Food for thought How to profitably grow your business Research that counts

Summer 2007
Food for thought
How to profitably grow your business
M&As on the rise
Food industry M&A and financing activity
Research that counts
Five surprising ways that food manufacturing
innovation counts for tax credit
Simpler is better
Key strategies for business simplification
Summer 2007
Food for thought
Contents
Simpler is better . .............................................. 1
Simplification strategies..................................... 2
Research that counts.......................................... 5
Food industry M&A and financing activity.......... 6
Capital markets Canada................................... 10
Capital markets United States.......................... 11
Food for thought
Summer 2007
Simpler
is better
Key strategies for business simplification
Achieving simplicity – so succinctly put by history’s greatest minds
– is an ideal pursued not only in life but in business as well. Because
today’s food processors are trending towards unprecedented levels of
business complexity in the heated race for innovation and long term
profitable growth, striving for sustainable simplicity is not only fitting,
it is imperative.
Areas of complexity
Evolving market demands have dramatically expanded product
portfolios. Three decades ago, supermarkets carried about
8,000 SKUs; today’s “supercentres” are wall-to-ceiling with more than
135,000 offerings. The resulting complexity pervades all aspects of the
food processors’ organizations – including processes, products and
customer management – thereby creating inefficiencies, ultimately
stifling growth opportunities. Untangling the disorder involves
identifying the most strategic components of a business, prioritizing
them and creating operational efficiencies that provide rather
significant cost-savings.
Where to begin? Complexity impacts a business in various ways
(see “Areas of complexity”); however, it is generally impractical to
attack complexity across all of these areas simultaneously. Leading
food manufacturers find that focusing first on product, process
and customer complexity, generally provides tangible benefits to
the business. For example, one food processor eliminated almost
$100 million U.S. in waste after streamlining inventory planning,
and integrating sales volumes planning and supply chain forecasting.
At another large food manufacturer, rising logistics costs, excess
inventory and poor customer service were simplified for a cost savings
of $135 million U.S.
Areas of complexity
Suppliers
• Supplier
proliferation
• Raw material
proliferation
Products
• SKU proliferation
• Underperforming product groups
Processes
• Variability in processes across the business
• Processes fragmented across functions
and business segments
Organization and governance
• Matrixed organizations
• Geographic dispersion
• Unclear decision authority
Customers
• Increase
in number
of direct
customers
• Pricing and
promotion
complexity
• Unique
customer
requirements
Systems
• Duplicate applications supporting
the same process
• Disparate hardware in multiple locations
Food for thought
Summer 2007
Simplification strategies
Here are three examples of strategies that could be employed by
food manufacturers to simplify product, process and customer complexity.
Strategy 1: Understand true product profit
contribution to “fix or flush” underperforming
products.
Product complexity is by far the biggest driver of overall business
complexity, creating the greatest impact on organizational profitability.
Unfortunately, with rising consumer demands and expectations,
marketing departments usually opt for incremental product
development over the risk and expense of launching a whole new
brand. Regardless of their performance in the marketplace, most
SKUs demand a complex web of support including marketing,
product design, sales, planning and scheduling costs, materials,
manufacturing and deployment costs, not to mention order processing
and fulfillment. As an example, consider the growing costs for a
leading soda drink manufacturer in 1970, with its six products on store
shelves; in 2000 that same company’s portfolio of SKUs jumped to 25;
some performing well, and others less so.
Understanding key costs below gross margin is vital to establishing
a product’s true contribution to profits. The challenge is that most
businesses, perhaps like the beverage company described above,
have not invested in tracking many of the “cost to serve” elements
that go into understanding the variable contribution of products (see
“Category Variable Contribution Report” below).
Category variable
contribution report
Category “Cost to serve” detail
Gross Sales
Allowances and rebates
Trade spend
Net Sales
Adjusted COGS (variable only)
Freight to customer
Adjusted gross margin
Cost to serve
Variable contribution
Plan and execute promotions
Freight to warehouse
Warehousing
FG inventory carrying cost
• cost of money
• obsolescence/spoilage
Two business examples of this are trade promotional spending and
returns. Companies find it difficult to track trade spend to products
because of the nature of many trade programs, and the poor quality
of trade management systems. Similarly, companies generally have
Food for thought
Summer 2007
“Everything should be
made as simple as possible,
but not simpler.”
poor data on the various incurred costs to support product returns or
excess inventory at the retail level. These costs might include product
markdowns, refurbishment, inventory holding and returns disposition.
