This document provides an analysis of J & J Snack Foods Corp (JJSF). It begins with a market profile and company highlights, including a buy recommendation and 21% price target upside. It then discusses JJSF's diverse product portfolio, experienced management, and competitive positioning in niche snack food markets. The analysis notes JJSF's defensive growth strategy and ability to combat competitive forces through market leadership. It also examines industry trends around health and nutrition. In conclusion, the document states JJSF's wide product availability and mix of impulse and deliberate purchases support ongoing strong sales growth.
Whole Foods Market operates natural and organic grocery stores. This report analyzes the company and recommends investors not purchase stock currently due to dramatic falls in stock price, increased competition, decreased sales and revenues, and ethical issues. Specifically, the stock price has dropped 40% since January 2015, competition from health stores is rising, and Whole Foods was involved in a scandal over mislabeled food weights which hurt sales. While the company has strong values around health and sustainability, the current financial analysis raises flags that make investing risky at this time.
Financial Analysis: Kraft Foods Inc. (KFT)Yaw Ofosu
This document provides an analysis of Kraft Foods Inc. (KFT) including its background, financial ratios, projections, financing, capital structure, dividend policy, stock value, analyst opinions, and recommendation. Kraft is the largest food company in the US and world's 2nd largest, with $49.21B in revenue and operations in over 75 countries. The analysis finds KFT has a low risk capital structure and cost of capital of 6.15%. While the current stock price is $31.16, the dividend discount and total corporate value models value the stock at $83.95 and $36.99 respectively. Based on Kraft's strengths and growth opportunities, the recommendation is to buy the stock.
This document contains a financial analysis of Whole Foods Market, including a SWOT analysis identifying strengths such as its popular brand and large selection of organic foods, weaknesses such as higher prices, and opportunities and threats. It also provides details on Whole Foods' accounting practices, financial metrics like profit margins over time, and valuation models estimating the stock is undervalued. The conclusion is that Whole Foods is a recommended buy based on historical earnings growth and trading below projected price estimates.
Kroger and Whole Foods have different operations strategies driven by their target markets. Kroger aims for low prices across its large network of stores to appeal to a broad customer base. It manufactures over 40% of its private label products in-house for quality control and margins. Whole Foods targets the organic and locally-sourced market through a smaller store network focused on fresh, perishable items. It relies more heavily on regional and local suppliers. Both companies leverage facility networks and sourcing strategies to efficiently deliver on their distinct strategic positions in the grocery industry.
An in-depth media analysis on the recent merger of Kraft and Heinz. Using publication and social media research, this presentation analyses sentiment and message pull.
Created with Kimberly Conquest and Mew Nanavaratorn.
The document provides an overview of the key differences between US GAAP and IFRS accounting standards. Some of the main differences discussed include financial statement presentation requirements, consolidation approaches, business combination accounting, inventory valuation, impairment testing, financial instrument accounting, foreign currency translation, lease classification, income tax accounting, and revenue recognition. While convergence efforts have reduced many differences, the standards continue to have some divergent requirements.
Whole Foods Market operates natural and organic grocery stores. This report analyzes the company and recommends investors not purchase stock currently due to dramatic falls in stock price, increased competition, decreased sales and revenues, and ethical issues. Specifically, the stock price has dropped 40% since January 2015, competition from health stores is rising, and Whole Foods was involved in a scandal over mislabeled food weights which hurt sales. While the company has strong values around health and sustainability, the current financial analysis raises flags that make investing risky at this time.
Financial Analysis: Kraft Foods Inc. (KFT)Yaw Ofosu
This document provides an analysis of Kraft Foods Inc. (KFT) including its background, financial ratios, projections, financing, capital structure, dividend policy, stock value, analyst opinions, and recommendation. Kraft is the largest food company in the US and world's 2nd largest, with $49.21B in revenue and operations in over 75 countries. The analysis finds KFT has a low risk capital structure and cost of capital of 6.15%. While the current stock price is $31.16, the dividend discount and total corporate value models value the stock at $83.95 and $36.99 respectively. Based on Kraft's strengths and growth opportunities, the recommendation is to buy the stock.
This document contains a financial analysis of Whole Foods Market, including a SWOT analysis identifying strengths such as its popular brand and large selection of organic foods, weaknesses such as higher prices, and opportunities and threats. It also provides details on Whole Foods' accounting practices, financial metrics like profit margins over time, and valuation models estimating the stock is undervalued. The conclusion is that Whole Foods is a recommended buy based on historical earnings growth and trading below projected price estimates.
Kroger and Whole Foods have different operations strategies driven by their target markets. Kroger aims for low prices across its large network of stores to appeal to a broad customer base. It manufactures over 40% of its private label products in-house for quality control and margins. Whole Foods targets the organic and locally-sourced market through a smaller store network focused on fresh, perishable items. It relies more heavily on regional and local suppliers. Both companies leverage facility networks and sourcing strategies to efficiently deliver on their distinct strategic positions in the grocery industry.
An in-depth media analysis on the recent merger of Kraft and Heinz. Using publication and social media research, this presentation analyses sentiment and message pull.
Created with Kimberly Conquest and Mew Nanavaratorn.
The document provides an overview of the key differences between US GAAP and IFRS accounting standards. Some of the main differences discussed include financial statement presentation requirements, consolidation approaches, business combination accounting, inventory valuation, impairment testing, financial instrument accounting, foreign currency translation, lease classification, income tax accounting, and revenue recognition. While convergence efforts have reduced many differences, the standards continue to have some divergent requirements.
Kraft Foods aims to position itself as a "global snacks powerhouse" through its growth strategy focused on high-margin categories like snacks and confectionary. It plans to launch Oreo biscuits in India as a test case for introducing core brands in emerging markets. For long-term success, Kraft must implement a marketing strategy in India that considers local tastes and prices, and manages the significant debt from its Cadbury acquisition through restructuring activities that avoid increasing long-term debt levels.
In this edition of the European Chemicals Update, we highlight the global food additives market and include a special interview with Hezi Israel, Executive Vice President of Business Development and Strategy at Israel Chemicals Ltd.
Benchmarking involves comparing key performance metrics of one's own farm to other similar farms. This allows farmers to identify areas for improvement and determine how their business compares. Benchmarking is becoming a more popular tool among UK dairy farmers as margins tighten. It provides a basis for improvement discussions and can motivate farmers when their performance is highlighted as good. To benchmark effectively, farmers must compare their results to a realistic sample of similar farms and ensure an "apples-to-apples" comparison of calculated metrics. Some farmers are finding benchmarking groups particularly useful for openly discussing issues and sharing successful practices.
Restaurant Monthly Update - January 2017Duff & Phelps
December marked the ninth month out of the past ten with declining sales for the restaurant industry. Both same-store sales and traffic growth deteriorated from November’s results, officially marking 2016 as the worst year of industry performance since 2009. Despite challenges in the sector, private equity investors with significant dry powder and strong, relatively inexpensive credit, will likely continue to fuel investment in innovative and rapidly expanding restaurant concepts.
- Krispy Kreme Doughnuts (KKD) began as a donut shop in 1937 and grew to become a publicly traded company. However, from 2000-2004, KKD's financial problems came to light as its accounting practices were called into question.
- KKD relied heavily on revenue from franchises and sales of equipment/ingredients to franchises. However, it was discovered that KKD improperly accounted for millions in expenses related to purchasing back franchises.
- By 2004, analysts decreased buy recommendations and increased sell recommendations as KKD's earnings were restated due to accounting issues. KKD faced SEC investigation and declining stock price.
- The Company (Celsius) is significantly outpacing category growth in the convenience channel, growing 44% YoY compared to the category growth of 4%.
- Though Celsius has only 15% of total sales volume (ACV), it is ranked as the 11th top brand with over 200 brands in the category.
- Celsius saw record quarterly revenue in Q3 2020 of $80 million, up 80% year-over-year, marking its 7th consecutive quarter of growth in North America.
1. We issued a buy recommendation for Monster Beverage Corporation (MNST) with a target price of $155.94, implying a 14.39% return. MNST recently partnered with Coca-Cola, expanding its distribution network internationally and gaining access to Coca-Cola's network.
