Ackman-Backed Frozen-Food Firm Aims to Rebound From Stumblesby
Nomad Foods sales, profit slump amid competition, supply woes
Company is ready to seek more deals in U.S., Europe, CEO says
Nomad Foods Ltd., the worst-performing European consumer stock in the past year, is on the hunt for another acquisition as the Bill Ackman-backed company seeks greater scale to stem a decline in sales.
Following two major purchases in 2015, Nomad is looking at frozen-food businesses in Europe as well as other opportunities in packaged foods globally, according to Chief Executive Officer Stefan Descheemaeker. A first foray into the U.S. is also possible.
“Any acquisition in Europe in the frozen-foods arena will be very operational, very strategic,” Descheemaeker said by phone. “Any acquisition -- to start with -- in the U.S. will be by definition, more opportunistic.”
The company, founded by dealmakers Noam Gottesman and Martin Franklin, has so far only made acquisitions in Europe. Iglo Foods Holdings Ltd., the maker of Birds Eye frozen vegetables, cost 2.6 billion euros ($2.9 billion) in April 2015, while Findus Group’s continental European businesses was added later that year for 500 million pounds ($654 million).
Those transactions have yet to pay off, with sales declining in Nomad’s three biggest markets of Germany, Italy and the U.K. The U.S.-listed stock plunged 42 percent in the past year, the worst performance among European consumer-staples companies. The stock closed Tuesday at $11.54.
Nomad, based in Feltham, England, had too much on its plate initially, said Descheemaeker, a former head of mergers and acquisitions at Belgian beermaker Interbrew, now part of Anheuser-Busch InBev NV.
“We were doing too many things at the same time, going in too many directions,” he said.
The yearlong plunge in the stock has cut the value of Ackman’s 18.3 percent stake to about $370 million. Brian Welch, a partner in the billionaire’s fund, Pershing Square Holdings Ltd., said in a July earnings call that they expected Nomad “to continue to improve sequentially throughout 2016.”
Recent signs have been brighter. The sales decline slowed in the second quarter from the previous three months and the company made a profit of 34.9 million euros in the first half, compared with a loss of 541 million euros the previous year.
Nomad plans to focus its resources on four or five products in each market, allocating 75 percent of marketing spend to these “must-win battles,” such as frozen peas in the U.K. and fish fingers in Germany.
Descheemaeker said the strategy is already working, telling analysts on a conference call Thursday that fish-finger sales in Germany are up 22 percent in the second quarter. The company has also refreshed its packaging, according to the CEO, with new designs set to hit the shelves in the second half of the year.
Global deal activity in the food industry reached $170 billion last year, according to data compiled by Bloomberg. But European opportunities in the frozen-food space may be in short supply, according to UBS Group AG analyst Steven Strycula.
Vegetarian food is one area the company may target, according to independent analyst Raphael Moreau. “There’s a lot of companies focusing on vegetarian food and also on organic food which could be good acquisition targets,” he said.