In fact, after uncovering the true profit contribution by product group
or brand, the estimation by many food companies is frequently off by
as much as 50%.
Albert Einstein
Once companies have an accurate understanding of true
product profit contribution, they are in a much better position
to increase pricing or “flush” the problem, namely, get rid of the
underperforming, non strategic SKUs.
other industries are doing. A detailed process cost baseline also must
be developed to help understand the size of future investments in
strategic processes. During these assessments, it is important to keep
in mind the tendencies of various business functions to work in silos.
Individual functions, such as marketing, product development, finance,
etc., often operate as though they are independent of each other. This
compartmentalization is another major cause of corporate complexity.
Strategy 2: Maintain focus on processes that are
strategic to your business.
Process complexity is the hardest to resolve because it touches every
business function. Once layers of complexity are removed, however,
food processors may be surprised to find that they are investing
excessive amounts of time and money in certain non-strategic
processes, and too little in the strategic processes required to win in
the marketplace. Typically, there are three activities that companies
can follow – process segmentation, investment prioritization, and
lean-based process simplification.
With accurate process segmentation, it is possible to conduct
investment prioritization – namely, where to invest, what to keep
in-house and what to outsource or even divest. Ideally infrastructural
processes should be optimized before outsourcing, otherwise
companies cannot drive towards the lowest cost of operations (while
maintaining required service levels). The benefit of segmentation
is that once core and infrastructure processes are identified, and
ruthlessly reprioritized, they ultimately help “fund” the investment in
strategic differentiators.
Process segmentation requires allocating all business processes to one
of three segments – strategic, core processes, infrastructure processes
(see “Process segmentation” below).
After process segmentation has occurred, a “lean” method can be
used to further facilitate individual process simplification. Traditional
lean principles, which focus on streamlining the flow of production
material and information throughout the entire enterprise, are
typically applied on the factory floor. The same lean principles – value
In the illustration below, for food processors, strategic differentiators
– the processes required to win – often involve product and brand,
which may include product innovation, branding, and consumer and
trade promotions.
Process segmentation
cla
s
t in
bes
st f
Inv
e
Lastly, infrastructural processes, which need
to be designed for low cost, typically present
good outsourcing opportunities, such as
accounts payable and plant maintenance.
Strategic
differentiators
(Required to “win”)
sig
nf
or
low
cos
t
Core processes
(Required to “play”)
De
Before deciding which processes fall where,
detailed benchmarking is required, enabling
a solid understanding of competitor
strategies and behaviours. It also provides an
understanding of what leading companies in
Key attributes
s
Segmentation category
or
The core processes, which are required to
play, are capabilities enabling companies
to play well, but where being best-inclass provides no competitive advantage
in the marketplace, such as training and
development and procurement.
Infrastructural processes
(Candidates for “not required at all”)
• World class performance provides a
distinct competitive advantage
• Typically a core competency/mission critical
where risk is unacceptable
• Examples: new product development,
category/brand management
• Essential to compete effectively in the
marketplace, but not sufficient to provide
a competitive edge
• Does not require world class performance
• Example: Inventory management
• Yield no strategic value
• Common, standardized and non
proprietary across global operations
• Ideal candidates for a shared services
model or for outsourcing
• Examples: payroll, audits
Food for thought
Summer 2007
(as determined by the customer), value stream (the processes that
creates value for the customer), flow (no stops through manufacturing
process), pull (ability to produce on demand) and continuous
improvement – can and should be applied to improve individual
processes in consumer packaged goods companies.
Strategy 3: Use “cost to serve” to facilitate decisions
to target customers.
Customer segmentation is important for overall business profitability.