2. Key drivers for the price target are growing health consciousness boosting energy drink sales and the partnership increasing MNST's revenue over 10%.
3. Risks include public health concerns over energy drinks and higher interest rates increasing costs.
This document summarizes information about Neenah Paper, Inc., which operates in two business segments: Technical Products and Fine Paper. Technical Products produces specialty papers for filtration, industrial backings, and labels, while Fine Paper produces image-oriented papers for premium print communications and packaging. The document discusses Neenah's financial performance, strategies to grow organically and through acquisitions in niche specialty markets, and goals to deliver consistent returns and deploy excess cash to shareholders.
The alcoholic beverage market has long been formed by volatile demand trends, legislative regulation, and fierce competition in a highly-concentrated environment. Generating over USD 33.38bn of revenue in 2015, the beer segment faces great rivalry, declining demands, and threatening substitutes. Moreover, the industry has been characterized significantly by mergers and acquisitions in the past, such as the SABMiller plc being acquired by Anheuser-Busch InBev in 2016. This presentation, created with my workgroup for the Master in Management at IE Business School provides a thorough analysis of AB InBev. The multinational corporation, listed on the Euronext Brussels and focused on the beverage and brewing industry, is considered as one of the largest fast-moving consumer goods companies in the world. To analyse AB InBev the SCP approach was applied using Porter’s five forces and a dynamic overview of the industry applying a strategic group map.
If you have further interest in the beer industry, it’s characteristics and development, I highly recommend Harvard Business Review’s Beer Cases series (https://hbr.org/product/the-beer-cases-a-a-b-inbev/W11613-PDF-ENG).
This report contains a comprehensive corporate proposal for WFM. Contained within the deliverable is a SWOT Analysis, VRIO Framework, 6 Forces Analysis, and a Competitor Map of the United States grocery industry
Starbucks is recommended as a buy with a target price of $63.25 per share. The recommendation is based on Starbucks' strong financial position and dividend growth, optimistic outlook in the China-Asia Pacific region, and sensitivity analysis. Starbucks enjoys stable revenue growth in the short term and substantial growth in the mid-term. It has a strong financial flexibility to respond to challenges. Risks include market risk, economic risk, and operational risk.
The document provides an overview of key trends in the food and beverage industry in 2011. It discusses rising commodity and retail food prices, the popularity of healthier and private label brands, the increasing role of social media in marketing, and focus on sustainability. It also summarizes M&A activity, noting increased deal volumes but lower values and multiples. Finally, it outlines plans by major companies like Sara Lee, Ralcorp, and Kraft to split into separate entities focused on specific business areas.
Personal Care and Beauty Products Industry Insights - April 2015Duff & Phelps
The Personal Care and Beauty Products sector has seen strategic acquisitions driven by desires to strengthen market position, expand product portfolios, and broaden and deepen distribution channels. Robust M&A activity is forecasted to continue through 2015. For more detail on personal care and beauty products trends, public market performance and deal activity.
Outdoor Products Industry Insights 2016Duff & Phelps
Rapid growth of e-commerce, significant competition, and market saturation will continue to drive consolidation in the outdoor and sporting goods retail industry. Innovative companies are commanding attention from corporate and private equity buyers, with the market ripe for acquisition activity.
Martinrea International Inc. is an automotive parts manufacturer that has experienced significant revenue growth through acquisitions and organic growth. The company is well positioned to benefit from increasing auto sales and the trend toward lighter weight vehicles. The analyst values Martinrea using a discounted cash flow model and estimates the stock price could rise 70-105% to a range of $16-19.50 per share based on margin expansion, growth opportunities, and a narrowing of its valuation gap with peers. Key growth drivers include the company's global scale, research capabilities, aluminum expertise, and strong order backlog.
The Hershey Company is a leading North American chocolate manufacturer with over $16 billion in market capitalization and a 43% share of the domestic chocolate market. It offers products under 80 brands, including Hershey's, Reese's, and Twizzlers. While commodity price volatility presents risks, Hershey has effectively hedged cocoa prices and generates higher returns than competitors. The company also faces risks from foreign currency fluctuations and consolidation in the confectionary industry. However, Hershey has a low beta and generates steady growth through strong brands and supply chain efficiency.
Dr Pepper Snapple 2012 Presentation At Barclays Back To SchoolNeil Kimberley
This document discusses Barclays' back to school strategy. It outlines their portfolio of brands, which include premium teas, juices, and flavored carbonated soft drinks. It discusses their focus on building brand awareness through marketing and innovation. It also summarizes their strategies to increase availability in grocery and convenience stores and build single-serve occasions. The document highlights their focus on rapid continuous improvement and margin management to drive efficiency and productivity gains.
Distributors and large chains have increasingly adopted direct sourcing over the past 5 years to reduce costs. This shifts purchasing power away from manufacturers to customers. As a result, manufacturers now face challenges like competing for production capacity globally with their largest customers. To adapt, manufacturers may focus on brand loyalty with independent operators, offer tiered product lines, and monitor direct sourcing models closely as purchasing practices continue evolving. Global sourcing is emerging as the next phase in the supply chain's evolution.
General Mills held its annual CAGNY conference to discuss new growth opportunities. Ken Powell, Chairman and CEO, kicked off the conference by highlighting the company's long history of growth since 1866 and its transition to becoming a global food company by 1995. Jeff Harmening then provided an update on the U.S. Retail segment, noting challenges in the first half of fiscal year 2015 but expectations for renewed sales and profit growth in the second half through actions like focusing on key businesses like cereal, yogurt, and snacks. Chris O'Leary followed with details on the company's strategies for continued international growth.
Reed report final final draft for regionalMatt Yamamoto
The document provides an analysis and recommendation for Reed's Inc. (REED) stock. It summarizes the company's financials, products, strategies, and competitive positioning in the beverage industry. REED produces natural sodas and kombucha, and is expanding distribution and private label offerings. While high growth is expected, risks around management, production, and corporate governance temper expectations. A DCF valuation and P/S analysis yield a 2014 target price of $8.33, resulting in a HOLD recommendation with 15.86% upside potential from the $7.19 stock price. Key risks that could impede profitability include management stability, production shortfalls, and oversight from the Board of Directors.
This letter from Team 8 transmits their analysis of the supermarket and grocery retailing industry to various managing partners at Copeland Associates, describing their examination of the overall industry, Whole Foods Market, and The Fresh Market, concluding that Whole Foods is currently better positioned for sustainable growth based on an evaluation against key success factors.
Kraft Foods aims to position itself as a "global snacks powerhouse" through its growth strategy focused on high-margin categories like snacks and confectionary. It plans to launch Oreo biscuits in India as a test case for introducing core brands in emerging markets. For long-term success, Kraft must implement a marketing strategy in India that considers local tastes and prices, and manages the significant debt from its Cadbury acquisition through restructuring activities that avoid increasing long-term debt levels.
In this edition of the European Chemicals Update, we highlight the global food additives market and include a special interview with Hezi Israel, Executive Vice President of Business Development and Strategy at Israel Chemicals Ltd.
Benchmarking involves comparing key performance metrics of one's own farm to other similar farms. This allows farmers to identify areas for improvement and determine how their business compares. Benchmarking is becoming a more popular tool among UK dairy farmers as margins tighten. It provides a basis for improvement discussions and can motivate farmers when their performance is highlighted as good. To benchmark effectively, farmers must compare their results to a realistic sample of similar farms and ensure an "apples-to-apples" comparison of calculated metrics. Some farmers are finding benchmarking groups particularly useful for openly discussing issues and sharing successful practices.
Restaurant Monthly Update - January 2017Duff & Phelps
December marked the ninth month out of the past ten with declining sales for the restaurant industry. Both same-store sales and traffic growth deteriorated from November’s results, officially marking 2016 as the worst year of industry performance since 2009. Despite challenges in the sector, private equity investors with significant dry powder and strong, relatively inexpensive credit, will likely continue to fuel investment in innovative and rapidly expanding restaurant concepts.
- Krispy Kreme Doughnuts (KKD) began as a donut shop in 1937 and grew to become a publicly traded company. However, from 2000-2004, KKD's financial problems came to light as its accounting practices were called into question.
