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3 Diversified Food Companies for Tasty Returns

Often, the best lunches are easily prepared. All it takes is hearty bread, tasty meat, and succulent cheese. Together, the three companies below provide exactly that every day. Will these companies continue to be appetizing as additions to a stock portfolio?

1.  Maple Leaf Foods

Maple Leaf Foods (TSX: MFI) is a food processing company. It’s refocusing as a branded consumer packaged meats business and is selling its bakery operations. Its major meat brands include Maple Leaf®, Schneiders®, Natural Selections™, and Country Naturals™. Its packaged meats products provide the company with higher margins.

By 2015, its prepared meats network is scheduled to be completed. Its plan is to close several prepared meat plants. The company will combine production into three technology-driven scale plants along with its new Hamilton, Ontario, plant.

Maple Leaf is making major business decisions in order to center on profitable growth and innovation within its prepared meats businesses. It divested some turkey farming operations, its rendering and biodiesel business, and its fresh pasta and sauce business.

Noteworthy for investors is that Maple Leaf’s total capital investment for the prepared meats network upgrade is roughly $620 million. The company expects cost savings will result from enhanced throughput and productivity, better product yield, less waste, and improved packaging. It also expects cost savings to result from lower total overhead costs and reduced labour, as well as reduced shipping expenses.

2.  Canada Bread

Canada Bread (TSX: CBY) is a manufacturer and marketer of bakery products including fresh bread and rolls. Its brands include Dempsters and Bon Matin. Maple Leaf Foods owns 90% of Canada Bread.

This month, Canada Bread announced the approval of the plan of arrangement between a wholly owned subsidiary of Mexican company Grupo Bimbo and Canada Bread that will result in the sale of Canada Bread to Grupo Bimbo (expected to close in Q2 2014). Grupo Bimbo has 144 plants and over 1,600 distribution centers in 19 countries throughout the Americas, Europe and Asia.

Michael H. McCain, Maple Leaf Foods’ president and CEO, said, “This transaction maximizes the value of our investment in Canada Bread and focuses Maple Leaf on building its leadership in the consumer packaged meats business. Grupo Bimbo is an excellent company with strong values and a global leadership position, with little overlap in our geographic markets.”

Canada Bread, will become part of one of the world’s leading bakery companies (in terms of production and sales volume). Canada Bread is a cash flow generator that has well-known brands that Canadian consumers trust. Grupo Bimbo gains a position in the Canadian market. And Canada Bread investors gain a huge bakery conglomerate with extensive marketing and distribution expertise, which should lead to greater growth.

3. Saputo

Saputo (TSX: SAP) produces, markets, and distributes cheese, milk, cream products, cultured products, and dairy ingredients. It recently announced that it will close four of its facilities (two in Canada and two in the U.S.) It will integrate current production into its other facilities. The company is focusing on operational efficiency and cost reductions.

The company completed the acquisition of Morningstar Foods in January 2013. Morningstar produces an array of dairy and non-dairy extended shelf-life (ESL) products. This acquisition complements the Saputo Dairy Products Division (USA) operations.

Saputo can now offer more products to its U.S. customers in an efficient manner, due to Morningstar’s national manufacturing and distribution platform. Significant for investors is that Saputo’s plan is to continue to grow its business in the U.S.  Saputo is also a cash flow generator.

Saputo said it would consider more acquisitions, stating, “The fundamentals of our business remain solid and our balance sheet is strong… With a strong cash flow and a solid financial foundation, we are firmly positioned for continued growth.”

Foolish bottom line

These companies are competing in the tough consumer goods sector. Strategic plans to foster efficiency and economies of scale are driving these companies forward. Despite marketplace challenges, these companies can be considered staples in an investing menu.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Michael Ugulini has no positions in any of the companies mentioned in this article.

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