Consumer packaged goods companies tend to have a wide range of
customers, from Wal-Mart to mid-sized retailers, down to mom-andpop stores. As previously discussed regarding product profitability,
most companies have a limited understanding of the true profitability
of each customer segment. This makes it difficult to direct the
appropriate level of investment to support each segment.
Understanding true customer profitability through segmentation
requires conducting a detailed “cost to serve” analysis to identify
the costs that go into supporting a customer relationship. This is
often quite a challenge as there are many hidden costs in serving
customers. Data often needs to be pulled from multiple systems, and
to be meaningful, companies need to go well beyond the easy stuff,
like calculating the cost of freight, co-op advertising, and damaged
returns, and getting a handle on the deeper, tougher stuff – like
calculating the cost of sales calls, frequency of order changes, size of
orders, and days sales outstanding. Collecting this data is challenging
but the pay-offs are worth it.
Getting started
So, where do you start? Companies that have successfully engaged in
business simplification typically adopt a two-phase approach.
Phase 1 Assemble a team of cross-functional, internal and external
resources to develop a roadmap for a simplification program.
This involves identifying the simplification opportunities most
relevant for your business and industry, estimating benefits
and prioritizing improvement opportunities, and developing
a 18-24 month roadmap for the program.
Phase 2 Gain broader organizational buy-in outside the core team,
and develop a detailed implementation plan for all projects.
Follow this up with a multi-wave effort, focusing first on
quick hits that can bring immediate payback and help
develop momentum for the program internally.
Ironically, the business simplification process is complex and
challenging. The payoffs both strategically and on long term
profitability are immense and well worth the effort. In an increasingly
complex world the companies who keep it as simple as possible, while
effectively serving their consumers and customers, will be the winners.
The strategies above provide some insight on how and where
companies can simplify their business to win in the marketplace. More
details on the process and approach to making it happen can be
found in Deloitte’s Business Simplification – Getting down to business
publication at Deloitte.ca.
By looking at the “cost to serve” and the strategic value of each
customer (e.g., volume drivers, importance for brand equity)
– companies are much better positioned to adopt the best overall
strategy. This may lead to looking for more cost-effective ways to
service a customer, such as using distributors or web-based order
management. Sometimes, it also means making the hard decision not
to service certain customers where there is no way to drive
acceptable levels of customer profitability.
“Simplicity is the
ultimate sophistication.”
Leonardo DaVinci
Food for thought
Summer 2007
Research
that counts
Five surprising ways that your food manufacturing
innovation counts for tax credit
Embrace it or not, technological advancements increasingly underscore
success in the food and beverage market. Thanks to ever-changing
consumer and regulatory demands, there are tremendous expectations
on food processors’ research and development (R&D) capabilities.
Today we see a trans-fat free imperative; tomorrow sodium could be
the enemy. At least one thing is certain – the next great product will
depend heavily on the most economical production processes.
As a food manufacturer, suppose your production process involving
R&D had the capability of creating a cost advantage over the
competition. Did you know that Canada offers some of the world’s
richest, most broadly applicable R&D tax incentives?
Often these incentives can be worth 20% to 35% of the development
costs for new or improved products and manufacturing processes.
Unfortunately, many companies in the food and consumer packaged
goods industry are missing out on R&D incentives thanks to common
misconceptions about what is eligible as new product development
or even something such as solving a machinery problem. As a food
processor, you could be eligible for far more than you’ve imagined.
The following are five examples of R&D in the food manufacturing
sector that could lead to significant tax credits. These represent just
a few of the many ways where you may not realize it’s possible to
maximize your innovation efforts.
1. Small pilot trials count
Initiatives requiring lab – or pilot – scale trials that may or may not
lead to full pre-commercial trials, while more commonly appreciated
as credit incentives, are still occasionally overlooked. For example, a
pastry company needs to add a vitamin to its muffins while ensuring
that the nutraceutical remains active over a particular shelf-life.
Because this testing occurs on a small scale, and those 60 muffins are
tested on shop floor equipment outside a laboratory environment,
the company assumes that the research is not eligible for tax credit.
Quite the opposite is true; the company is missing out on potential tax
credits for its innovation.