- KKD relied heavily on revenue from franchises and sales of equipment/ingredients to franchises. However, it was discovered that KKD improperly accounted for millions in expenses related to purchasing back franchises.
- By 2004, analysts decreased buy recommendations and increased sell recommendations as KKD's earnings were restated due to accounting issues. KKD faced SEC investigation and declining stock price.
- The Company (Celsius) is significantly outpacing category growth in the convenience channel, growing 44% YoY compared to the category growth of 4%.
- Though Celsius has only 15% of total sales volume (ACV), it is ranked as the 11th top brand with over 200 brands in the category.
- Celsius saw record quarterly revenue in Q3 2020 of $80 million, up 80% year-over-year, marking its 7th consecutive quarter of growth in North America.
1. We issued a buy recommendation for Monster Beverage Corporation (MNST) with a target price of $155.94, implying a 14.39% return. MNST recently partnered with Coca-Cola, expanding its distribution network internationally and gaining access to Coca-Cola's network.
2. Key drivers for the price target are growing health consciousness boosting energy drink sales and the partnership increasing MNST's revenue over 10%.
3. Risks include public health concerns over energy drinks and higher interest rates increasing costs.
This document summarizes information about Neenah Paper, Inc., which operates in two business segments: Technical Products and Fine Paper. Technical Products produces specialty papers for filtration, industrial backings, and labels, while Fine Paper produces image-oriented papers for premium print communications and packaging. The document discusses Neenah's financial performance, strategies to grow organically and through acquisitions in niche specialty markets, and goals to deliver consistent returns and deploy excess cash to shareholders.
The alcoholic beverage market has long been formed by volatile demand trends, legislative regulation, and fierce competition in a highly-concentrated environment. Generating over USD 33.38bn of revenue in 2015, the beer segment faces great rivalry, declining demands, and threatening substitutes. Moreover, the industry has been characterized significantly by mergers and acquisitions in the past, such as the SABMiller plc being acquired by Anheuser-Busch InBev in 2016. This presentation, created with my workgroup for the Master in Management at IE Business School provides a thorough analysis of AB InBev. The multinational corporation, listed on the Euronext Brussels and focused on the beverage and brewing industry, is considered as one of the largest fast-moving consumer goods companies in the world. To analyse AB InBev the SCP approach was applied using Porter’s five forces and a dynamic overview of the industry applying a strategic group map.
If you have further interest in the beer industry, it’s characteristics and development, I highly recommend Harvard Business Review’s Beer Cases series (https://hbr.org/product/the-beer-cases-a-a-b-inbev/W11613-PDF-ENG).
This report contains a comprehensive corporate proposal for WFM. Contained within the deliverable is a SWOT Analysis, VRIO Framework, 6 Forces Analysis, and a Competitor Map of the United States grocery industry
Starbucks is recommended as a buy with a target price of $63.25 per share. The recommendation is based on Starbucks' strong financial position and dividend growth, optimistic outlook in the China-Asia Pacific region, and sensitivity analysis. Starbucks enjoys stable revenue growth in the short term and substantial growth in the mid-term. It has a strong financial flexibility to respond to challenges. Risks include market risk, economic risk, and operational risk.
The document provides an overview of key trends in the food and beverage industry in 2011. It discusses rising commodity and retail food prices, the popularity of healthier and private label brands, the increasing role of social media in marketing, and focus on sustainability. It also summarizes M&A activity, noting increased deal volumes but lower values and multiples. Finally, it outlines plans by major companies like Sara Lee, Ralcorp, and Kraft to split into separate entities focused on specific business areas.
Personal Care and Beauty Products Industry Insights - April 2015Duff & Phelps
The Personal Care and Beauty Products sector has seen strategic acquisitions driven by desires to strengthen market position, expand product portfolios, and broaden and deepen distribution channels. Robust M&A activity is forecasted to continue through 2015. For more detail on personal care and beauty products trends, public market performance and deal activity.
Outdoor Products Industry Insights 2016Duff & Phelps
Rapid growth of e-commerce, significant competition, and market saturation will continue to drive consolidation in the outdoor and sporting goods retail industry. Innovative companies are commanding attention from corporate and private equity buyers, with the market ripe for acquisition activity.
Martinrea International Inc. is an automotive parts manufacturer that has experienced significant revenue growth through acquisitions and organic growth. The company is well positioned to benefit from increasing auto sales and the trend toward lighter weight vehicles. The analyst values Martinrea using a discounted cash flow model and estimates the stock price could rise 70-105% to a range of $16-19.50 per share based on margin expansion, growth opportunities, and a narrowing of its valuation gap with peers. Key growth drivers include the company's global scale, research capabilities, aluminum expertise, and strong order backlog.
The Hershey Company is a leading North American chocolate manufacturer with over $16 billion in market capitalization and a 43% share of the domestic chocolate market. It offers products under 80 brands, including Hershey's, Reese's, and Twizzlers. While commodity price volatility presents risks, Hershey has effectively hedged cocoa prices and generates higher returns than competitors. The company also faces risks from foreign currency fluctuations and consolidation in the confectionary industry. However, Hershey has a low beta and generates steady growth through strong brands and supply chain efficiency.
Dr Pepper Snapple 2012 Presentation At Barclays Back To SchoolNeil Kimberley
This document discusses Barclays' back to school strategy. It outlines their portfolio of brands, which include premium teas, juices, and flavored carbonated soft drinks. It discusses their focus on building brand awareness through marketing and innovation. It also summarizes their strategies to increase availability in grocery and convenience stores and build single-serve occasions. The document highlights their focus on rapid continuous improvement and margin management to drive efficiency and productivity gains.
Distributors and large chains have increasingly adopted direct sourcing over the past 5 years to reduce costs. This shifts purchasing power away from manufacturers to customers. As a result, manufacturers now face challenges like competing for production capacity globally with their largest customers. To adapt, manufacturers may focus on brand loyalty with independent operators, offer tiered product lines, and monitor direct sourcing models closely as purchasing practices continue evolving. Global sourcing is emerging as the next phase in the supply chain's evolution.
General Mills held its annual CAGNY conference to discuss new growth opportunities. Ken Powell, Chairman and CEO, kicked off the conference by highlighting the company's long history of growth since 1866 and its transition to becoming a global food company by 1995. Jeff Harmening then provided an update on the U.S. Retail segment, noting challenges in the first half of fiscal year 2015 but expectations for renewed sales and profit growth in the second half through actions like focusing on key businesses like cereal, yogurt, and snacks. Chris O'Leary followed with details on the company's strategies for continued international growth.
Reed report final final draft for regionalMatt Yamamoto
The document provides an analysis and recommendation for Reed's Inc. (REED) stock. It summarizes the company's financials, products, strategies, and competitive positioning in the beverage industry. REED produces natural sodas and kombucha, and is expanding distribution and private label offerings. While high growth is expected, risks around management, production, and corporate governance temper expectations. A DCF valuation and P/S analysis yield a 2014 target price of $8.33, resulting in a HOLD recommendation with 15.86% upside potential from the $7.19 stock price. Key risks that could impede profitability include management stability, production shortfalls, and oversight from the Board of Directors.
This letter from Team 8 transmits their analysis of the supermarket and grocery retailing industry to various managing partners at Copeland Associates, describing their examination of the overall industry, Whole Foods Market, and The Fresh Market, concluding that Whole Foods is currently better positioned for sustainable growth based on an evaluation against key success factors.
PepsiCo Inc. is analyzed in this document. It provides a business description of PepsiCo and its segments. An economic analysis discusses improving US GDP growth and a low interest rate environment. The beverage and snack industries are overviewed, noting changing consumer tastes towards healthier options. PepsiCo has opportunities in emerging markets and product innovation. Financial analyses include valuation models estimating PepsiCo's fair price at $109.90, implying 9.5% upside. Strengths include brand recognition and diversification, while weaknesses are consumer tastes shifting away from sugary drinks.
General Mills' annual report summarizes its financial performance in fiscal year 2012. Key points include:
- Net sales grew 12% to $16.7 billion, with international sales up 45% due to the Yoplait yogurt acquisition.
