Title: Consumer Staples Company Presentation
1Consumer Staples Company Presentation
- JP LaFramboise
- Theresa Ham
- Addy Mittal
- David Gollinger
- Derek Kuykendall
2Outline
- Recommendation
- Sector Overview
- Procter Gamble Overview
- Anheuser-Busch Overview
- Altria Overview
- Walgreens Overview
3Sector Overview
4Consumer Staples Analysis
- Dividends, Dividend yield is higher than SP
500 and trends toward remaining that way - - Earnings, Earnings growth is not as high as SP
500 and is slowing - - P/E ratios are declining.
5Consumer Staples Composition
- SIM Companies
- Procter Gamble, 1.70 (Household Products)
- Walgreens, 1.63 (Retail Drugs)
- Altria Group, Inc., 1.17 (Tobacco)
- Anheuser-Busch, 4.06 (Beverage - Alcoholic)
6Procter Gamble
7Business Analysis
- Businesses
- Baby, feminine family care
- Fabric home care
- Health care
- Beauty care
- Food beverage
- Main Brands
- Pampers, Always
- Tide, Bounty, Downy
- Crest, Pepto Bismol
- Cover Girl, Pantene, Herbal Essences
- Folgers, Pringles
8Business Demand
- Expected EPS for 2004 4.50
- 10.5 inc. from 2003
- Falling helps b/c nearly 50 of sales are
foreign thus currency conversion generates more
per item sold abroad - Good marketing and product innovation skills
9Business Supply and Pricing Power
- PGs growth for the future relies on foreign
acquisitions (on hold til 6/20/03) - Wella AG
- PG India expects 25 growth this quarter
- Lower cost structures, reduced inventory
- Increased business in health and beauty-care by
purchasing Clairol
10Financial DuPont Analysis
11Valuation Analysis Valuation
12Valuation Analysis Valuation
13Valuation Analysis Valuation
14Valuation Earnings
Earnings has increased each year
15Valuation Dividends
Dividend yield is higher PG - 1.83, SP 1.76
16Recommendation
- Buy Procter Gamble.
- Increase from 1.70 to 2.00
- Further growth for the consumer giant
- Wella AG
- Crest Night Effects ( launched this month)
17Anheuser-Busch
18Business Analysis
- Businesses
- Domestic and International Beer
- Packaging
- Theme Parks
- Main Products
- Budweiser
- Michelob
- Busch
- Natural Light
19Business Demand
- Consumption was up 1.5 in 2Q03
- International growth has contributed to at least
20 of A-Bs earnings over the past five years - Anheuser-Busch and Tsingtao Close China
Investment Agreement - Access to China Beer Markets
- Demographics Growth of the 21 to 27 year old
age group
20Business Supply and Pricing Power
- A-B rolled out Bacardi Silver 0 beginning March
3, 2003. New products gain market share in malt
beverages. - Discount reductions
- Price increases for 2003
- A-B has a lot of pricing power
21Financial DuPont Analysis
22Valuation Analysis Valuation
23Valuation Analysis Valuation
24Valuation Earnings
25Valuation Dividends
- Dividend yield less than rest of consumer staples
- Dividends have been increasing quarter over
quarter
26Recommendation
- Keep weight A-B
- Opportunities and Rewards
- Earnings growth Raised for 2003
- Increasing internal growth to meet demand
- Revenue per barrel improvement
- Opportunities to expand in the alcoholic
beverages industry - CHINA
27Altria
28Business Profile
- Businesses ( of 02 revenues)
- Tobacco (59)
- Food (37)
- Miller Beer (3)
- Sold July 02 for 1.7b after tax, for a
.80/share gain - Financial Services and Real Estate (1)
- Main Products/Brands
- Marlboro, Parliament, Benson Hedges, Merit,
Virginia Slims, Basic - Kraft cheese and cheese products, Nabisco cookie
and cracker products, Oscar Mayer and Louis Rich
processed meats, Maxwell House coffee, Claussen
pickles, Post cereals, Kraft salad dressings.
29Business Overview
- Altria's market share in the US premium cigarette
market is 49.7, down from 51.0 in 2001. - Weak domestic markets, rapidly escalating state
cigarette taxes and discount cigarettes are
tightening profit margins for the tobacco
industry. Discount cigarettes now account for
10 of the US market, up from 3 in 1998. - Sales revenue fell slightly from 2001 to 2002.
