Dean Foods Co (DF), Lifeway Foods, Inc. (LWAY): Finding Opportunity in the Milk Trade

In its latest fiscal year, WhiteWave reported solid top-line growth, up 13% for the period. Its results gained from both higher volumes and prices, as consumers exhibited a continued willingness to pay up for the health benefits associated with organic products. While WhiteWave’s operating margin was impacted by one-time offering charges, its gross margin reached a five-year high due to lower commodity costs and its greater geographic scale of operations. With plant-based beverages only being consumed by 25% of the domestic population, according to data provider IRI, the company should continue to see gains in the future as it converts more people to its product lines.

Investors looking for value in the sector, off the beaten path, might also want to consider Lifeway Foods, Inc. (NASDAQ:LWAY), a leading producer of dairy beverages made from kefir, a drinkable yogurt-like substance with strong nutritional properties. France-based food giant Danone Group saw value in the company way back in 1999 and currently holds a 21% in Lifeway Foods, Inc. (NASDAQ:LWAY). Starting from its small base in the Chicago metro area, the company has taken its distribution network national-wide, with a presence in major organic supermarket chains like Whole Foods Market, Inc. (NASDAQ:WFM) and Trader Joe’s.

In its latest fiscal year, Lifeway Foods, Inc. (NASDAQ:LWAY) posted strong financial results, with increases in revenues and operating income of 16.3% and 74.3%, respectively, versus the prior year. Like Dean Foods Co (NYSE:DF) and WhiteWave Foods, Lifeway Foods, Inc. (NASDAQ:LWAY) benefited from lower commodity costs during the period, as well as more efficient use of its company-owned transportation fleet. With Danone in its corner and new products, including cheeses and spreads, all signs point to more growth for this small-cap dairy company.

While the milk trade will never be a high growth industry, there are pockets of strength in non-traditional segments like organic dairy products and creamers. WhiteWave Foods and Lifeway Foods, Inc. (NASDAQ:LWAY) are valued at above-market P/E multiples, but they are focusing on the right product segments, making them stocks to watch.

The article Finding Opportunity in the Milk Trade originally appeared on Fool.com and is written by Robert Hanley.

Robert Hanley owns shares of WhiteWave Foods. The Motley Fool owns shares of Dean Foods Company and WhiteWave Foods. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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