- Segment operating profit rose 2% to over $3 billion.
- Adjusted diluted EPS grew 3% to $2.56, excluding one-time items.
- The company aims to continue balanced growth across core and emerging markets through established and new brands.
The document summarizes the July 2013 issue of the Restaurant Research Thermometer magazine. Key points include:
- Restaurant stocks continued to rise significantly year-to-date, outperforming the S&P 500 and consumer discretionary sector. Casual dining stocks fell slightly in July.
- Several large restaurant chains were exploring sales or IPOs, including CKE Restaurants, Papa Murphy's, and Focus Brands.
- Major chains announced new products and promotions for July, such as Wendy's Pretzel Bacon Cheeseburger and McDonald's Monopoly game.
- The report provided summaries of research on Applebee's and Subway, discussing sales trends and competitive challenges. It also summarized industry data
Cascadia Capital Food & Beverage Industry Perspectives Fall 2017Cascadia Capital
Packaged food and beverage is among the most dynamic segments in the capital markets. The industry is undergoing a seismic shift driven by evolving consumer preferences and demographic changes. These forces are rewriting everything we know about the industry -- how products are made, where they are sold, how brands connect with customers, and how retailers merchandise and drive traffic. When an industry changes this dramatically, it reformulates the recipe for success. Companies that get ahead of the change curve stand to benefit, enabling them to enjoy exceptional growth rates and create outsized shareholder value.
Small consumer packaged goods companies are gaining market share from large incumbent companies. Small brands have grown revenue three times faster than categories overall by utilizing different strategies around branding, pricing, innovation, distribution channels, and in-store marketing. Large companies can respond effectively by either acquiring small brands for their capabilities or mimicking small brand strategies, as Frito-Lay has done with its Kettle Cooked potato chips. To counter small brand threats, large companies must understand the capabilities enabling small brand success and look for ways to incorporate these into their own growth strategies.
This document provides an overview of General Mills' 2014 annual report. It discusses financial highlights for 2014 including a 1% increase in net sales to $17.9 billion and a 4% increase in adjusted diluted EPS to $2.82. The Chairman's letter discusses priorities for 2015 including accelerating sales growth by focusing on key consumer groups and product categories that are growing. The report provides information on General Mills' business segments, board of directors, and sales trends for various product categories including Big G Cereal.
Capitalizing on Opportunities in Fresh Prepared FoodsL.E.K. Consulting
With the increased focus on investing in the perimeter of the grocery store, fresh prepared foods is one of the most interesting growth areas for U.S. grocers. The lines of retail and foodservice have been blurring as grocers realize there is a golden opportunity to capitalize on consumers’ desire for fresh prepared foods and drive foot traffic.
This Executive Insights profiles the high-growth category of fresh prepared foods and why retailers and suppliers alike can expect to find significant opportunities in this market for years to come.
Whole Foods Market has experienced strong growth over 30 years, expanding from 1 store to over 400 stores globally. They emphasize high quality natural and organic products. Whole Foods aims to balance the needs of customers, employees, suppliers and communities while creating value for all stakeholders. Their mission is to set the standard of excellence in food retail and promote healthy lifestyles.
Innovative Food Holdings (IVFH) is a leading nationwide provider of direct from source specialty foods, healthcare foods, gluten free foods, and artisanal foods. The company’s specialty food platform powers some of the largest food distributors in the country. Innovative Food Holdings has showcased over 50 consecutive months of year over year growth while increasing profitability. A few of us MicroCapClub members visited the company’s headquarters in Florida last summer and came away impressed with how management is positioning itself in the Specialty Food space. The industry is ripe for consolidation. In the month of January alone, there were 21 M&A transactions in the food distributor industry. In the specialty food distributor category The Chefs’ Warehouse (CHEF) and United Natural Foods (UNFI) have been growing rapidly, mostly by way of acquisitions. With Amazon.com (AMZN) now entering the direct to consumer space by way of amazonfresh, we feel Innovative Food Holdings is right in the sweet spot of the industry and also likely in the crosshairs of industry participants.
Sprouts Farmers Market provides a summary of their investor deck which outlines their business strategy and financial performance. Key points include:
- Sprouts offers fresh, natural and organic foods at affordable prices, appealing to a broad customer base. They have significant room for growth through new store openings.
- The company has a differentiated go-to-market strategy of focusing on produce and creating a comfortable shopping environment. This drives strong and consistent sales growth across existing stores.
- Financial targets include annual unit growth of 14%, comparable store sales growth of 6%+, and net income growth of 20%+ through new store openings and margin expansion in existing stores.
This document provides an analysis of Whole Foods Market Inc. including its vision, mission, history, growth strategy through mergers and acquisitions, external and internal assessments using PESTEL, Porter's Five Forces, EFE matrix, CPM, VRIO analysis, IFE matrix and SWOT analysis. It identifies Whole Foods' strength in quality products and brand but also threats from increased competition and potential lower spending during economic downturns. Three alternative strategies are considered and it is recommended Whole Foods employs a two-phased intensive growth strategy starting with market penetration to strengthen market share followed by market development through international expansion.
1Running head MARKETING PLAN AND SALES STRATEGY2Running hea.docxdrennanmicah
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Running head: MARKETING PLAN AND SALES STRATEGY
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Running head: MARKETING PLAN AND SALES STRATEGY
Marketing Plan and Sales Strategy
Amy E. Guy
Dr. Andrea Banto
Business 599
November 11, 2018
MARKETING PLANThe situation of the Existing Market
There exist different types and brands of beverages in Youngsville which are strong in their own way. Different types of people have different tastes of beverages they want which includes, but is not limited to the calorie levels and alcohol percentages whereas others are more sensitive about the side effects which might be caused by these beverages.
The current market situation in Youngsville, North Carolina is very competitive due to the existence of many giant non-alcoholic beverages companies which have colonized an enormous market share posing a threat to startups. These challenges elevate when these famous companies realize that a growing company has started to become a big competitor to them, hence channeling hefty resources to fight back.
Venturing into a market that is well established and full of giants such as is not an easy task. This will require the adoption of a well-founded marketing strategy that will enable us to maneuver through the unfair competition experienced in Youngsville.Target market
The total population of Youngsville, North Carolina is 18,336. Our company is targeting consumers of ages above 10 (This is about 95% of the total population) who want a life full of health. Our brands will serve as a suitable substitute to the existing but much expensive beverages enriched with vitamins and refreshing taste containing calorie and costly energy. The average income per household in Youngsville is $61,104, hence we have made our products considering the different existing economic strength of the people. Engineered with an immense level of quality to promote a healthier living, our products appeal greatly to people who want to support and be part of our company.Demographic Description
Age range: Any person above the age of 10.
Income Range: Persons with income above $ 1000.
Gender: Male, Female.
Social Class: Students, Working Class, Middle Class, Upper Class, Elite Class.
Lifestyle: Modern, Sports, Healthy Persons. Competition Assessment
We are a non-alcoholic beverage production company, a much-crowded venture, so our major competitors are giant companies such as PepsiCo, Nestle and Coca-Cola Company. Other competitors include Red bull and Dr. Pepper Snapple. The existing giant companies have wide market shares which they guard jealously hence they will not allow any other product to pose a threat against their products hence they will dedicate their effort and resources in suffocating their competitors in the market (Porter & E, 1989).
We have made our products to affordable, a way to pull the market since the same companies that offer similar bever.
This document provides details about PepsiCo's budget preparation process. It includes an introduction to PepsiCo's objectives to deliver sustained growth while reducing environmental impact. It then describes PepsiCo's 8-step budget preparation process, which includes setting strategic goals, analyzing external PEST factors and internal SWOT factors, setting budget objectives, and implementing the prepared budget. PEST and SWOT analyses identify political, economic, social, and technological factors as well as PepsiCo's strengths, weaknesses, opportunities, and threats. The document also lists PepsiCo's product portfolio and provides financial statements.
