KANSAS CITY — After advancing for a remarkable nine consecutive years, the Grain-Based Foods Share Index tumbled in 2018, sustaining a double-digit decline. The index, compiled by Milling & Baking News, fell more sharply than broader market indices.
At 21532.24, the Grain-Based Foods (G.B.F) Share Index ended 2018 down 11.8% from the record close of 24413.16 in 2017. The 2018 close was down 17% from the all-time high for the G.B.F. index, 25802.4, reached in April 2017.
With an 11.8% decline for the year, grain-based shares were weaker than the S.&P. 500 index, down 8.5%; the Dow Jones average of industrial shares, down 5.6%; and the Nasdaq composite index, down 3.9%.
Of the 10 S.&P. sectors, the G.B.F. index underperformed six: health care, up 6.2%; utilities, up 4%; discretionary, up 1.5%; technology, down 1.7%; telecommunications, down 6.1%; and staples, down 8.2%. Sectors performing worse than the grain-based index were energy, down 18.4%; materials, down 15%; industrial, down 13.3%; and financials, down 13.2%.
Among 22 companies within the Grain-Based Foods Share Index, only 5 managed to squeak out a share price gain in 2018 while 17 lost ground.
The largest advance in 2018 was posted by Bridgford Foods Corp., Anaheim, Calif. The smallest company in the index as measured by market capitalization ($195 million), Bridgford shares jumped 57.1% in the year, after gains of 13% in 2017 and 32% in 2016. The company’s grain-based products include bread, rolls and biscuits sold to food service customers and ready-to-eat sandwiches and bread and rolls sold at retail. In 2018, shares surged in the last 3½ months of the year, just about when the rest of the market moved sharply lower. The strong share price performance was not mirrored by the company’s year-to-date financial results. In the first nine months of 2018, Bridgford Foods net income was $4,455,000, down 24% from the year before. Sales were up 6%.
The second-widest gain within the G.B.F. index last year was posted by Lancaster Colony Corp., Westerville, Ohio, up 36.9% versus the company’s 9% decline in 2017. In 2016, Lancaster Colony’s first year in the index, its shares gained 22%, after advances of 23% in 2015 and 6% in 2014. Active in 2018, Lancaster Colony acquired Omni Baking Co. in November and Bantam Bagels L.L.C. in October. Early in the year the company issued a voluntary recall of frozen biscuits because of potential contamination with Listeria. Like Bridgford, the company’s reported financial results did not keep pace with Lancaster Colony’s stock price. In the year ended June 30, operating income was down about 11%, adjusted for special items. Sales were up 1.8%. Stronger results were recorded in the first quarter of fiscal 2019.
Lamb Weston Holdings, Inc., Eagle, Idaho, ranked third in share price performance with a 30.3% advance in 2018. In 2017, Lamb Weston shares were up 50% (though the company is not included in the G.B.F. calculation). The company’s stock price has jumped 128% since it was spun off by Conagra Brands, Inc. in October 2016 at $32 per share. In its fiscal 2019 first quarter ended Aug. 26, Lamb Weston’s earnings rose 29%, bolstered by strong demand for frozen potato products and tight manufacturing capacity, a situation the company’s chief executive officer predicted would persist throughout the fiscal year. Of concern during the summer was the condition of the European potato crop. In December, Lamb Weston announced it had acquired Marvel Packers Pty Ltd., a frozen potato processor headquartered in Hallam, Victoria, in Australia.
Post Holdings, Inc., St. Louis, was the only other company in the Grain-Based Foods Share Index to post a double-digit share price gain in 2018. The advance of 12.5% last year followed a decline of 2% in 2017. In 2016, Post once again was the industry’s fourth best performer, with a 31% gain. The year before that, Post shares were up 47%, the second highest advance. Post enjoyed strong financial results in the fiscal year ended Sept. 30, 2018. Adjusted for special items, the company’s net earnings were up 47% from the year before. Adjusted EBITDA for the company’s Post Consumer Brands division edged downward during the year. In November, Post said it was planning to spin off its Active Nutrition business through an initial public offering. The transaction is expected to be completed in the second half of fiscal 2019.
Other grain-based companies to end the year with share price gains were TreeHouse Foods, Inc., Oak Brook, Ill., and Archer Daniels Midland Co., Chicago. Shares of TreeHouse Foods ended the year up 2.6%, in contrast to a 32% decline in 2017 when TreeHouse ranked at the bottom of the Grain-Based Foods Share Price Index. In fact, 2018 was the first year in the last four in which TreeHouse shares ended in the black for a year. In 2016 the company’s shares fell 6%, and in 2015 the company’s share price fell 8%.
