Consumer Staples Company Presentation

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Consumer Staples Company Presentation

• JP LaFramboise
• Theresa Ham
• Addy Mittal
• David Gollinger
• Derek Kuykendall

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Outline

• Recommendation
• Sector Overview
• Procter Gamble Overview
• Anheuser-Busch Overview
• Altria Overview
• Walgreens Overview

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Sector Overview
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Consumer 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.

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Consumer 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)

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Procter Gamble




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Business 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

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Business 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

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Business 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

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Financial DuPont Analysis
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Valuation Analysis Valuation
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Valuation Analysis Valuation
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Valuation Analysis Valuation
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Valuation Earnings
Earnings has increased each year
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Valuation Dividends
Dividend yield is higher PG - 1.83, SP 1.76
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Recommendation

• Buy Procter Gamble.
• Increase from 1.70 to 2.00
• Further growth for the consumer giant
• Wella AG
• Crest Night Effects ( launched this month)

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Anheuser-Busch
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Business Analysis

• Businesses
• Domestic and International Beer
• Packaging
• Theme Parks
• Main Products
• Budweiser
• Michelob
• Busch
• Natural Light

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Business 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

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Business 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

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Financial DuPont Analysis
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Valuation Analysis Valuation
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Valuation Analysis Valuation
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Valuation Earnings
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Valuation Dividends

• Dividend yield less than rest of consumer staples
• Dividends have been increasing quarter over
  quarter

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Recommendation

• 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

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Altria
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Business 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.

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Business 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

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Business 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.

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Cash Flows
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DuPont
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Valuation Analysis
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Valuation Analysis
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Valuation Earnings
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Dividends
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Weak Dollar
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Summary

• - 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.

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Recommendation

• Maintain Altria at 1.48
• Short-term benefits from tobacco lawsuit
  reversals
• Dividends continue an upward trend
• The weakening dollar inflates overseas revenues

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Future 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

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Future Warnings

• Airline related write downs
• Decreases in credit ratings
• The return of Engle

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Walgreens
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Business 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

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Business 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.

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Business 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.

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Financial Analysis Cash Flows
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Financial Dupont Analysis
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Valuation Analysis Valuation
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Valuation Analysis Valuation
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Valuation Growth
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Valuation Dividends
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Valuation 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

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Recommendation

• 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.

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Comparison 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