June 8, 2012
Consumer Goods
General Mills
Ticker: GIS
Recommendation: Sell/Hold
Current Price: $37.80
Implied Price: $39.78
Investment Thesis
Key Statistics
52-Week Price Range

General Mills is behind its competitors in meeting health conscious
consumer demand

Due to the recession, generic brands have taken away market share from
General Mills and threatened its future profit making abilities by the
possibility of retaining consumers even after the recession

International acquisitions are subject to political and economic risk which
could lead them to not synergize as expected

General Mills is at risk for being unable to meet profit margins in a
consolidating market due to fierce competition and consumer pricing
pressure
$34.64-$41.06
50-Day Moving Average
$38.85
Estimated Beta
.63
5-Year Average Dividend Yield
3.20%
Market Capitalization
$24.53B
3-Year Revenue CAGR
2.9%
Trading Statistics
Diluted Shares Outstanding
793.83 million
Average Volume (3-Month)
3.91 million
Institutional Ownership
Insider Ownership
General Mills (5- Year)
$45.00
400,000,000
$40.00
350,000,000
70.90%
1.23%
$35.00
EV/EBITDA
12.19x
300,000,000
$30.00
250,000,000
Margins and Ratios
$25.00
200,000,000
Gross Margin
36.44%
$20.00
EBITDA Margin
18.96%
$15.00
9.70%
$10.00
19%
$5.00
50,000,000
$0.00
Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11
0
Net Margin
Debt to Enterprise Value
Leverage Ratio
2.27x
150,000,000
100,000,000
Volume
Price
50-Day Avg
200-Day Avg
Covering Analyst: Kortney Jolley
Email: Jolley@uoregon.edu
1
University of Oregon Investment Group
University of Oregon Investment Group
June 8, 2012
Business Overview
General Mills is a leading manufacturer of branded consumer foods sold in retail
stores around the world. General Mills is headquartered in Minneapolis
Minnesota, although the company manufactures products in 15 different
countries and markets them in over 100 countries. Some of General Mills wellknown brands are: Pillsbury, Betty Crocker, Green Giant, Nature Valley, Fiber
One, and Cheerios.
General Mills started out as a milling company founded by Robert Smith in
1856 but shortly after it was acquired by Cadwallader C. Washburn. By the
1870’s Washburn had partnered with John Crosby and formed the Washburn
Crosby Company. Washburn began incorporating new innovative machinery
that improved the quality of the flour and by the1880’s Washburn and Crosby
changed the company’s name to Gold Medal Flour to represent the company’s
success in becoming the number 1 American flour brand. In 1928 the company’s
president James Ford Bell decided to merge with 26 other mills and this is what
created General Mills.
Segments:
In fiscal year 2011, General Mills global net sales are $14.9 billion. It is
separated into three segments, U.S. Retail, International, and Bakeries and
Foods.
U.S. Retail -10.2 billion (68.4%)
-Brands: Big G, Meals, Pillsbury, Yoplait, Snacks, Baking Products, and Small
Planet Foods and other.
-Products: ready-to-eat cereals, refrigerated yogurt, ready-to-serve soup, dry
dinners, shelf stable and frozen vegetables, refrigerated and frozen dough
products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit
and savory snacks, and a wide variety of organic products including soup,
granola bars, and cereal.
International- $2.9 billion (19.5%)
-Regions: Europe, Canada, Asia/Pacific, and Latin America.
-Products: super-premium ice cream and frozen desserts, refrigerated yogurt,
grain snacks, shelf stable and frozen vegetables, refrigerated and frozen dough
products, and dry dinners, ready-to-eat cereals, shelf stable and frozen
vegetables, dessert and baking mixes, frozen pizza snacks, and grain, fruit and
savory snacks.
-General Mills has made two recent international acquisitions. The company
acquired Yoplait S.A.S. and Yoplait S.A.S. marques in June of 2011 and has
now just recently signed an agreement to acquire Yoki Alimentos as on May 29,
2012.
Foods and Bakeries: $1.8 billion (12.1%)
-Products: granola bars, ready-to-eat cereals, refrigerated yogurt, ready-to-serve
soup, dessert and baking mixes, and frozen dough products.