- With the higher price for premium cigarettes,
discount cigarettes are stealing market share
from Altria. Altria is having to engage in heavy
discounting and promotional spending to prevent
further market erosion
30Business Lawsuits
- Altrias stock price rallied 21 after reversal
of the 145 billion Engle judgment, of which
Altria's share was 74 billion. - A Massachusetts appeals court judge on Tuesday
decertified a class action lawsuit alleging that
Philip Morris USA claimed that Marlboro Lights
cigarettes were safer than normal cigarettes, - The liability and damages theories in the
Massachusetts case were similar to those in the
Price class action case, in which Philip Morris
was ordered to pay 10.1 billion in damages. That
case is now on appeal in Illinois.
31Cash Flows
32DuPont
33Valuation Analysis
34Valuation Analysis
35Valuation Earnings
36Dividends
37Weak Dollar
38Summary
- - Valuation
- Compared to both the SP 500 and Consumer
Staples, Altria has reached its peak. - - Earnings
- Earnings do not show as much potential for growth
as other companies. - Dividends
- Altria continues to pay out large dividends,
which is attractive to income-oriented investors.
The stock will benefit from dividend tax cuts.
39Recommendation
- Maintain Altria at 1.48
- Short-term benefits from tobacco lawsuit
reversals - Dividends continue an upward trend
- The weakening dollar inflates overseas revenues
40Future Warnings
- Wholesale Leaders Program
- 49.9 of business yields a 2.75 discount
- 10pp above Target yields a 2.50 discount
- Below Target yields a 0.75 discount
- Higher Taxes
- Local
- Overseas
41Future Warnings
- Airline related write downs
- Decreases in credit ratings
- The return of Engle
42Walgreens
43Business Analysis
- Walgreens is the nations largest drugstore
operator, with 3,954 stores and 12 distribution
centers - Pharmacy 60 of sales in 2002
- General merchandise 29 of sales
- Nonprescription drugs 11 of sales
44Business Demand
- Walgreen Co.'s (WAG) sales rose 15.2 in April as
a later Easter pushed holiday sales from March
into April. - Demographic trends provide a favorable basis on
which to invest in the pharmacy services
industry. The Census Bureau forecasts a doubling
of the American population aged 65 and older by
the year 2030. - The Federal Government is expected to overhaul
the Medicare system and add a prescription drug
benefits program for the elderly. The House
majority leader, Bill Frist (a former heart
surgeon) is now leading this initiative in
conjunction with House democrats. - Walgreens achieved its 28th consecutive year of
record sales and profits in 2002. - The increase in sales of lower-priced generic
drugs reduced pharmacy sales by approximately 2
in 2002, however these drugs allow for higher
margins.
45Business Supply
- Walgreen Co. (WAG) expects to open 425 new stores
for the year ending Aug. 31 - Walgreens has increased its target number of
store locations from 6000 to 7000 for 2010. - Walgreens appears to be entering markets
currently occupied by Longs and Eckerd and
successfully capturing their markets. - Walgreens expects 35 of the US population to be
residing in CA, FL and TX in the next 25 years.
They have subsequently been opening more stores
in these locations.
46Financial Analysis Cash Flows
47Financial Dupont Analysis
48Valuation Analysis Valuation
49Valuation Analysis Valuation
50Valuation Growth
51Valuation Dividends
52Valuation Summary
- Valuation
- Even though the company seems to be dropping
compared to the SP 500, it is still doing well
against the Consumer Staples Sector with
earnings, net profit margin is decreasing - Earnings
- Earnings expectations are positive and the
overall expected growth is high - Dividends
- Walgreens is increasing its dividends per share
but its yield has been decreasing
53Recommendation
- Increase Walgreens to 3.65
- The company has been performing well in earnings.
- Net profit margin has been decreasing but appears
to be on the rebound. - Expectations for the future are good with
expected growth at 16, the highest of all of our
companies.
54Comparison of Companies
- Business
- Anheuser-Busch has the most opportunities for
potential internal growth, Procter Gamble does,
but is looking at foreign acquisitions instead - Financial
- Altria has decreasing margins and is depleting
its cash balance, but Walgreens has had a huge
surge in cash - Valuation
- A-B and Walgreens show the most potential for
stock appreciation and improved earnings in the
future, Altrias and Procter Gambles returns
look like they will come mostly from dividends