PepsiCo is a leading food and beverage company that produces brands like Frito-Lay snacks, Pepsi, Gatorade, and Tropicana. The analyst initiates coverage with a hold recommendation and $87.57 price target. Key points are:
1) Emerging markets are a main driver of growth, with PepsiCo investing $5 billion in Mexico over 5 years.
2) EPS growth is supported by Frito-Lay, emerging markets strength, dividends, and share buybacks.
3) Healthy brands, cash flow, dividends and buybacks create shareholder value.
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2. CFA INSTITUTE RESEARCH CHALLENGE 31 JAN 2014
Market Profile
Market Cap $1.66 Billion
Recent Price $87.69
52-week
High
$97.80
52-week low $67.28
Shares
Outstanding
18.8 million
Average
Daily Volume
53,560
Institutional
Holdings
66.3%
ROE 13.0%
ROA 9.8%
P/E 24.14
TEV/EBITDA 10.4x
TEV/Sales 1.69x
Source: Bloomberg, S&P Capital IQ
Figure 1: JJSF total returns vs. ^RUA & S5CONS
Source: S&P Capital IQ
Highlights
• We initiate coverage with a buy recommendation and a price
target of $106.00, or 21% above the recent trading price.
• JJSF is a defensive growth stock that can continue to grow faster
than the industry through both price and volume increases. A
strong balance sheet affords the company the ability to continue
making strategic acquisitions that can be successfully synergized into
existing operations and provide additional leverage.
• Targeting niche markets enables JJSF to consistently report
operating metrics above its peers. By establishing a leading position in
these categories, JJSF is able to combat the negative competitive
forces in various markets and position itself for sustained above
average growth and profitability.
• Proven management that is shareholder friendly. Since initiating a
dividend policy 2005, JJSF has increased its annual dividend at a
compound annual growth rate (CAGR) of 19.9%. JJSF recently
announced a doubling of its dividend for 2014, but our estimated
payout ratio still has JJSF remaining in the lower 90
th
decile in this
category. Strong cash flow generation and balance sheet suggest
continued annual increases in the dividend are likely.
Important disclosures appear at the end of this report
J & J Snack Foods Corp.
Ticker: JJSF GICS Recommendation: BUY Estimated Upside
Exchange: NASDAQ Sector: Consumer Staples Target Price $106.00 20.88%
Industry: Food, Beverage, & Tobacco Price as of
Sub-industry: Packaged Foods and Meat products Jan. 29, 2014: $87.69
FCFF sensitivity analysis
EBIT growth rate (%)
7 8 8.5 9 9.3 9.5 10 11 12.5
5 $86.53 $88.83 $89.99 $91.17 $91.89 $92.36 $93.57 $96.02 $99.78
10 $93.15 $98.50 $101.29 $104.15 $105.91 $107.09 $110.12 $116.42 $126.54
-‐100
0
100
200
300
400
500
Return(%)!
JJSF!
Russell 3000 Index!
S&P 500 Consumer Staples
Index!
3. Figure 2: Shareholder Structure
Source: Bloomberg
Figure 3: Revenue by Product
Source: Company Data
Figure 4: Facility Locations
Business Description
JJSF manufactures nutritional snack foods and distributes frozen
beverages that it markets nationally to the food service and retail
supermarket industries
1
. JJSF targets niche categories where it can be
one of the preeminent players and has with operations in the United
States, Canada and Mexico. Headquartered in Pennsauken, New
Jersey, JJSF was established in 1971 by Gerald B. Shreiber when he
acquired the assets of J&J Pretzel Co. at auction for $72,100. Shreiber,
who is currently the CEO, Chairman of the Board, and President, has
grown a company that dealt solely in soft pretzels with $400,000 in
sales to a publically traded snack food conglomerate with $867.7
million in sales in fiscal 2013.
The whole is greater than the sum of its parts.
JJSF has developed a diverse line of snack foods including soft
pretzels, frozen beverages, and various other baked goods. They have
three market segments: Food Service, Retail Supermarkets and
Frozen Beverages. The Food Service segment consists of soft
pretzels, frozen juice treats and desserts, churros, dough enrobed
handheld products and baked goods including various cookie products.
The Retail Supermarket segment is made up of frozen and prepackaged
products that are purchased by consumers for consumption at home.
Some of the products included in the Retail Supermarket segment are
SuperPretzel Soft Pretzels, Luigi’s Real Italian Ice, Whole Fruit frozen
fruit bars and sorbet, ICEE Squeeze-Up Tubes, and Patio burritos. The
Frozen Beverage segment sells frozen beverages such as ICEE and
Slush Puppie to the food service industry. The company is focused on
developing new and innovative products, further penetrating into
existing market channels, and expanding established products into new
markets.
Experienced management with a history of excellent execution
Though the board and management team have seen some changes
over the years, the core culture and principles remain in place that have
enabled JJSF to report its 42
nd
consecutive year of record sales and
profitability this past fiscal year. Other members of management include
CFO Dennis G. Moore, who has held this title in addition to other roles
since June of 1992, and Robert M. Radano, who has been the COO
since May 1996. Moore and Radano joined JJSF in 1984 and 1972
respectively, displaying management’s commitment in the success and
longevity in the company. Other members of the BOD bring valuable
experience to JJSF in freight transportation, warehousing, third party
logistics, marketing, manufacturing, commercial and investing banking,
and frozen beverages.
1
J & J Snack Foods 2013 10K
36%
30%
5%
20%
9%
29%
Institutional!
Institutional Mutual Fund!
Mutual Fund!
Insider!
Retail!
21%!
11%!
7%!
6%!
32%!
15%!
8%!
Soft Pretzels! Frozen Desserts & Treats!
Churros! Handheld!
Bakery Products! Frozen Beverages!
Other!
4. Figure 5: Porter’s 5 Forces Analysis
Figure 6: Peer Group and Sub-industry
Capital Structures
Source: S&P Capital IQ
Source: S&P Capital IQ
Industry Overview and Competitive Positioning
Rivalry in the packaged food and meats industry is strong. Product
differentiation tends to be more perceived than actual – this is why some
companies spend so much on marketing in an attempt to convince customers
that their products truly are “one of a kind.” Switching costs between brands
within the category are also very low. Moreover, most firms tend to incur
significant fixed costs due to factory expenses and storage costs, the later of
which tend to arise because of the perishable nature of their products. The
threat of substitute products is extremely high. Convenience plays a
large role because packaged snack foods are widely available and consumers
are likely to choose a product based on location and accessibility. Price also
plays a large role, and consumers are more likely to choose the lowest price
option when it comes to snack foods.
This high threat of substitutes means that JJSF’s strategy of achieving
leadership in niche categories has the potential to end up being less profitable
as one might initially expect. JJSF’s is not just competing with other firms that
make similar products (e.g Snyder’s-Lance, Inc. [NasdaqGS:LNCE]), but rather
a whole host of snack food companies like The Hershey Company
(NYSE:HSY), Diamond Foods, Inc. (NasdaqGS:DMND), Unilever plc
(NYSE:UL), and ConAgra Foods, Inc. (NYSE:CQB)
2
. Moreover, Mr. Shreiber
has commented previously that for certain products he considers his primary
rival to be smaller, regional players – something that certainly makes sense
when you consider regional bakeries and the fact that JJSF’s largest product
segment is still bakery goods, not pretzels (appendix 11).
The bargaining power of suppliers in the packaged food and
meats industry is weak. There are many suppliers of the raw materials that
JJSF and other corporations’ use as their inputs, and because of this they tend
to be competitively priced. The biggest source of supplier power comes in the
form of switching costs, which may be significant depending on how complex
and intergraded the relationship is. Buyer power strength depends on
who you consider to be the “buyer.” End consumers are extremely
fragmented and have little power; however, the ones who actually
decide whether or not to sell JJSF’s products (retailers, fast food chains,
etc.) are far fewer in number and wield significant power.
Health and nutrition have become key drivers for the industry
In a recent survey Deloitte and Touche LLP found that 79% of executives
believed that nutrition was the main driver of the packaged food industry
3
. JJSF
has witnessed the push toward healthier products first hand. Since losing
contracts with schools around the nation, JJSF has formulated new recipes to
make their snacks healthier. The lack of nutritional value has not impacted sales
as greatly as earlier anticipated, but JJSF has reformed their recipes to cater to
America’s issue with obesity. In the most recent quarterly earnings call, Gerry
Shreiber, the CEO, mentioned that JJSF has started to sell their products in
schools again.