In an investor day presentation in December, TreeHouse’s executive team unveiled a new organization structure aimed at making it easier for customers to do business with the company. Explaining the rationale behind the change, Maurice Alkemade, chief strategy officer, said, “We’re complicated. We go to an average retailer with five or six divisions, not necessarily as one TreeHouse. The organization that we’re moving to is going to be far more centralized, more focused on retailers.” Also in December TreeHouse said it was considering selling its poor performing Flagstone Foods division. Acquired in 2014 for $860 million, the business is a manufacturer of snack nuts, trail mixes and dried fruits. Earlier in the year the company made numerous other internal changes, including reducing its data analytics programs to 3 from 13, streamlining its supply chain footprint to enhance efficiencies and a major stock-keeping unit rationalization program.
The sixth strongest performer in 2018 was ADM, up 2.1%. ADM shares were down 12% in 2017 but up 24% in 2016. ADM shares have roller-coastered for the last several years, down 30% in 2015 but up 20% in 2014 and up 59% in 2013. In the company’s most recent quarter, financial results were boosted by “robust global demand,” said Juan Luciano, chairman and c.e.o. Early in the year, ADM said it was realigning its business segments into four units: Carbohydrate Solutions, Nutrition, Oilseeds and Origination. The company said the new segments better reflect its operating structure and will allow ADM to further highlight the differences in its product and service offerings. Previously, its business segments were Agricultural Services, Corn Processing, Oilseeds Processing and Wild Flavors & Specialty Ingredients. The change became effective May 1.
Ten companies in the G.B.F. index sustained share price declines of 20% or greater. The weakest share price performance in 2018 was posted by The Hain Celestial Group, Inc., Lake Success, N.Y., down 62.6%. Hain Celestial’s plunge last year followed a gain of 7% in 2017 but drops of 3% in 2016 and 31% in 2015. Early in the year the company said its U.S. businesses were struggling, even as its international operations performed well. Over the course of the year, major changes were instituted at the company. In June, the company’s board of directors announced Irwin D. Simon, president and c.e.o., would step aside to become non-executive chairman of the company. Mr. Simon was a founder of Hain 25 years ago. As the year progressed, the company’s struggles continued. In the fiscal year ended June 30, Hain Celestial net income was about $10 million, down from $67 million the year before. In October, Hain Celestial said it had recruited Mark L. Schiller as Mr. Simon’s successor. Mr. Schiller most recently was chief commercial officer for Pinnacle Foods, Inc., Parsippany, N.J. Pinnacle in 2018 was acquired by Conagra Brands, Inc., Chicago.
The second-weakest industry share price in 2018 was a 45% drop by Kraft Heinz, Inc., Pittsburgh. It was the second year in a row for a double-digit stock price decline for Kraft Heinz with a 12% drop in 2017. In 2016, the company’s shares rose 20%. The company’s financial performance was weak through much of the year, and even when executives declared a recovery in top-line results was “firmly underway,” investors reacted on Nov. 2 with a sell-off sending the stock downward by 10%. During the year, the company launched Just Crack an Egg, a line of breakfast products featuring diced vegetables, Oscar Mayer meat, Kraft shredded cheese and Ore-Ida potatoes. In August, the company said its new product pipeline was the strongest in years. In November, the company said it was acquiring Primal Kitchen, a maker of better-for-you condiments, for $200 million. Also during the year Kraft Heinz launched Evolv Ventures, a venture capital fund that is investing in emerging technology companies focused on the food industry.
Nearly as weak a performer in 2018 was Conagra Brands, down 43%. The share price plunge, most of which was recorded near the end of the year, followed a decline of 5% in 2017, a 21% gain in 2016 and a 16% advance in 2015. In June, Conagra announced plans to acquire Pinnacle Foods for about $10.9 billion. Pinnacle’s brands include Duncan Hines, Birds Eye, Mrs. Paul’s and Hungry-Man. Announcing the planned acquisition, Sean Connolly, president and c.e.o. of Conagra, said, “The addition of Pinnacle Foods’ leading brands in the attractive frozen foods and snacks categories will create a tremendous opportunity for us to further leverage our proven innovation approach, brand-building capabilities, and deep customer relationships.” In the first weeks after the acquisition closed, this potential had not yet materialized. Announcing results for the third quarter ended Nov. 25, Conagra said Pinnacle sales fell shy of expectations because of weak demand and the effects of a Duncan Hines product recall.