Joint Ventures:
General Mills has two joint ventures, Cereal Partners Worldwide (CWP) and
Häagen-Dazs Japan (HDJ) and has 50% equity interest in each. In 2011 the joint
ventures combined brought in an extra $1.2 billion in revenue for General Mills.
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CWP generated 85% of joint venture revenue by selling products such as readyto-eat cereals and cereal bars. The remaining 15% was generated by HDJ selling
Häagen-Dazs ice cream products and other frozen novelties.
Strategic Positioning
General Mills is involved in a highly competitive market, competing with other
well-known companies as well as a wide variety of generic brands. In order to
remain a strong competitor, General Mills must continue to strategically acquire
companies that have dominant brands as well as innovate new products through
its innovation and technology department.
One strategic initiative is to gain a larger presence abroad, so June 1, 2011,
General Mills acquired 51% controlling interest in Yoplait S.A.S. and 50%
interest Yoplait Marques S.A.S. for a price of $1.2 billion. Yoplait S.A.S.
operates yogurt businesses in several countries, including France, Canada, and
the United Kingdom, and oversees franchise relationships around the world.
Yoplait Marques S.A.S. holds the worldwide rights to Yoplait and related
trademarks. Yoplait, already being a well-known brand is projected to increase
net sales in both the U.S. Retail and International segments. The 2012 Q4
transcript communicates that Yoplait has already been a major contributor in the
53% increase in international net sales.
General Mills has also just signed an agreement as of May 24th, 2012 for $840
million to acquire Yoki Alimentos. The company is based in Brazil, and
produces products such as: ready mixes, popcorn, natural and industrialized
condiments, snacks, natural products, teas, cake mixtures, desserts, confections,
soup, juice mixes, cereals, corn flours, manioc flours, wheat flours and pet food.
This acquisition will allow General Mills to grow its Latin American division,
which in turn will give the company a greater international presence.
Along with the recent acquisitions General Mills has launched Fiber One 80
Calories cereal, a new flavor of Cascadian Farm Granola, Dulce de Leche
Cheerios, Frosted Toast Crunch, and Peanut Butter MultiGrain Cheerios in
January 2012. Peanut Butter Multigrain Cheerios is off to a very strong start. In
less than 3 months, it holds nearly 1 point of dollar share, making it the single
biggest new cereal amongst 17 new launches in the category in January.
In convenience stores, snacks sales have been increasing at a 13% rate over the
past 4 years. General Mills has been growing distribution on existing snack lines
like Chex Mix. It also has been developing unique items for these outlets such as
the line of Betty Crocker dessert snack bars and Wheaties Fuel bars. They are
working on more new snack items to continue to leverage this growing food
outlet.
Lastly, due to the constant increase in the popularity of organic foods, General
Mills has expanded its Small Planet Foods division. Distribution has been
expanded beyond natural and organic stores to other retail outlets. In January
2012, Über bars were added to this line. They are in a phased launch and will be
broadly available by this summer. Last month, the Food Should Taste Good
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Revenue 2011
Bakeries and
Foodservice
12%
International
20%
June 8, 2012
brand was added to the line as well. Due to the fact that sales for the natural
salty snacks industry are growing at a double-digit pace, there are also great
opportunities for General Mills’ line of tortilla and sweet potato chips.
Although for fiscal 2012 General Mills is tracking somewhat behind their
original profit target, the year is unfolding largely as they outlined last summer.
They expect to deliver double-digit growth in net sales with significant
contributions from Yoplait International, and strong levels of innovation.
U.S. Retail
68%
Revenue 2012
Bakeries and
Foodservice
12%
International
26%
U.S. Retail
62%
Business Growth Strategies
General Mills is strategically targeting a larger presence internationally, and
with the recent Yoplait acquisition it has accomplished just that. As of third
quarter 2012 the international segment has grown 53% and sales are expected to
be $1,194.30.