2. Commercial initiatives may be applicable
One large misconception with food manufacturing tax credits is
that shop floor R&D, in a commercial environment, is ineligible. For
example, when the same pastry company in the example above tests
the muffins using full-scale production trials, there could be tax credit
benefits in that process even if a saleable product results. Indeed,
much R&D can occur on the shop floor to validate the technical
viability of the new product and process used in its production.
3. Outside testing could be tax credit-worthy
Often, when food manufacturers develop new products or seek
to improve existing ones, they will outsource projects that involve
organoleptic testing, chemical testing and other evaluation panel trials.
These outside testing practices are tax credit worthy. In fact, there are
Food for thought
Summer 2007
many other instances when companies can claim credits for outside
testing supporting their R&D initiatives; the key is knowing what types
of activities are eligible for credits.
4. Halo opportunities exist
Many food manufacturers are focused only on product development.
But initiatives undertaken to address support systems – such as
environmental waste management, Clean In Place (CIP), Hazard
Analysis Critical Control Points (HACCP) and Good Manufacturing
Practices (GMP) – may be eligible for tax credits. An example of this
would be in a situation where a certain part of a machine is not being
cleaned properly and a new robotic device is needed to reach into and
clean the troublesome area. If the off-the-shelf robot model won’t cut
it and your technical staff are at a loss about next steps, the ensuing
development of a new robotic device or a redesign of the off-theshelf model, including its trials, could be eligible R&D. The biggest
misconception is that regulatory-driven initiatives – there are many
areas in food manufacturing where this is the case – do not count. If
there is a technological challenge to overcome, however, they often do.
5.Testing to validate new products and
enhanced processes can count
Many variables need to be understood to determine how they may
impact or impede an original product or process design. With our
pastry company, suppose it needs to test how the design of the
packaging of its new muffins holds up in a classic retail environment;
that research could count as a tax credit. Or consider this possible
situation: a chip manufacturer transporting its treats from the midwest to the west coast discovered the bags were exploding in the
mountains. The high altitude was causing the nitrogen gas – which is
injected into bags shortly before they are sealed to keep chips fresh
– to explode. The research required to remedy the exploding chip
bags is eligible for R&D tax credits. The bottom line is that any projects
requiring simulation studies to develop a better understanding of a
wide variety of variables in the design, operation or environment of
the product or process may trigger an eligible R&D project.
The situations above serve to illustrate the numerous potential reasons
why food processors should seek to implement projects that could
be eligible for R&D tax credits, not to mention the case for examining
current and, more importantly, potential innovations that may apply.
In addition to available federal credits, other benefits may include
accelerated tax depreciation, a reduction of expenditures as opposed
to taxes payable, as well as significant available provincial credits.
Many companies will discover that the process of identifying eligible
tax credits is well worth the minimal effort and time involved.
For more information on how Deloitte might help with your R&D tax
credit measures, please contact David Douglas at 416-601-6431 or
Peter Tonev at 416-874-3360.
Food
and
Food for thought
Summer 2007
industry M&A
financing activity
Sustained economic growth, brand positioning and consumer trends
continue driving M&A activity in the Food Industry.
Merger and acquisition activity
In the food industry, the fourth quarter of fiscal 2006 saw a continued
trend in terms of North American merger and acquisition (M&A)
activity with the number of transactions and the total value of these
transactions increasing in comparison to the fourth quarter of 2005.
The total value of the 19 transactions announced during the
fourth quarter of 2006 totalled $5.7 billion U.S., compared with
16 transactions totalling $801.2 million U.S. in the fourth quarter
of 2005. However, M&A activity dropped in terms of value and
number, compared to the third quarter of 2006 when there were 26
transactions valued at $6.8 billion U.S.
The largest transaction during the fourth quarter of 2006 occurred
when Nestle SA signed a definitive agreement to acquire Novartis
Medical Nutrition from Novartis AG for approximately $2.5 billion U.S.
Novartis Medical Nutrition manufactures medical nutrition products,
which include various supplements, tube feedings, and foods for all
age groups, including Boost, an oral nutrition liquid supplement for
adults. The acquisition will allow Nestle SA to reinforce its position in
the nutrition sector. The transaction is pending regulatory approval
and is expected to be completed in the second half of 2007.
