading debut.

WhiteWave's stock opened at $19 on the New York Stock Exchange on Friday, up 12% from its initial public offering offer price of $17, making the deal the latest natural- and organic-food IPO.

Shares retreated but were still up 2.3% from the offer price, at $17.50, in recent trading.

WhiteWave--the former natural- and organic-foods unit carved out from dairy giant Dean Foods Co. (DF)--increased the size of its offering by three million shares, to 23 million, and pushed the deal through with a price that was above the expected range of $14 to $16 a share. All told, the value of the deal was 30% higher than expected.

The company sells Horizon Organic milk and dairy products, Silk brand soy, almond and coconut milks, and International Delight flavored coffee creamers in North America. In Europe, which generates about one-fifth of WhiteWave's sales, the company sells some of those items under its flagship Alpro and premium Provamel brands.

WhiteWave-Alpro had long been considered the most valuable part of Dean Foods. The company's standard dairy products and vast private-label business are more vulnerable to volatility in commodity prices and a long-running slowdown in consumers' appetites for standard dairy products.

Analysts covering Dean Foods are cautiously optimistic about WhiteWave's potential, forecasting sales growth significantly above that of Dean.

"Fluid milk profits tend to ebb and flow with commodity costs," said Erin Lash, an equity analyst at Morningstar Inc. "WhiteWave has shown higher growth that's also more consistent," she said.

WhiteWave's business drives greater profit margins than those of Dean's nonorganic daily products, and organic milk generally commands an average price per gallon that is greater than its nonorganic alternatives.

WhiteWave booked net income of $91 million in 2011, up 12% from a year earlier, on revenue of $1.9 billion. Sales have risen 64% since the year that ended in 2007, at a compound annual growth rate of 14%.

"The increasing domestic interest in clean eating and 'whole living' should attract investors to this stable, steady-growth retailer," said Scott Sweet, senior managing partner at IPO Boutique, ahead of the listing.

WhiteWave's highest growth is likely to come from its "plant-based" foods and beverages, meaning its soy, almond and similar offerings, the company said. In part, this is because of lower input costs.

Dean Foods' long-time chairman and chief executive, Gregg Engles, will become CEO of Broomfield, Colo.'s WhiteWave. Mr. Engles will step down as Dean's CEO but remain chairman there. Taking the helm at Dean will be Gregg Tanner, president of Dean's fresh dairy direct division.

In the U.S. and Europe, WhiteWave's sales of plant-based products enjoyed 8% annualized growth from 2009 to 2011, according to regulatory filings. Within that niche, almond-based beverages were the fastest-growing segment, with sales rising 170% on an annualized basis.

Shares in the natural-foods sector have been hot of late. Shares of Annie's Inc. (BNNY), which makes products such as organic pasta, have more than doubled since the company's March IPO.

Shares of Natural Grocers by Vitamin Cottage (NGVC), which operates health-food stores that sell organic products and dietary supplements, have climbed by about one-third since their July IPO.

WhiteWave's brands are big players in the natural-foods space, with Silk holding a roughly 58% market share, according to WhiteWave's prospectus, but the market for such products is highly competitive.

WhiteWave warned in its filing that packaged-foods rivals such as France's Danone SA (BN.RF, NANOY), Kraft Foods Inc. (KRFT), Nestle SA (NESN.VX, NSRGY) and General Mills Inc. (GIS) have significant marketing arsenals to develop their own competing brands. WhiteWave must also contend with organic packaged-foods companies such as Hain Celestial Group Inc. (HAIN). Private-label competitors, meanwhile, stand to undercut WhiteWave on price, WhiteWave said.

The company also noted it is heavily reliant on a few customers. WhiteWave's largest customer is Wal-Mart Stores Inc. (WMT), which accounted for 17% of total net sales in 2011.

WhiteWave will transfer net proceeds from the IPO to Dean Foods. Separately, in connection with the offering, WhiteWave will take on about $885 million in new debt, or about three times its 2011 earnings before interest, taxes, depreciation and amortization.

The company's dual-class share structure entitles holders of Class A shares to one voting right per share, compared with 10 for each holder of Class B shares. Dean Foods will own none of the Class A stock and all outstanding shares of Class B common stock, which will give Dean Foods a roughly 88% stake in the company and about 99% of the voting power on matters submitted to shareholders.

J.P. Morgan Chase & Co., Credit Suisse AG and Bank of America Merrill Lynch served as lead underwriters.

Kelsey Gee, Marshall Eckblad and Ben Kesling contributed to this article.

Write to Chris Dieterich at [e-mail].

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