Primo Water Corp. acquisitions an “interesting move” says Professor Mike Lord

3.10.2011 Article, Faculty News, General

Reposted from Winston-Salem Journal | by Richard Craver

Primo Water Corp. is hoping to get some fizz for its ambitious growth strategy by entering the single-cup dispensing marketplace for cold-carbonated beverages.

The company, based in Winston-Salem, said Wednesday that it is paying $7 million in cash and $6.1 million in stock for Omnifrio Beverage Co. LLC.

Omnifrio makes dispensing machines — similar to single-cup coffee and soft-drink machines — that are targeted at grocers, department stores and offices. The purchase gives Primo entrance into the $39 billion U.S. market for carbonated beverages.

Primo also is paying $1.6 million in cash and $3.8 million in stock for Culligan of Canada Ltd., which gives it entrance into the Canadian 18-liter purified bottled-water exchange market.

In November, Primo completed its largest purchase to date — a $105 million cash and stock deal for Culligan Stores Solutions, another unit of Culligan.

Primo also provided a preliminary look at its fourth-quarter financial report, as well as a forecast for 2011 that calls for the company's first profitable year since being founded in 2004. It will make its official quarterly report March 24.

Omnifrio offers 30 styles of single-serve cold carbonated beverages, including flavored waters, sport and energy drinks, vitamin waters, sugar-free sodas, tea and herbal drinks. They come in single-serve packs or cups that hold 8- or 16-ounce beverages.

Primo plans to combine the Omnifrio products with some of its water-dispenser appliances to provide multi-beverage stations for household and office use.

"We found that we could make giant leaps forward in this technology by buying them," said Billy Prim, the president and chief executive of Primo.

Omnifrio has not started shipping products, Primo said. It expects to begin selling the appliances and flavor cups to specialty and catalog U.S. retailers in the fourth quarter.

Primo said Culligan Canada's customers include Wal-Mart, Home Depot, Zellers and Sobey's. Culligan will bottle and deliver water in the Canadian market for Primo.

"Some of our largest U.S. customers have recently announced very aggressive expansion plans in Canada, and if we don't serve them in Canada, others will," Prim said.

Michael Lord, an associate professor of strategy and entrepreneurship at Wake Forest University, called the Omnifrio deal "an interesting move."

"In general, it's pretty attractive for Primo to try to better leverage their existing distribution resources and customer base with new and different product extensions.

"Its ability to execute these acquisitions and product extensions well will play a big part in shaping the company's future."

For the fourth quarter, Primo expects to report a sales increase of 61 percent in the quarter to $12.7 million.

It expects to report an earnings loss per share ranging from 95 cents to $1, which includes charges related to the purchase of Culligan Stores. Excluding the charges, Primo expects an earnings loss ranging from 12 cents to 15 cents per share.

The average earnings forecast is a loss of 12 cents per share by analysts surveyed by Zacks Investment Research. Analysts typically exclude those charges in their forecasts.

Primo projects that first-quarter sales will increase by 80 percent to 85 percent, or in a range of $15.9 million to $16.3 million. It expects to post an earnings loss per share between 7 cents to 11 cents, including charges, and finish the quarter with a range of 14,500 to 14,900 exchange and refill sites.

For the full year, it expects sales to range between $116 million and $123 million, which include revenue from the Culligan Canada and Omnifrio deals. It expects to add 5,700 to 6,700 retail sites during 2011.

It projects diluted earnings per share of between 6 cents and 15 cents for the full year, including charges, and 15 cents to 24 cents, excluding charges.

"We're only beginning to reach our potential," Prim said. "We feel we will achieve strong, profitable growth for many years to come."