Two Ways to Expand Profits

Article Excerpt

The food-processing industry seems dull to many investors, but sometimes it creates surprisingly large capital gains. That can happen when a company builds brand names that generate rising sales at premium prices. On the other hand, because consumers tend to stick with brands they know and trust, food processors offer a substantial margin of safety. Here are two leading food processing companies pursuing opposite strategies. Saputo is expanding through acquisitions, mainly of smaller competitors that it can quickly absorb. In contrast, Maple Leaf Foods is consolidating its operations to focus on its more profitable businesses. Still, both approaches should improve their long-term profitability. SAPUTO INC. $39 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 103.2 million; Market cap: $4.0 billion; SI Rating: Average) is Canada’s largest producer of dairy products. Major brands include Saputo, Armstrong, Stella and Dairyland. The company is also the fifth-largest cheese producer in the United States, and the third-largest dairy company in Argentina. Saputo’s Canadian businesses…