Along with expanding internationally, General Mills in making a large effort in
meeting changing consumer demand. General Mills realizes that
misunderstanding the consumer will destroy its position as a market leader and
therefore the company is investing a large amount of time in innovation, through
its innovation intersection program, developing new products to meet the
existing trend of healthy organic foods. This program connects employees,
inventors, entrepreneurs, suppliers, academics, customers and consumers from
around the world to tap external expertise, drive internal scale and generate
solutions.
Lastly, General Mills has just announced that it plans to improve organizational
effectiveness. The plan includes organization changes that strengthen business
alignment, and action to accelerate administrative efficiencies across the
company. This will also include eliminating 850 positions globally, and assetrelated costs of $13 million pre-tax associated with the write-downs of selected
production equipment. Overall, the company plans for total restructuring cost to
equal $109 million. These savings will be reinvested and put towards future
growth and accelerated innovation.
Industry
Overview
General Mills manufactures and markets consumer branded foods that are sold
in retail stores. Although the company operates many different industries, the
two main industries General Mills operates in are: flour milling and cereal/snack
food production.
Revenue (Millions)
Projected Flour Milling
Revenue
24,500.00
24,000.00
23,500.00
23,000.00
22,500.00
22,000.00
2012201320142015201620172018
Flour Milling
In this industry companies mill grains, rough rice, and produce malt from
a variety of cereal grains. It is expected rise on an average to grow annualized
rate of 1%, although the number of firms in the industry is expected to fall at an
average rate of 1.2%. This industry’s revenue depends heavily on the price of
inputs such as: wheat, rough rice, and cereal grains. Due to poor global weather
conditions, changing consumer preferences, and the U.S. recession, industry
revenues have been very volatile, but are expected to become more stable in the
next five years.
Companies operating in this industry are highly competitive and it is expected to
stay that way. Several companies that deliver strong brands to consumers
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32000
dominate the industry. Establishing strong relationships with distributers are
important to secure supply contracts in order to receive shelf space in retail
stores. Price and quality are also critical competitive factors. Quality
differentiates flour, which is thought to be a homogenous product. The quality is
judged by color, fineness, and texture and good quality is the result of use of
superior ingredients and production process. Higher quality product (e.g.,
General Mills’ products) can be sold at a premium.
30000
Cereal/Snack Production
Revenue (in Millions)
Projected Snack Food
Revenue
28000
26000
2012 2013 2014 2015 2016 2017 2018
Revenue (Millions)
Projected Cereal
Production Revenue
14,500.00
14,000.00
13,500.00
13,000.00
12,500.00
Corn Future Curve
($/bu)
5.6
5.4
5.2
5
4.8
This industry consists of manufacturers that produce cereal products and snack
foods. Recently producers in this industry have faced multiple obstacles, the
recession and the current wave of health awareness being the two major ones.
Despite these setbacks, industry leaders have quickly adapted to changing
consumer lifestyles, leading the industry to remain strong and still grow industry
revenue. Producers have also overcome these obstacles by introducing new
product lines, innovating technology, and marketing to solidify brand name and
reputation. Looking into the future this industry has an optimistic outlook. It is
expected to remain steady growth, with revenue being forecasted to grow at an
average of 1.5% per year.
Companies in this industry mainly compete over market share. This puts pricing
pressure on General Mills to lower its price. If they do so it will adversely affect
the company’s margins. General Mills must become efficient in finding low
priced suppliers in order to expand or keep margins at historical levels. Brand
loyalty is also a major component in this industry making it hard for smaller
companies with no brand to compete. Due to its brand image General Mills isn’t
as influenced to pricing pressure as other competitors. The recession has made
low-priced, private-labeled brands more popular, which in turn has led to more
intense price-based competition. In order to remain competitive producers must
remain innovative; differentiating their products from others. Producers must
also try to develop and maintain strong relationships with distributors in order to
secure shelf-space in retail stores.
Macro factors
Disposable Income:
Sugar Futures Curve
($/lbs)
0.22
0.21
0.2
0.19
0.18
June 8, 2012
As disposable incomes rise around the world and consumers lead increasingly
busy lifestyles, the demand for quick and easy-to-prepare foods will grow. This
leads General Mills to bring in more revenue and higher profits. On the other
hand when disposable income falls consumers look for lower priced generic
brands, which in turn causes General Mills to bring in less revenue and earn
lower profits.
