The biggest name in mile: Suiza Foods plays consolidator in a splintered field

Kiplinger's Personal Finance Magazine, Sept, 1998 by Brian Knestout

Suiza Foods plays consolidator in a splintered field.

Consolidating fragmented industries continues to be a big trend in business, and a lot of companies play this game by using their rapidly appreciating stock to finance deals. But few do it as successfully as Suiza Foods, a Dallas finn that is buying up the milk industry.

Gregg Engles founded the company in 1988 to buy Southland Corp.'s Reddy Ice unit. The company entered the milk business and acquired its current name in 1993, when Engles engineered the acquisition of Suiza Dairies, in Puerto Rico, followed by Velda Farms in 1994. The company went public in 1996, selling 3.8 million shares at $14 each.

Today, Suiza is out of the ice business and has transformed itself into the largest company in the $25-billion U.S. dairy-processing business. Most of the growth has come through a series of rapid-fire acquisitions, the largest of which were financed by issuing new shares. In the past year, seven major acquisitions added $2.4 billion to the company's total annual sales of $3 billion. The two most significant deals were for hometown rival Morningstar Group, in December 1997, and Continental Can this past March. The purchase of Continental Can represents a departure from Suiza's business strategy, but the plastic-bottle business dovetails well with the company's milk business.

More purchases are in the works. "With a still modest 10% share of the dairy market currently, Suiza can grow rapidly for at least several more years," says Bryan Elliott, an analyst at Robinson-Humphrey.

The stock recently sold at $61 per share, with 32 million shares outstanding. It has appreciated 428% since Suiza went public in 1996, and 43% in the past 12 months.

Analysts surveyed by Zacks Investment Research predict earnings will grow from $2.05 per share in 1997 to $3.01 per share in 1998 and $3.57 per share in 1999. Despite the impressive growth rate, the stock is a relative bargain at 20 times estimated earnings for this year and 17 times estimated earnings for 1999. The cheap price can be attributed to Suiza's long-term debt of $622 million, which represents 34% of the company's total value.

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Symbol: SZA (NYSE) Recent share price: $61 A year ago: $43 Shareholders information: 214-528-0939 Web site: none