B&G Foods, Church & Dwight
-- >>> Three Growing Companies Building Powerful Brands
By Reuben Brewer
June 19, 2013|
Tickers: BGS, CHD, JNJ http://beta.fool.com/reubengbrewer/2013/06/19/brand-extension-experts/37556/?source=eogyholnk0000001
B&G Foods (NYSE: BGS) just announced plans to buy Robert's American Gourmet Food, best known for its Pirates Booty brand. This is likely to be another in a long series of solid acquisitions for this brand extension expert.
Little Company, Big Brands
B&G started life with a collection of smaller brands that are dominant in their niches. Pickles and molasses are two examples. The company, however, quickly ramped up its acquisition machine. The first real headline-grabbing transaction was buying Cream of Wheat from Kraft in early 2007.
At Kraft, this breakfast mainstay was an all but forgotten brand. At B&G, however, it was an important growth driver. Cream of Wheat's new owner launched new flavors and spruced up its image. Sales quickly responded, and Cream of Wheat went from a dying product at a big company to a growing one at a small company.
Robert's American Gourmet Food is privately held and relatively small. That means it should quickly benefit from B&G's relationships in the retail industry. And, B&G is likely to invest in product extensions, building out the Pirate brand from its current lineup of just three snack offerings.
B&G's acquisition model has led to solid growth over the last decade. The top line has almost doubled over that time, going from about $325 million to around $630 million last year. And the company is still small enough that it can pick off smaller unwanted or unloved brands, resuscitate them, and see a big impact on the top and bottom lines--just like it did with its 2011 purchase of Mrs. Dash from Unilever.
The small company has increased its dividend in each of the last two years. The shares yield around 4%. Although its size increases risk, it is a good option for income investors looking for a food stock.
Not the Only Expert
B&G, however, isn't the only expert at brand extensions. For example, Church & Dwight (NYSE: CHD) has been able to take Arm & Hammer Baking Soda and branch out into everything from kitty litter to toothpaste. It's that type of outside the box thinking that's led the company's top and bottom lines higher every year for the past decade.
And the late 2012 addition of Avid Health looks like it could continue that trend. Avid is an already dominant player in the gummy vitamin market. Most would consider gummy vitamin's to be a child's product, but more and more adults are taking the healthy treats. With the aging baby boomers increasingly concerned about their health, moving beyond basic vitamins shouldn't be too hard.
While Church & Dwight shares aren't cheap, the stock has traversed a steady upward climb that is nothing short of impressive. The shares only yield around 1.8%, so income investors should look elsewhere, but those seeking growth should definitely consider them.
A Growth & Income Option
Another company that's known for buying, integrating, and building brands is health care and consumer products giant Johnson & Johnson (NYSE: JNJ). The most obvious area where the company has done this is in its consumer arm.
For example, Aveeno's oatmeal wash was pretty much a niche industry player before Johnson & Johnson bought it in 1999. Since that time, the Aveeno line has been extended with new products and received the benefit of JNJ's marketing might. An acquisition machine, JNJ tries to do similar things throughout its business.
The more recent purchase of Synthes is an example on the medical device side of the business. This buy extends the company's position in selling devices to treat trauma victims. It shouldn't take too long before JNJ starts to bring out new products, though the medical focus means that most investors won't realize it.
Although JNJ is often priced at a premium, it has been trading at reasonable levels of late. Concerns about consumer product recalls and drug patent expirations, however, have begun to abate. So, investors seeking a mix of growth and income from a household name should take a look.
Indeed, the company's around 3% dividend yield and long history of annual dividend hikes are truly compelling. Sales, meanwhile, look like they are back in growth mode after dipping during the 2007 to 2009 recession.
It's hard work to build brands and not every company is good at it. B&G's niche is taking on older brands that need a little love; It's a role in which it has excelled. Church & Dwight and JNJ, meanwhile, are two larger options that have long histories of success building brands. While their larger sizes limit the impact on the top and bottom lines to some degree, it also helps makes them safer investment options.
Involved in everything from baby powder to biotech, Johnson & Johnson's critics are convinced that the company is spread way too thin.