2
This, along with JJSF’s unique business model is why we decided to ultimately focus on
comparing the company to peer group statistics.
3
Deloitte and Touche LLP - Food and Beverage 2012: A Taste of Things to Come
0
2
4
6
Threat
of
New
Entrants
Bargainin
g
Power
of
Suppliers
Bargainin
g
Power
of
Buyers
Rivalry
in
the
Industry
Threat
of
SubsGtute
Products
Debt!
43%!Equity!
57%!
Peer Group!
1%
9%
4%
3%
1%
11%
9%
4%
2%
3%
11%
15%
17%
10%
Figure 8: Sub-indusrty debt ratings! AA!
AA-!
A+!
A-!
A!
BBB+!
BBB!
BBB-!
BB+!
BB!
BB-!
B+!
B!
B-!
Debt!
38%!Equity!
62%!
GICS Subindstury!
5. Impulse buys + deliberate purchases
= strong sales growth
Almost everywhere you go it is possible to find one of
JJSF’s products ( see figure 12). This convenience
factor enables JJSF to capitalize on “impulse buys” in
additional to deliberate purchases. This also helps
create familiarity with JJSF’s numerous brands and
potentially engender consumer loyalty.
Figure 9: Revenue growth sensitivity to GDP
Source: The Federal Reserve, S & P Capital IQ
Figure 10: Returning Capital to Shareholders
Source: S&P Capital IQ, Team calculations & forecasts
Figure 11: Peer group cash and marketable securities
Investment Summary
Attractive Valuation and Strong Fundamentals
Our intrinsic value estimate is derived from historical operational performance
and what we consider to be reasonable estimates with an eye towards
conservatism in order to embed a margin of safety in our estimates. Using
trailing twelve-month data we value the stock at $106 per share, or 21% above
the recent share price of $87.69.
Outstanding Operating Performance
Since going public, JJSF has been able to consistently deliver impressive
operational metrics and outperform most peers in terms of growth and
profitability. This has been achieved primarily through its strategic initiative of
focusing on niche product categories where it can be a category leader. Due to
the current management team, market opportunities, and category positioning,
we believe these trends are likely to continue.
Sound Financial Position
JJSF currently has over $215 million in cash and marketable securities (the vast
majority of which are available for sale), or $11.54 per share – $5.66 of which is
cash and cash equivalents. This accounts for over 32% of total assets, which is
the second highest percentage among our peer group. Although this is currently
hurting operational performance measures and overall growth, when combined
with its strong cash flow generation, this provides the firm with ample cash to
deploy when attractive investment opportunities present themselves in addition
to continuing to return cash to shareholders.
Bucking the trend
Research has found that most firms only destroy shareholder wealth through
acquisitions
4
. But as both its historical operational performance metrics and
stock price performance can attest to, JJSF has done an excellent job of not
falling trap to overpaying for growth. Cumulative gains on bargain purchases are
actually larger than impairment charges – $6.6 million vs. $1.2 million.
Management is steadfast in its commitment to waiting until an attractive
opportunity presents itself before pulling the trigger, thereby enabling the firm to
continue to have an ROIC well above the peer group median.
Shareholder Friendly Management
Since initiating a dividend in fiscal 2005, JJSF has increased its dividend each
year at a CAGR of almost 20% (12.5% if you exclude the recent doubling of the
dividend this past November). This means that anyone who purchased the stock
prior to the end of July in 2009 has a current yield of 3% on shares of a
company that has consistently grown faster than the industry and. This has
resulted in impressive total returns for investors who have reinvested their
dividends see figures 1 and 12. Of the 31 companies in JJSF’s peer group that
currently pay a dividend, JJSF is currently tied for 28
th
place with a yield of 1.5%
and our forecasted 2014 payout ratio is well below the peer group median. We
believe continued annual increases are very likely.
4
Moeller, Schlingemann, & Stulz (2003) found that in a sample of 12,023 acquisitions shareholders of
these firms lost a total of $218 billion when acquisitions were announced. A KPMG study (1999) found
that this underperformance tends to persist over time.
-‐5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
1999
2001
2003
2005
2007
2009
2011
Percent Change in GDP!
Percent Change in Revenue!
0%
20%
40%
60%
80%
100%
$0.00
$0.20
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
Dividends per Share!
Payout Ratio!
12.5%
CAGR!
Figure 12: Settings where JJSF products can be found
• Business Dining • Military
• Club Stores • Movie Theatres
• Colleges & Universities • National Restaurant Chains
• Convenience Stores • Regional Restaurant Chains
• Healthcare • Schools K-12
• Independent Restaurants • Sports & Entertainment
• In Store Bakery • Supermarket & Grocery
• Mass Merchants • Theme & Amusement Parks
Source: J&J Snack foods
0!
2!
4!
6!
8!
10!
12!
14!
16!
18!
20!
0%!
5%!
10%!
15%!
20%!
25%!
30%!
35%!
40%!
USD!
Cash & Marketable Securities/Total Assets!
Cash and Marketable Securites per Share!
JJSF
6. CFA INSTITUTE RESEARCH CHALLENGE 31 JAN 2014
Figure 13: JJSF stock price and key acquisitions from 2004 to today
2!
3!
4!
5!
6!
7!
8!
1990! 1995! 2000! 2005! 2010! 2015! 2020!
ln Revenues !
( USD mm)!
Figure 14: Modeling Revenues!
Predicted!
Actual!
20!
30!
40!
50!
60!
70!
80!
90!
Jan-04! Jan-05! Jan-06! Jan-07! Jan-08! Jan-09! Jan-10! Jan-11! Jan-12! Jan-13! Jan-14!
Acquires assets
of New York
Pretzel!
Acquires assets of
Kim & Scott's
Gourmet Pretzels!
Acquires Frozen
Handheld from
ConAgra Foods!
Acquires
Radar, Inc.!
Acquires
Slush Puppie!
Acquires ICEE
of Hawaii, Inc.!
Acquires
SnackWorks
LLC!
Acquires Country
Home Bakers!
10.0%!
10.5%!
11.0%!
11.5%!
12.0%!
0!
200!
400!
600!
800!
1,000!
1,200!
1,400!
USD mm!
Figure 15: Forecasting EBIT margin!
Revenue!
Total Operating
Expenses!
EBIT Margin!
Long-term margin
forecast!
7. CFA INSTITUTE RESEARCH CHALLENGE 31 JAN 2014
Figure 16: Valuation Summary USD mm
Present value of FCFF in high growth phase 384.30
Present value of terminal value 1,423.89
Value of operating assets 1,808.19
Value of Cash & Equivalents 215.41
Value of firm 2,023.60
Value debt 39.31
Market value of equity 1,984.29
Value of Equity in options 6.16
Value of Equity in common stock 1,978.13
Share price $105.91
Source: Team Estimates
Figure 17: FCFF Inputs
Growth Period High Low
Growth rate 9.30% 2.75%
Adjust debt ratio 2% 24%
Beta 0.78 1
Risk-free rate 2.67% 2.67%
Equity risk premium 5.29% 5.29%
After-tax cost of debt 3.07% 3.26%
Tax rate 36% 35%
Adjusted ROC 18% 11%
Adjusted reinvestment rate 40% 25%
Source: Team Estimates
Figure 18: Cost of Debt
Source: Bloomberg, Team Estimates
DCF Valuation
• Model: We choose to use a FCFF model over a FCFE model because
we believe that the likelihood of JJSF changing its capital structure in
order to optimize its cost of capital by the end of its high growth phase
is a far more reasonable assumption than the alternative, i.e. remaining
debt free into perpetuity. JJSF currently has less debt, in the form of
lease obligations, than all but one other peer group constituent. In an
attempt to derive a more accurate estimate of JJSF’s intrinsic value the
follow adjustments to the company’s GAAP metrics were made:
o Operating leases were capitalized to account for off balance
sheet financing and added to the present value of capital
leases to find the current present value of debt.
o Employee options were valued using the Black-Scholes
model and the present value subtracted from the value of
equity.