“Birds Eye, Duncan Hines and Wish-Bone have all suffered sales and distribution losses this past year, and the weakness accounts for the vast majority of Pinnacle’s current challenges,” Mr. Connolly said. “So what happened? Simply put, innovation and execution came up short.” In a 10Q filing with the Securities and Exchange Commission, Conagra said its board has approved up to $290 million in charges in connection with a restructuring plan for Pinnacle.
Following several years of strong gains, shares of Ingredion, Inc., Westchester, Ill., took a tumble in 2018, falling 35%. The stock price decline followed advances of 11% in 2017, 30% in 2016, 13% in 2015 and 24% in 2014. In 2018, the company’s shares fell 10% July 13 when earnings guidance was revised downward and a $125 million cost savings plan was announced. For the year, the company projected profits of $7.50 to $7.80 a share, versus its previous forecast of $7.90 to $8.20. Announcing second-quarter results a few weeks later, James P. Zallie, president and c.e.o., said Ingredion’s North American business was struggling and pledged “aggressive action.” Challenges later in the year prompted the company to cut its full-year earnings guidance for 2018 to $6.80 to $7.05 per share.
Like Conagra, General Mills, Inc., Minneapolis, made a major acquisition in 2018 and saw its share price tumble. General Mills shares dropped 34% in 2018, versus a 5% decline in 2017 and 21% gain in 2016. In February, the company said it was acquiring Blue Buffalo Pet Products, Inc., Wilton, Conn., for about $8 billion. Blue Buffalo is a maker of natural pet foods and treats that had $1.3 billion in sales and $319 million in adjusted EBITDA in its most recent year before the acquisition. General Mills’ share price fell sharply in March in response to disappointing earnings. Jeffrey L. Harmening, chairman and c.e.o., said at the time the company was “moving urgently” to improve profitability by cutting the company’s cost structure to at least reduce the effects of rising input costs, including freight and commodities. In the first half of fiscal 2019, General Mills earnings were down 11%, but Mr. Harmening said the company’s results left it “on track to deliver all of our full-year targets.” The company’s share price drifted steadily downward in the second half of the year but rebounded a bit after the second quarter results were announced.
Campbell Soup Co., Camden, N.J., sustained the sixth-widest share price decline in 2018 and also experienced a year of corporate trauma. The company’s share price fell 32% in 2017 after dropping 21% in 2017. Campbell Soup’s shares were up 15% in 2016 and 19% in 2015. Rumblings of significant change began in March, with the departure of longtime executive Mark Alexander, president of Americas Simple Meals and Beverages. He had been with the company for nearly 29 years. In May, Denise M. Morrison abruptly stepped down as president and c.e.o. and was replaced on an interim basis by Keith R. McLoughlin, a member of the board of directors. A few days later Mr. McLoughlin said “everything is on the table,” regarding a portfolio review and that “there are no sacred cows.” In August, plans were announced to sell the company’s International business as well as the Fresh business that had been a centerpiece of a business transformation during the Morrison era. Meanwhile, the company’s grain-based foods business grew dramatically in 2018 with the completion of an acquisition of Snyder’s-Lance, Inc., Charlotte, N.C., in March for $6.1 billion. The Snyder’s-Lance business was integrated together with Pepperidge Farm in the United States to establish a single snacking unit called Campbell Snacks.
Shares of other major North American grain-based foods companies moved sharply lower during 2018, including Grupo Bimbo S.A.B. de C.V., down 11%, and George Weston Ltd., down 17%.
After undergoing a “deep and meticulous transformation” in 2017, Bimbo launched a restructuring program in 2018 that included a voluntary separation program. The company took a $17 million non-cash charge against earnings during the third quarter ended Sept. 30.
George Weston earnings in the third quarter ended Oct. 6 were down sharply from the same period a year earlier, and operating income of the Weston Foods segment of the business fell 43%. Galen G. Weston, chairman and c.e.o., said in November that Weston Foods results represented an underperformance versus expectations, and that as a result the company was slowing down an ambitious transformation plan for the unit. While asserting a continued commitment to the strategy, Mr. Weston said the company’s intensive focus on the program had adversely affected customer service, cutting into sales. As a result, Weston slowed down its enterprise resource planning implementation, eased up slightly on a stock-keeping-unit rationalization and cut back on capital expenditures.