Population Growth and International Expansion:
The world has a population growth rate of 1.14%, representing a doubling time
of 61 years. The more people there are the more consumers General Mills has to
supply. Between the company’s efforts to expand internationally and the
population increasing there will always be room for General Mills to grow and
increase sales.
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Commodity Prices:
Wheat Futures Curve
($/bu)
7.6
7.2
6.8
6.4
6
5.6
5.2
Commodity prices are the main determinant for the future of the industry, due to
the fact that they have such a major influence on cost of goods sold. General
Mills is negatively affected by increasing input prices, and it uses hedges to
mitigate some of its commodity price risk.
Wheat: Looking into the future, wheat is projected to trend upwards at a pretty
constant rate until 2014. In June 2014 the price will then begin decreasing
slowly.
Corn: As of now, corn prices are decreasing at a significant rate but as of
November 2012 they are expected to begin to slightly rise then fall continuing
this trend through 2015.
Oats: Oat prices are projected to rise slowly over the next three years. They are
then forecasted to rise significantly in 2014, jumping up to a price of about
$4.00 by the end of the year.
Soybeans: Soybean prices are trending down and are projected to continue doing
so through 2015, overall dropping around $3.50.
Sugar: Sugar prices are projected to constantly rise until mid-2013. They will
then stabilize at a price of $.21.
Management
CEO: Kendall J. Powell
Powell graduated from Harvard in 1976, with his bachelor’s degree from
Stanford in 1979 with his MBA. He joined General Mills in 1979 and
progressed through a variety of positions in the company. He helped launch
Cereal Partners Worldwide (CPW), and became CEO a few years later. In the
meantime he spent time leading Yoplait U.S.A. and General Mills Big G
Cereals. In 2006 he was named General Mills President and COO. In 2007 he
was elected up to the position of CEO and in 2008 and was also elected as
Chairman on the Board of Directors.
EVP, CFO: Donald L. Mulligan
Mulligan graduated from Duke University in 1983 with a degree in business. He
went on to attend the University of Michigan Business School and received his
MBA, graduating in 1985. In September of 1998 he joined the General Mills
team as the vice president of finance for the international segment. In 2004 he
was promoted to vice president of finance for the technical community and then
again in 2006 to vice president and treasurer. A year later in 2007 he was finally
promoted to his current position of executive vice president, Chief Financial
Officer.
SVP, Innovation, Technology and Quality: Peter C. Erickson
Erickson graduated from the University of Massachusetts with a B.S. and M.S.
He then went to work for a product development company as a senior foods
scientist. Now he has been working for General Mills for 20 years. His
responsibilities include invention and commercialization of new products and
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ensuring safe high quality products are delivered to consumers. His success in
his responsibilities is a major part of the future success of the entire company.
Portfolio History
Tall Firs Portfolio
Purchased 225 shares on October 20th, 2008, at a price of $65.22 per share.
Currently holds 450 shares at a total cost basis of $14,674.25 and have seen a
19.72% return in the position's value.
Svigal’s Portfolio
Purchased 50 shares August 20th, 2008 at a price of $38.28 per share. The value
today is $1,914, giving an 18.85% rate of return.
Recent News
“General Mills to Buy Brazilian Biz”- Yahoo Finance
General Mills recently announced it has signed an agreement to acquire private
Brazilian food maker, Yoki Alimentos for approximately 1.75 billion Brazilian
Reals.
“General Mills Announces Actions to Support Future Growth
Strategies”-General Mills
General Mills today announced productivity and cost savings plan designed to
improve organizational effectiveness and focus on key growth strategies.
“General Mills to Market Yoplait Yogurt in Canada”-General
Mills
General Mills confirmed it will terminate the current Yoplait license agreement
September of this year and will begin to market, sell and distribute Yoplait
yogurt products in Canada under license from Yoplait S.A.S..
Catalysts
Upside
 Investment in research and development leads to new innovative and


successful product lines.
Expanding organic brands to meet health conscious consumers demand.
Strong international growth and acquisitions synergizing better than
expected by management.