• Sales: JJSF’s small size and penchant for purchasing business that can
easily be folded into its current operations has enabled it to
consistently grow faster than the industry average. We anticipate that
this will continue for at least ten years and will due to both volume and
price increases.
• Margins: We are forecasting for continued EBIT margin expansion due
to the operational leverage afforded by increasing production volume,
albeit at a much slower rate than the historical average – only 77 basis
points to 12% by the end of our high growth period. Though above the
industry median, our belief is that JJSF leadership positioning in niche
categories will enable it to achieve margins that are higher than those
competing in the more competitive segments of the GICS sub-industry.
This results in EBIT growing at a CAGR of 9.3% during our high growth
period.
• WACC: The cost of equity was found using the CAPM model. An
equity risk premium was calculated by using a two-stage dividend
discount model to discount the forecasted dividends and buybacks on
the S&P 500 and set the current value of the index equal to its intrinsic
value. The implied equity risk premium was used in favor of a historical
approach as research has shown that the current implied ERP has a
higher correlation with future ERPs.
5
The current yield on the 10-year
US government bond was used as a proxy for the risk-free rate. A
bottom-up beta was utilized to minimize the standard error of the
estimate and was calculated using the peer average (corrected for
cash) and JJSF’s current tax rate and leverage ratio (adjusted for
leases)
6
. Given that JJSF currently has no publicly traded debt,
estimating a pre-tax cost of debt was calculated by creating a synthetic
rating and using the current corporate spread over the U.S. 10-year
Treasury. We assigned JJSF with a S&P synthetic rating of BBB and
added the current spread corporate spread of 1.54%.
5
Damodaran (2013) Equity Risk Premiums (ERP): Determinants, Estimation and Implications The
2013 Edition
6
Our estimated beta is actually the same as the Bloomberg 5-year regression beta using weekly data.
Risk Free Rate 2.67%
Synthetic Rating BBB
Spread 1.54%
Pre-tax cost of debt 4.21%
8. Figure 19: Return on Invested Capital
Source: Company data, Team calculations
Figure 20: Segment Revenues and Operating Margins
Source: Company data, Team calculations
• We assumed that metrics would revert towards peer median levels
during the stable phase. Constituents for peer comparisons were
selected using Value Line – all US based publicly traded firms in Value
Line’s food processing industry were included in peer group
calculations.
Multiples Analysis
Historically JJSF has traded at a TEV/EBITDA discount to both the GICS
sub-industry and its peer group. We find this to be unwarranted due to its
above average growth, lower leverage, and well above average returns on
invested capital; and believe this lends additional support to our view that the
stock is currently undervalued, and perhaps even a reason why the security is
underpriced. Given that this runs contrary to an earnings yield comparison,
we suspect that the market is currently focusing more on earnings than the
underlying strength of the business in question – an unfavorable comparison
for firms who have below average leverage.
Figure 22: TEV/EBITDA comparison
Source: S&P Capital IQ
Figure 23: Earnings yield
Source: S&P Capital IQ, Team calculations
0%!
2%!
4%!
6%!
8%!
10%!
12%!
JJSF! Peer Median!
GAAP TEV/EBITDA
CY2009 CY2010 CY 2011 CY 2012 Latest
JJSF 6.8x 7.8x 8.1x 8.6x 12.1x
GICS sub-industry 10.0x 9.5x 10.3x 11.1x 11.7x
Peer group 10.2x 14.9x 10.1x 11.5x 12.5x
0%
2%
4%
6%
8%
10%
12%
14%
16%
0
100
200
300
400
500
600
700
800
900
1,000
2001
2003
2005
2007
2009
2011
2013
USD
mm
Frozen Beverages! Retail Supermarket!
Food Service! Food Service OM!
Retail Supermarket OM! Frozen Beverages OM!
JJSF OM!
0%!
2%!
4%!
6%!
8%!
10%!
12%!
14%!
16%!
18%!
JJSF! Peer median!
9. Source: S&P Capital IQ, Team calculations
Figure 24: Return on Equity
Source: S&P Capital IQ, Team calculations
Figure 25: Cash Conversion Cycle
Source: Company Data, Team calculations
Financial Analysis
5-way DuPont Decomposition Analysis
At first glance JJSF’s ROE doesn’t appear to be anything noteworthy as it has
stayed relatively close to both the GICS sub-industry and peer group medians.
However, after doing a 5 way DuPont Decomposition we were left quite
impressed. This is because the only thing preventing JJSF from having a ROE
that is far higher than the average for this industry is its lack of leverage. In fact,
JJSF has asset turnover, operating margin, and interest burden ratio have
remained significantly above the peer group median since 2008 (JJSF’s tax
burden has oscillated around the peer group median). Were the firm to readjust
its capital structure in the near future so that it had leverage and interest burden
ratios equal to the industry average JJSF’s ROE would rise north of 19%
assuming it could invest its newly raised capital in equally profitable projects.
(Please see appendix 10 for a charts of all the components of the DuPont
decomposition).
Figure 26: DuPont Decomposition
Peer
Median
JJSF
Current
JJSF with
Peer Median
Tax
Burden
6.48%
63.88%
63.88%
Interest
Burden
90.95%
103.48%
90.95%
Operating
Margin
9.73%
11.23%
11.23%
Net
Profit
Margin
5.73%
7.42%
6.52%
Leverage
Ratio
2.13
1.26
2.13
Asset
Turnover
1.08
1.39
1.39
ROE
13.23%
12.98%
19.28%
Source: S&P Capital IQ, Team Estimates
Cash Conversion cycle weakening, but still better than the peer average.
Prior to 2010 JJSF’s cash conversion cycle was one of the best in its peer
group; however, an increase in days inventory on hand and decrease in days
payables outstanding have served to pull up JJSF’s cash conversion cycle
towards the peer group median. The latter appears to be a prudent use of some
of JJSF’s excess cash, but the former bears watching. In 2011 inventories
increased by 25%, 60% of which was driven by higher unit costs of inventory
and inventory of handhelds
Strong growth in cash flow
JJSF has grown its unlevered TTM free cash flow by at an impressive CAGR of
13% over the past 10 years. This cash flow, when combined with the assets
already on place on the balance sheet, provide the firm with ample cash to
invest in growth assets or return to shareholders through dividends and
buybacks.
11%
12%
13%
14%
2009
2010
2011
2012
TTM
JJSF! GICS subindustry!
Peer goup!
25
30
35
40
45
50
CCC
DSO
DPO
DIH
Peer
median
3-Year CAGR
Revenue Net Income
JJSF 7.6% 10.0%
GICS sub-industry 5.2% 0.0%
Peer Group 7.0% 6.3%
10. Figure 27: Quarterly LTM Unlevered Free Cash Flow
Source: S&P Capital IQ
Figure 28: YoY Change in Segment Sales
Source: S&P Capital IQ
Figure 29: Drivers of segment sales growth
42 years of record revenues and profitability
For JJSF, the year 2013 was a record year in terms of revenue, net income, and
earnings per share. The Company’s soft pretzel brands grew by over 18% and
contributed a record $145,030,000 to revenues in 2013 – though handhelds do
still remain the companies single largest product segment by accounting for
32% of total sales to external customers. The repair and maintenance category
continues to be a steady source of cash from the Frozen beverages segment,
while the Retail Supermarket segment continue to experience headwinds as
sales decreased 5% on a YoY basis, adjusting for the extra week in fiscal 2012.
We anticipate the retail segment will stabilize and return to growth in the first
half of our high growth period in our DCF model. We expect net income to
continue to increase at a faster rate than the top line as JJSF continues to cut
costs and increase operational leverage.
Investment Risks
Market Risk: Change in insider ownership
Since we like to see management teams have “skin in the game,” we are
pleased to see that insiders have a significant stake in the company. However, it
must be noted that Gerald Shreiber currently controls the vast majority of insider
3,678,745 shares, or 20% of shares outstanding
7
. We would become concerned
if were to see insiders begin to reduce their ownership in the company as this
could serve to put downward pressure on the stock by significantly increasing
the float. Currently free float shares as a percentage of shares outstanding is
79.6%. For perspective the peer group median is 95%.