Another significant transaction within the last quarter of fiscal 2006
was the PAI Partners and The Blackstone Group acquisition of the
remaining 60% stake in United Biscuits from Cinven Limited and
MidOcean Partners, for a purchase price of approximately $1.8 billion
U.S. United Biscuits is the leading European manufacturer of biscuits
and snacks and the number one player in the UK biscuit market with
well-known household brands such as McVitie’s, go ahead!, and
Jacob’s.
Food for thought
Summer 2007
Most recently, the Board of Directors of Altria Group, Inc. voted on
January 31, 2007, to authorize the spin-off of all shares of Kraft Foods
Inc. owned by Altria, to Altria’s shareholders. The distribution of the
approximately 89% of Kraft’s outstanding shares owned by Altria was
made on March 30, 2007, to Altria shareholders. Altria distributed
0.69 of a share of Kraft for every share of Altria common stock
outstanding.
$8,000
35
$7,000
30
US$ Millinos
$6,000
25
$5,000
20
$4,000
15
$3,000
10
$2,000
5
$1,000
$0 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 0
$ Value
Number of deals
Sources: Thomson Financial Corp., Securities Data Corporation (SDC)
Note: The activity monitored pertains to announced transactions with disclosed
values of worldwide financial activity involving North American companies.
Number of deals
North American food processing
M&A activity
The number and value of financing transactions in the food industry in
the fourth quarter of 2006 decreased over both the previous quarter
and the comparable period in 2005. In the fourth quarter, the total
value of financing transactions fell to $804.4 million U.S., with only
five transactions completed, compared to $1.2 billion U.S., financed
through seven transactions in the third quarter of 2006 and $2.0
billion U.S. raised through 13 transactions in the fourth quarter of
2005.
North American food processing
Financing activity
$4,000
16
$3,500
14
$3,000
12
$2,500
10
$2,000
8
$1,500
6
$1,000
4
$500
2
$0
$ Value
Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06
Number of deals
In addition to the above M&A activity, a notable transaction
completed during the later stages of the year involved Pilgrim’s Pride
Corporation. Pilgrim’s is a producer of poultry products in the United
States, Mexico, and Puerto Rico. They acquired a 92% stake in Gold
Kist Inc – a producer, processor, and marketer of broiler products. The
acquisition combines the firms’ complementary products and services
to create a more effective and efficient strategic partnership. The initial
offer made by Pilgrim’s Pride Corporation consisted of consideration of
approximately $1 billion U.S. in cash. Pilgrim’s Pride has financed the
offer through a combination of an amendment to its existing credit
facility and a commitment letter for an additional credit facility from
Lehman Brothers Inc.
Financing activity
US$ Millinos
The transaction was financed through a combination of equity
contributed equally by Blackstone and PAI funds, and debt financing.
PAI Partners and The Blackstone Group plan on further developing
United Biscuits’ key brands in all market sectors, and it is expected that
members of the United Biscuits management team will participate in
the ownership of the ongoing entity.
0
Number of deals
Sources: Thomson Financial Corp., Securities Data Corporation (SDC)
Note: The activity monitored pertains to announced transactions with disclosed
values of worldwide financial activity involving North American companies.
The largest financing transaction during the fourth quarter occurred
on November 14, 2006, when Bunge Ltd. issued cumulative
convertible perpetual preference shares of $600 million U.S. Bunge
Ltd. is a leading agribusiness and food company with integrated
operations worldwide. The annual dividend on each convertible
preference share was $4.875, payable quarterly and ranking junior
to all of the company’s liabilities. Bunge Ltd. originally intended on
using approximately 75% of the net proceeds from this offering to
reduce indebtedness under its short-term revolving credit facilities, and
the remainder of the net proceeds to reduce indebtedness under its
commercial paper program.
2006 showed significant growth in food industry
M&A activity worldwide.
Another notable financing transaction occurred on August 23,
2006, when the Hershey Company (Hershey) entered into a pricing
agreement in order to issue $500 million U.S. of senior unsecured
debentures ($250 million U.S. at a coupon rate equal to 5.3%
with the remainder at a coupon rate equal to 5.45%). Hershey is a
manufacturer, marketer, distributor, and retailer of various types of
chocolate and confectionery, refreshment and snack products, and
food and beverage enhancers in the United States and internationally.
