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American Greetings
- 1. Sally Brocious Jason Gass Shanicka Hardaway Andy Minderman Katie Stinson May 4, 2011
- 4. External Analysis General Environment T O O O T O
- 5. External Analysis Industry Environment T T T T T
- 6. EFE ย Weight Rate Score Opportunities ย ย ย 1. New technology 0.30 4 1.20 2. Shifting demographic 0.20 3 0.60 3. Consumer tastes & preferences 0.10 4 0.40 ย ย ย ย Threats ย ย ย 1. Economic Downturn 0.05 1 0.05 2. High Competition 0.15 2 0.30 3. Low barriers to entry 0.20 2 0.40 ย ย ย ย Total 1.00 ย 2.95
- 7. Internal Analysis Assets Valuable Rare Inimitable Intellectual Property x Acquisitions x Human Capital x Skills Valuable Rare Inimitable R&D x Product Design x Analyzing market trends x
- 9. IFE ย Weight Rate Score Strengths ย ย ย 1. Design Capability 0.25 4 1.00 2. Human Capital 0.15 3 0.45 3. Analyzing market trends 0.20 4 0.80 ย ย ย ย Weaknesses ย ย ย 1. Brand recognition 0.15 2 0.30 2. Flat sales growth 0.15 2 0.30 3. Distribution Channels 0.10 1 0.10 ย ย ย ย Total 1.00 ย 2.95
- 11. Financial Performance all figures in millions ย 2011 2010 2009* 2008 Revenue 1,592.6 1,635.9 1,690.7 1,776.5 Revenue Growth % -2.6% -3.2% -4.8% -1.0% Gross Profit 877.9 885.2 836.4 950.0 Operating Profit 174.7 139.1 (253.2) 128.8
- 12. Financial Performance all figures in millions ย American Greetings Hallmark CSS Industries Current Market Share 36.0% 50.0% < 5% ย ย ย ย Sales 1,560.2 4,000.0 440.1 Employees 8,000 13,400 2,000 Market Cap 960.2 N/A 183.6 ย ย ย ย Profit Margin 5.5% N/A -5.7% Operating Margin 11.0% N/A 2.8% ROA 5.7% N/A 2.1% ROE 11.6% N/A -9.7% Debt/Equity 0.31 N/A 0.16
- 13. Current EVA of American Greetings Equity 748.9 Net Operating Profit 174.7 Debt 232.7 NOPAT 97.5 Risk Free Rate 1% WACC 13.8% Risk Premium 8% Capital Employed 1,189.9 Return on Borrowings 5% ย ย Effective Tax Rate 44.2% ย ย EVA = NOPAT - (WACC*CE) =97.5 - (13.8%*1,189.9) =(66.9 million)
- 14. Current EVA of American Greetings IRR = 2.31% 5.1 4.8 4.5 4.3 (1.3) N/A EVA Increase/Decrease (49.6) (54.7) (59.5) (64.0) (68.2) (66.9) EVA ย ย ย ย ย 45.0 Capital Investment 10.6 10.1 9.6 9.2 8.7 N/A OP Increase/Decrease 223.0 212.3 202.2 192.6 183.4 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 15. TOWS Analysis ย Opportunities Threats ย 1. New technology 1. Low barriers to entry ย 2. Shifting demographic 2. High Competition Strengths ย ย 1. Design Capability O1S1 - Create products that can be patented T1S1 - Create difficult to imitate products 2. Analyzing market trends O1S2 - Create valuable product offerings T1S2,T2S1,T2S2 - First mover advantage/patents ย O2S1 and O2S2 - Market growth by reaching new customers Weaknesses ย ย 1. Brand Recognition O1W1 โ Marketing through social media T1W1, T2W1 - Cause based marketing 2. Flat Sales Growth O2W2 โ Reach younger demographic T2W2, T1W2 โ Related diversification
- 19. Strategy 1 - Likely IRR = 65.70% 1.3 1.2 1.2 1.2 1.3 N/A EVA Increase/Decrease (60.8) (62.0) (63.3) (64.5) (65.6) (66.9) EVA ย ย ย ย ย 5.0 Capital Investment 3.8 3.7 3.6 3.6 3.5 N/A OP Increase/Decrease 192.9 189.1 185.4 181.8 178.2 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 20. Strategy 1 - Best IRR = 178.37% 5.1 4.8 4.5 4.3 4.2 N/A EVA Increase/Decrease (44.0) (49.1) (53.9) (58.4) (62.7) (66.9) EVA ย ย ย ย ย 5.0 Capital Investment 10.6 10.1 9.6 9.2 8.7 N/A OP Increase/Decrease 223.0 212.3 202.2 192.6 183.4 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 21. Strategy 1 - Worst IRR = 0% (0.8) (0.8) (0.8) (0.8) (0.7) N/A EVA Increase/Decrease (70.9) (70.1) (69.2) (68.4) (67.6) (66.9) EVA ย ย ย ย ย 5.0 Capital Investment - - - - - N/A OP Increase/Decrease 174.7 174.7 174.7 174.7 174.7 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 25. Strategy 2 - Likely IRR = 79.5% 0.2 0.2 0.2 0.2 0.7 N/A EVA Increase/Decrease (65.5) (65.7) (65.9) (66.1) (66.2) (66.9) EVA ย ย ย ย ย 2.1 Capital Investment 1.8 1.8 1.8 1.8 1.7 N/A OP Increase/Decrease 183.6 181.8 180.0 178.2 176.4 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 26. Strategy 2 - Best IRR = 252.04% 2.5 2.4 2.3 2.2 2.6 N/A EVA Increase/Decrease (55.0) (57.4) (59.8) (62.1) (64.3) (66.9) EVA ย ย ย ย ย 2.1 Capital Investment 5.9 5.7 5.6 5.4 5.2 N/A OP Increase/Decrease 202.5 196.6 190.9 185.3 179.9 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 27. Strategy 2 - Worst IRR = 0% (0.8) (0.8) (0.8) (0.8) (0.3) N/A EVA Increase/Decrease (70.5) (69.7) (68.8) (68.0) (67.2) (66.9) EVA ย ย ย ย ย 2.1 Capital Investment - - - - - N/A OP Increase/Decrease 174.7 174.7 174.7 174.7 174.7 174.7 Net Operating Profit 5 4 3 2 1 0 ย Year Year Year Year Year Year ย
- 29. Questions
Editor's Notes
- View earning release of 4-28-11, product leadership strategy based on continuous research; focusing on greeting cards
- Put this on 1 slide!
- Distribution channels is a weakness because AG relies heavily on Wal-Mart & Target for over a quarter of their revenue.
- This first analysis is historic financial data for American greetings. As you can see, since the bad economic conditions in 2009, american greetings has begun to turn things around. Although it appears that their revenue is decreasing, their year over year it is slowly moving in a positive direction. The asterisk in 2009 is to note that operating profit was negatively affected by a 290 million dollar impairment of assets.
- Here we are comparing american greetings current financial state to itโs competitors. As andy stated earlier, American greetings and Hallmark account for 86% of the market share for greeting cards. This leaves little room for any other major player. Hallmark is private so Profit margin โ profit after interest and taxes (net income) compared to sales (how efficiently a company turns revenues into profits ) Operating margin โ operating profit compared to sales
- Capital employed = total assets less current liabilities
- Assume 5% annual growth rate. Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 48.3M Total EVA over 5 yrs โ 17.3M
- .Technology has affected sales, but not stopped the demand for physical cards. Just as an increase in postage costs & the creation of long distance calling did not stop the demand for physical greeting cards. Apps are a $343 million industry, projected to be a $4.3 billion industry by 2013. An article from 4-26-11, states that 50% of 18-34 yr. olds own a smart phone.
- Software modification โ updating software for app, updating web software and website, and updating software for production Implementation โ adjustments to production lines, web support, customer service support Marketing โ online through social media and commercial to air during primetime TV
- Assume 2% annual growth rate. Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 18.2M Total EVA over 5 yrs โ 6.1M
- Assume 5% annual growth rate. Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 48.3M Total EVA over 5 yrs โ 22.9M
- Assume no growth Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 0 Total EVA over 5 yrs โ (0.4M)
- Marketing โ viral video, social media, in store displays Software modification โ adjustments to production software to print USO logo
- Assume 1% annual growth rate. Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 8.9M Total EVA over 5 yrs โ 1.4M
- Assume 3% annual growth rate. Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 27.8M Total EVA over 5 yrs โ 11.9M
- Assume no growth Assume 0.5% annual increase in capital employed after the first year Total increase in OP โ 0 Total EVA over 5 yrs โ (3.6M)
- Apps are a $343 million industry, projected to be a $4.3 billion industry by 2013. An article from 4-26-11, states that 50% of 18-34 yr. olds own a smart phone.
- Discuss that apps are growing.