Operational Risk: Overpaying for growth
When firms seek to grow though acquisitions there is always a risk firm will end
up overpaying and destroying shareholder wealth. Though we applaud JJSF’s
management team for ability to resist the temptation to do so, investors must
remain cognizant that the majority of deals do not end up creating shareholder
wealth.
Operational Risk: Recent financial statement developments
persist over time
JJSF’s accruals tend to be higher than its peer group and have shown
considerable variability over the years, with large spikes occurring in 2004 and
2012. Though this does not currently concern us since large spikes have
historically been followed by a regression towards the peer median, if the spike
seen in 2012 is not accompanied by future decreases in the ratio we would
certainly become concerned as research has found a high level of total accruals
to be correlated with both an increased frequency of earnings restatements and
negative abnormal returns around said restatements
8
. The deterioration of
aggregate accruals recently is due in large part to the increase in accounts
receivables. This also holds true for the separation between the growth rates for
revenues vs. accounts receivables and operating income vs. cash flows from
operations (please see appendix 10).
7
J&J Snack Foods Corp., (2014) Form DEF14A
8
Richardson, Tuna, and Qu (2002) Predicting Earning Management: The Case of Earnings
Restatements
- !
10 !
20 !
30 !
40 !
50 !
60 !
70 !
USD mm!
0%
5%
10%
15%
20%
25%
30%
2004
2006
2008
2010
2012
Food Service! Retail Supermarket!
Frozen Beverages!
0%
25%
50%
75%
100%
2010
2011
2012
2013
Food Service!
Volume
Price
-‐100%
-‐50%
0%
50%
100%
2010
2011
2012
2013
Retail Supermarket!
Volume
Price
11. Figure 30: Aggregate Accruals
Figure 31: Spot and Future Commodity Prices
January 1, 2009 – July 29, 2014
Source: S&P Capital IQ
Operational Risk: Loss of major customers
JJSF relies on large customers for several of their products, including
distributors such as Costco and restaurant chains such as Taco Bell. If they
were to lose one or more of these large customers, it would have a materially
negative impact on their current operations. Most purchasing decisions are
made based upon consumer demand as well as the pricing of JJSF’s products,
not contractual agreements, so this poses a relatively significant risk to their
business. This also serves to increase the concentration of risk in their accounts
receivable.
Operational Risk: Management turnover
Were Mr. Shreiber or other key executives to leave unexpectedly or without
having a groomed replacement for the newly vacated position we would have to
reconsider our thesis since we attribute much of the firms’ prior success to the
abilities of JJSF’s management team.
Operational Risk: Unanticipated spike in input costs of Commodity
Prices
Since raw materials such as wheat, sugar, and various dairy products
are key inputs in many of JJSF’s products, there is always the risk that
an unanticipated spike in certain commodities could have a sizable
negative impact on margins.
Economic Risk: Risks Associated With Foreign Operations
Although JJSF is currently minimally involved in foreign operations, we currently
see this as a potential catalyst for additional upside. However, the opposite is
also true as venturing into new markets in foreign countries presents a hosts of
new challenges that must be over come in addition to the added foreign
exchange rate risk.
-15%!
-10%!
-5%!
0%!
5%!
10%!
15%!
20%!
25%!
30%!
Peer median! JJSF!
3!
5!
7!
9!
11!
Wheat (CBOT) Future Contracts!
Wheat (CBOT) Historical Pricing!
0.05!
0.15!
0.25!
0.35!
0.45!
Sugar #11 (ICE) Future Contracts!
Sugar #11 (ICE) Historical Pricing!
17. Appendix 6: Equity Risk Premium Calculation
S&P 500 Dividends & buybacks
TTM
80.33
Current index value 1774.2
Cash yield on index 0.0453
Enter expected growth rate in
earnings for next 5 years for
market
0.0564
Current risk free rate 0.0267
Expected stable growth rate 0.0267
Period 1 2 3 4 5
Expected dividends 84.87 89.65 94.71 100.05 105.7
Expected terminal value 2050.2
Present value 78.61 76.92 75.27 73.6421057 1469.77
Implied Risk Premium in current level of Index 0.0529
Source: Damodaran (2014)
18. Appendix 7: Converting operating leases into debt
Converting Operating Leases into debt
Year Commitment Present Value
(In thousands)
1 $8,556.00 $8,210.34
2 7,545.00 6,947.69
3 5,820.00 5,142.74
4 4,805.00 4,074.33
5 3,072.00 2,499.62
6 and beyond 5,207.33 11,711.62
Debt Value of leases = $38,586.35
Number of years embedded in year 6 estimate 3
Depreciation on operating lease asset $4,823.29
Adjustment to operating earnings $3,266.71
Adjustment to total debt outstanding $38,586.35
19. Appendix 8: FCFF Summary Dollar Amounts in USD mm
Period 1 2 3 4 5 6 7 8 9 10 Terminal Year
Expected Growth Rate (%) 9.30 9.30 9.30 9.30 9.30 7.97 6.65 5.32 4.00 2.67 Terminal Year
Cumulated Growth (%) 109.30 119.46 130.58 142.72 155.99 168.43 179.63 189.19 196.75 202.00
Adjusted Reinvestment Rate (%) 57.17 57.17 57.17 57.17 57.17 50.77 44.38 37.98 31.59 25.19
Adjusted EBIT 113,214 $23,743 135,251 147,829 161,577 174,461 186,059 195,961 203,792 209,233
Tax rate (for cash flow) 36.01 35.90 35.79 35.67 35.56 35.45 35.34 35.22 35.11 35.00 35.00%
EBIT * (1 - tax rate) $72,444 $79,320 86,849 95,092 104,117 112,616 120,311 126,935 132,236 136,002 142,089.14
- (CapEx-Depreciation) 34,819 38,137 41,771 45,750 50,109 $48,356 45,448 41,430 36,404 30,530 31,181.02
-Chg. Working Capital 6,598 7,212 7,882 8,615 9,417 8,825 7,944 6,782 5,363 3,727 4,609.36
Free Cash flow to Firm 31,027 33,972 37,196 40,727 44,592 55,435 66,919 78,723 90,469 101,745 106,298.76
Cost of Capital (%) 6.69% 6.69% 6.69% 6.69% 6.69% 6.67% 6.65% 6.63% 6.61% 6.59%
Present Value 29,080 29,843 30,626 31,430 32,254 $37,589 42,547 46,940 50,600 53,389
Present value of FCFF in high growth phase $383,298.64
Present value of terminal value of firm $1,423,889.87
Value of operating assets of the firm $1,808,188.51
Value of cash, marketable securities & non-operating assets $215,413.00
Value of firm $2,023,601.51
Market value of outstanding debt $39,309.35
Market value of equity $1,984,292.16
Value of equity in options $6,160.62
Value of equity in common stock $1,978,131.54
Market value of equity/share $105.91
20. Appendix 9: Autoregressive model used to forecast revenues
ln(salest) - ln(salest-2) = 0.04798 + 0.43933[ln(salest-1) - ln(salest-3) + et
Regression Results
Coefficients Standard Error t Stat P-value Lower 95% Upper 95%
Intercept 0.04798 0.01532 3.13038 0.00351 0.01685 0.07907
X Variable 0.43934 0.15319 2.86773 0.00695 0.12832 0.75033
0 !
500.0 !
1,000.0 !
1,500.0 !
2,000.0 !
2,500.0 !
USD
mm
Modeling Revenues: Actual vs. Predicted!
Actual!
Predicted!
21. Appendix 10: Assessing earnings quality
-‐0.6
-‐0.4
-‐0.2
0
0.2
0.4
0.6
0.8
1
Growth
in
operaGng
income
vs.
Growth
in
cash
flow
from
operaGons
OperaGng
Income
Cash
from
Ops.
-‐10.00%
-‐5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
Revenue
growth
vs.
Growth
in
accounts
receivable
Revenues
Accounts
Receivable
25. Disclosures:
Ownership
and
material
conflicts
of
interest:
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author(s),
or
a
member
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The
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