The funds generated were used to repurchase shares of the company’s
common stock and for general corporate purposes.
2006 – A year in review
In 2006, 348 mergers and acquisitions were completed within the
food industry in North America. More specifically, the number of M&A
transactions with disclosed values in just the food processing sector
increased from 55 in 2005 to 94 in 2006. In addition, the total value of
food processing M&A activity for the year-ended 2006 reached $21.5
billion, a considerable increase from $5.9 billion only one year prior.
The increase in transactions and value is the result of sustained
economic growth within the food industry, with an increase in the
number of transactions on a year-over-year basis and a significant
increase in the transaction value specifically in the third quarter of
2006. One emerging trend appears to be that of large food and
beverage manufacturers acquiring smaller scale producers of healthier
and more convenient products to complement the acquirers’ current
product offering, and to align themselves with consumer trends
towards healthier and convenient lifestyles.
The fiscal year saw an increase in the number of financing transactions
in the industry from 45 in 2005 to 54 in 2006. However, the value of
the transactions decreased from $27.8 billion U.S. in 2005 to
$26.3 billion U.S. in 2006.
Food for thought
Summer 2007
The following illustrates the capital markets view of the main food industry players:
Canadian small cap food processors
Company
Ticker
Share
price
5/01/07
ED Smith Income Fund
TSX:JAM.UN
$
Lassonde Industries Inc.
TSX:LAS.A
39.00
264.4
303.7
FPI Ltd.
TSX:FPL
14.25
196.7
369.6
Premium Brands Income Fund
TSX:PBI.UN
11.54
201.3
High Liner Foods Inc.
TSX:HLF
9.60
99.6
Sun-Rype Products Ltd.
TSX:SRF
13.20
Coolbrands International Inc.
TSX:COB.A
1.00
7.14
Market
cap
Enterprise
Value (EV)
$
$
166.7
258.0
Trailing 12 months
Enterprise value multiples
Net sales
EBITDA
$
$
245.4
EV/Net sales
EV/EBITDA
23.4
1.1x
353.3
36.5
0.9x
8.3x
752.9
33.7
0.5x
11.0x
219.2
216.5
22.7
1.0x
9.7x
130.5
261.7
13.3
0.5x
9.8x
143.0
142.0
130.6
14.7
1.1x
9.6x
56.1
80.1
84.4
-31.7
0.9x
NM
Average
0.8x
9.5x
Adjusted average
0.9x
10.0x
Source: SEC and SEDAR Filings, CapitalIQ, Analysts Reports, Companies Press Releases
Adjusted average excludes high and low values
All amounts are in millions of reported currency, except for ratios and stock prices
Companies have been ranked by Enterprise Value on each group
11.0x
Canadian large cap food processors
Company
Ticker
Share
price
5/01/07
George Weston Limited
TSX:WN
$
76.54
$ 9,879.8
$ 18,275.4
2,192.0
0.6x
8.3x
Saputo, Inc.
TSX:SAP
42.79
4,415.1
4,587.2
3,962.2
402.4
1.2x
11.8x
Maple Leaf Foods Inc.
TSX:MFI
15.55
1,980.3
3,343.7
5,930.7
389.4
0.6x
8.6x
Cott Corp.
TSX:BCB
18.01
1,292.2
1,748.8
1,777.8
155.8
1.0x
11.2x
Canada Bread Company Ltd.
