Largest player in food and beverage industry in North America James Kraft- 1903 Public 1924 National Dairy Phillip Morris 2000 – Nabisco Holdings 2001 – NYSE Sectors $1 billion Over 50 brands exceed $100 million
160 countries – including US, Canada, Europe, Latin America, Asia Pacific, Africa, and Middle East
PROFITABILITY Declining IncreaseASSET MANAGEMENT Turnover Ratios- Poor asset management Generating less sales per asset Periods-- Longer to collect- Hold inventory longer-- Overall poor – showed improvement in the last year
DEBT USAGE TDR: 2009 decrease good sign. DER: more aggressive Risky – volatile earningsLIQUIDITY Good financial strength
Research Findings on <br />General Mills, Inc. <br />and <br />Kraft Foods, Inc.<br />VSB 1005 – Business Dynamics<br />By Andrew Bieler, Kathryn Cassavell, Marcelo Mazzocato and Michelle Phillips<br />
CompanyDescription<br />US Retail of packaged food (76%), International sales and food service: total revenue of nearly $16bi<br />Second largest food company in the cereal sector; owner of the Cheerios brand<br />First factory: Gold Medal Flour in Minneapolis, in the 1860s<br />Incorporated in 1928<br />66 production facilities, 40 in the US<br />Headquartered in Minneapolis, MN<br />33,000 employees<br />www.generalmills.com<br />
Company Description (cont.)<br />Several leading and well-known brands<br />Green Giant, Cheerios, Pillsbury, Betty Crocker, HaagenDazs, Nature Valley, Yoplait<br />
General Mills Mum on<br />Reports of Yoplait Purchase<br /><ul><li>U.S. foods group General Mills declined to comment on Sunday on a British newspaper report that it was mulling a bid for French yogurt maker Yoplait following a contract dispute.
The Sunday Times said in an unsourced report that the maker of Cheerios cereal could pay 1 billion pounds ($1.56 billion) for unlisted Yoplait, whose products it distributes in the United States.</li></li></ul><li>General Mills Invests in New <br />Production Facility<br /><ul><li>The Minneapolis based General Mills announced their new $100 million investment into expansion of its Murfreesboro production facility.
“I’m very pleased to have one of the world’s most respected food companies growing and thriving in Tennessee,” said Governor Bredesen. “This expansion is not just an endorsement of Tennessee’s business climate, but in the quality and productivity of the workforce in Murfreesboro.”</li></li></ul><li>GM Managing Director Takes<br />New Role<br /><ul><li>The managing director of General Mills' operations in the UK, Ireland and the Nordic region, has been elected president of UK industry body the Food and Drink Federation (FDF).
Jim Moseley has held his role with General Mills since 1999 and for the past four years has served as vice and deputy president of the FDF and chair of its Food Safety and Scientific Steering Group</li></ul> <br />
Financial Analysis<br />1. Profitability: recovery in margins. Efficiency gains forced by input prices. Increase in net margin, ROA and ROE in the past five years.<br />2. Asset Management: high asset turnover ratios associated with high efficiency. Drop in average collection period. Short but constant inventory period. Periods are expected of the packaged food industry.<br />
Financial Analysis (Cont.)<br />3. Debt: high debt ratios but showing drops in the past years. Analysts say D/E is expected to fall significantly in the next five years. This trend shows the company’s high levels of debt are manageable.<br />4. Liquidity: ratios show an upward trend but still lower than industry average. <br />
Operations in 70 countries </li></li></ul><li>Kraft in the News<br />Kraft’s Cookie, Cracker Sales Crumble in U.S.<br />July 26, 2010<br /><ul><li> Rosenfeld predicted a 9% to 11% increase in EPS after Cadbury
Lost 1% of Market Share</li></li></ul><li>Kraft Gets Boost From CadburyAugust 5, 2010<br />Profits up 13%<br />Revenues up 25%<br />Gross margin up 2.4%<br />Earnings up 11%. <br />Cadbury strong in foreign markets<br />Asia & Latin America<br />
Kraft Pushes Cadbury in ChinaAugust 13, 2010<br /> “Ms. Rosenfeld said in an interview this week that Kraft is placing ‘disproportionate focus’ on Asia-Pacific, mainly because of the strength of the Indian and Chinese consumer markets, in which the company expects to see ‘explosive growth’ in the future.”<br />
Financial Analysis<br />1. PROFITABILITY<br /><ul><li>Downward trend for past 5 years, increase in 2009
Improvement </li></ul>2. ASSET MANAGEMENT<br /><ul><li>Turnover ratios: decreasing trend over past 5 years, slight increase in 2008
Collection and inventory periods: increasing trend over the past 5 years, decrease in 2008
Corresponding trends for 2008</li></li></ul><li>Financial Analysis(cont.) <br />3. Debt Usage<br /><ul><li>Total Debt Ratio: increased over past 5 years, decrease in 2009 used more leverage trend
Debt-Equity Ratio: decreased over past 5 years, increase in 2009 (2009 risky)</li></ul>4. Liquidity<br /><ul><li>Current and Quick Ratios: decreasing trend, increasing trend for past 2 years
GM Stock vs. Kraft Stock<br />Kraft’s stock has been more volatile compared to the General Mills Stock. Just two years ago, Kraft experienced a substantial negative return of -14.60% while General Mills experienced a positive return of 9.49%.<br />
COMPARISON<br />GM is fairly valued but has a consistent ROR history. Good long-term investment.<br />Kraft has great prospects in the short term, as efficiency and market reach improve due to the acquisition of Cadbury. Company undervalued in the NYSE. Good investment, especially in the short run.<br />