TSX:CBY
52.76
1,341.2
1,438.7
1,391.7
163.1
1.0x
8.8x
Average
0.9x
9.7x
Adjusted average
0.9x
9.5x
Market
cap
Enterprise
Value (EV)
Trailing 12 months
Enterprise value multiples
Net sales
EBITDA
EV/Net sales
$
$
32,167.0
Source: SEC and SEDAR Filings, CapitalIQ, Analysts Reports, Companies Press Releases
Adjusted average excludes high and low values
All amounts are in millions of reported currency, except for ratios and stock prices
Companies have been ranked by Enterprise Value on each group
Canadian relative value
30%
25%
20%
Relative value
15%
10%
5%
0%
-5%
-10%
-15%
Sep-06
Oct-06
Sm all Cap Index
Large Cap Index
S&P/TSX Com posite Index
10
Nov-06
Dec-06
Jan-07
Feb-07
Mar-07
Financial data provided by Capital IQ
Historical equity pricing data supplied by Financial Times
Estimates data provided by Reuters Estimates
SEC filings provided by EDGAR Pro
Apr-07
May-07
EV/EBITDA
Food for thought
Summer 2007
U.S. small cap food processors
Company
Ticker
Share
price
5/01/07
Sensient Technologies Corp.
NYSE:SXT
$
Hain Celestial Group Inc.
NasdaqNM:HAIN
30.45
5,279.6
1,275.2
Lance Inc.
NasdaqNM:LNCE
23.23
3,153.4
766.7
J&J Snack Foods Corp.
NasdaqNM:JJSF
39.96
3,200.7
706.5
538.4
Market
cap
Enterprise
Value (EV)
26.12
$ 1,223.2
$ 1,655.3
Trailing 12 months
Enterprise value multiples
Net sales
EBITDA
$
$
1,121.1
EV/Net sales
EV/EBITDA
176.0
1.5x
9.4x
832.3
93.4
1.5x
13.7x
731.8
71.6
1.0x
10.7x
Source: SEC and SEDAR Filings, CapitalIQ, Analysts Reports, Companies Press Releases
Adjusted average excludes high and low values
All amounts are in millions of reported currency, except for ratios and stock prices
Companies have been ranked by Enterprise Value on each group
75.8
1.3x
9.3x
Average
1.3x
10.8x
Adjusted average
1.1x
10.5x
U.S. mid cap food processors and beverage companies
Company
Ticker
Share
price
5/01/07
Constellation Brands Inc.
NYSE:STZ
$
22.70
$ 3,044.2
$ 9,487.8
1,006.6
1.8x
9.4x
Dean Foods Co.
NYSE:DF
36.63
3,153.4
8,071.2
10,219.3
917.0
0.8x
8.8x
Tyson Foods Inc.
NYSE:TSN
21.15
3,044.2
10,497.3
25,913.0
853.0
0.4x
12.3x
Smithfield Foods Inc.
NYSE:SFD
30.96
3,200.7
6,411.8
11,534.8
636.3
0.6x
10.1x
McCormick & Co. Inc.
NYSE:MKC
37.20
4,860.6
5,581.5
2,759.3
495.9
2.0x
11.3x
Hormel Foods Corp.
NYSE:HRL
38.28
5,279.6
5,496.9
5,833.6
590.3
0.9x
9.3x
PepsiAmericas Inc.
NYSE:PAS
24.50
3,153.4
4,806.1
4,084.1
590.2
1.2x
8.1x
The J. M. Smucker Company
NYSE:SJM
56.53
3,200.7
3,474.9
2,156.2
326.8
1.6x
10.6x
Corn Products International Inc.
NYSE:CPO
40.95
3,044.2
3,533.4
2,768.1
387.6
1.3x
9.1x
Ralcorp Holdings Inc.
NYSE:RAH
66.92
1,794.1
2,394.1
1,908.9
226.3
1.3x
10.6x
Tootsie Roll Industries Inc.
NYSE:TR
28.92
1,599.2
1,527.5
496.0
103.0
3.1x
14.8x
Average
1.4x
10.4x
Adjusted average
1.3x
10.2x
Market
cap
Enterprise
Value (EV)
Trailing 12 months
Enterprise value multiples
Net sales
EBITDA
EV/Net sales
$
$
5,216.4
Source: SEC and SEDAR Filings, CapitalIQ, Analysts Reports, Companies Press Releases
Adjusted average excludes high and low values
All amounts are in millions of reported currency, except for ratios and stock prices
Companies have been ranked by Enterprise Value on each group
EV/EBITDA
U.S. large cap food processors
Company
Ticker
Share
price
5/01/07
Net sales
EBITDA
Unilever NV
ENXTAM:UNA
€
22.49
€ 68,029.6
€ 75,983.6
€
39,635.0
€
6,617.0
1.9x
11.5x
Archer-Daniels-Midland Co.
NYSE:ADM
$
36.60
$ 23,889.9
$ 30,261.8
$
41,351.5
$
3,211.7
0.7x
9.4x
General Mills Inc.
NYSE:GIS
60.10
20,816.2
27,665.4
12,172.0
2,640.0
2.3x
10.5x
Kellogg Co.
NYSE:K
53.37
21,187.9
25,693.9
11,142.7
2,296.9
2.3x
11.2x
HJ Heinz Co.
NYSE:HNZ
46.62
15,144.5
19,645.2
8,987.0
1,770.0
2.2x
11.1x
Campbell Soup Co.
NYSE:CPB
39.44
15,381.6
17,754.6
7,587.0
1,542.0
2.3x
11.5x
Sara Lee Corp.
NYSE:SLE
16.66
12,219.6
13,845.0
16,280.0
1,947.0
0.9x
7.1x
ConAgra Foods Inc.
NYSE:CAG
24.74
12,322.7
15,305.3
11,737.5
1,642.1
1.3x
9.3x
Hershey Co.
NYSE:HSY
55.00
12,691.8
14,602.0
4,957.8
1,228.3
2.9x
11.9x
William Wrigley Jr. Co.
NYSE:WWY
58.81
16,239.8
17,362.7
4,866.9
Market
cap
Enterprise
Value (EV)
Source: SEC and SEDAR Filings, CapitalIQ, Analysts Reports, Companies Press Releases
Adjusted average excludes high and low values
All amounts are in millions of reported currency, except for ratios and stock prices
Companies have been ranked by Enterprise Value on each group
Trailing 12 months
Enterprise value multiples
EV/Net sales
EV/EBITDA
1,155.2
3.6x
15.0x
Average
2.0x
10.9x
Adjusted average
2.0x
10.8x
11
Food for thought
Summer 2007
U.S. relative value
25%
Relative value
20%
15%
10%
5%
0%
-5%
-10%
Sep-06
Oct-06
Nov-06
Sm all Cap food processors
Large Cap food processors
Mid Cap food processors and beverage companies
S&P 500 Index
12
Dec-06
Jan-07
Feb-07
Mar-07
Financial data provided by Capital IQ
Historical equity pricing data supplied by Financial Times
Estimates data provided by Reuters Estimates
SEC filings provided by EDGAR Pro
Apr-07
May-07
Contacts
Brent Houlden
Director of Operations (GTA)
- Financial Advisory
National Consumer Business
Practice Leader
416-643-8788
bhoulden@deloitte.ca
Stephen Brown
National Consumer Packaged
Goods Segment Leader
416-874-3154
stephenbrown@deloitte.ca
Doug McDonald
National Consumer Business
Financial Advisory Leader
416-401-4661
dmcdonald@deloitte.ca
Joanna Gibbons
Corporate Finance
Senior Manager
416-601-6689
joannagibbons@deloitte.ca
Current publications
Diversion in the consumer goods sector
Diversion or the process of moving a genuinely branded product from
its intended distribution channel to one unauthorized by the
manufacturer has resulted in billions of dollars in lost profits for
Consumer Goods (CG) manufacturers over the past several years.
Deloitte Consulting LLP has developed a point of view that examines
the issue within the Consumer Goods industry.
Wealth with Wisdom:
Are you ready to serve your 50+ consumers?
Retailers will have to focus with ever greater savvy on serving the
needs of consumers who are older and have a new set of biological,
psychological, social, and economic characteristics, and expectations.
China’s Consumer Market - Opportunities and risks
Considers the changing consumer business environment in China.
We offer our predictions about the evolution of the Chinese consumer
market as well as the likely strategic implications for global consumer
oriented companies.
Upcoming publications
Global Powers of Retail
Future of the Food and Beverage Industry
Doing Good is Good Business
January 2008
March 2008
April 2008
For additional information about this publication, please contact
Andy MacCulloch
416-874-3571
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However, we offer no form of assurance regarding its accuracy.
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