Downside



The risk of the Yoplait and Yoki Alimentos acquisitions not
synergizing.
Rising commodity prices leading to lower profits than expected.
Slow entrance compared to competitors into offering healthy organic
food options.
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Comparable Analysis
Comparable companies were chosen based on metrics like beta, international
presence, expected growth, and market capitalization. The companies chosen
were Kellogg’s, Kraft, and Campbell’s Soup.
Kellogg’s: “Kellogg Company, together with its subsidiaries, manufactures
and markets ready-to-eat cereal and convenience food products primarily in
North America, Europe, Latin America, and the Asia Pacific. It primarily
produces snacks and frozen food, including cookies, crackers, toaster pastries,
cereal bars, fruit-flavored snacks, frozen waffles, and veggie foods. The
company sells its products to grocery trade through its direct sales force,
brokers, and distributors under the Kellogg’s name. It also offers its products
under the Kellogg’s, Keebler, Cheez-It, Murray, Austin, and Famous Amos
brand names to supermarkets through direct store-door delivery system and
other distribution methods. Kellogg Company was founded in 1906 and is
headquartered in Battle Creek, Michigan.”- Yahoo Finance
Kellogg’s is the most comparable company to General Mills in that the
operations of both companies are very similar. By this I mean the two
companies both operate in the same regions (excluding Canada), provide the
same types of products, and distribute to similar, if not the same retail stores.
The companies also have relatively close betas, and market capitalization. This
is why I weighted it the highest at 50%.
Kraft: “Kraft Foods Inc., together with its subsidiaries, manufactures and
markets packaged food products worldwide. The company offers biscuits,
including cookies, crackers, and salted snacks; confectionery products, such as
chocolates, gums, and candies; beverages comprising coffee, packaged juice
drinks, and powdered beverages; cheese products, including natural, processed,
and cream cheeses; grocery items consisting of spoonable and pourable
dressings, condiments, and desserts; and convenient meals comprising processed
meats, packaged dinners, and lunch combinations. The company sells it products
to supermarket chains, wholesalers, supercenters, club stores, mass
merchandisers, distributors, convenience stores, gasoline stations, drug stores,
value stores, and retail food stores through independent sales offices and agents.
Kraft Foods Inc. was founded in 2000 and is based in Northfield, Illinois.”Yahoo Finance
Kraft also operates similarly to General Mills in that it distributes it products to
the same type of retail stores in similar regions. The two companies also have
similar betas. Kraft does differ a bit; its market capitalization is much lower, its
growth per quarter is smaller, and it distributes a larger variety of products. This
is why Kraft was weighted less than Kelloggs at 35%. Also Kraft has released
that it plans to split into two publicly traded companies, with one concentrating
on snacks like Oreo cookies, Trident gum and Cadbury chocolates while the
other focuses on the North American grocery business, which includes Kraft
cheese and Maxwell House coffee. If this were to take place the North American
grocery business company would be the more comparable of the two.
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Campbell’s Soup: “Campbell Soup Company, together with its subsidiaries,
engages in the manufacture and marketing of branded convenience food
products worldwide. The company offers condensed and ready-to-serve soups,
broth and stocks, pasta and Mexican sauces, canned poultry, juices and
beverages, and tomato juices, as well as canned gravies, pasta, cookies, crackers,
and bakery and frozen products in the United States; biscuits in Australia and
the Asia Pacific; soups, mayonnaise and cold sauces, broth and stocks,
beverages, pasta sauce, Mexican sauce, and farm products in Europe, Latin
America, the Asia Pacific, and Canada. Campbell Soup Company markets its
products to food chains, mass discounters, mass merchandisers, club stores,
convenience stores, and drug stores; and other retail, and commercial and noncommercial establishments directly, and through broker and distributor
arrangements. The company was founded in 1869 and is headquartered in
Camden, New Jersey.”-Yahoo Finance
Campbell’s Soup was weighted 15% because it is comparable in that both
companies operate in similar regions and have the same international growth
strategies. The two companies also have comparable betas. The companies do
differ significantly in market capitalization, growth and product lines.
Discounted Cash Flow Analysis
Revenue
Revenue was calculated by dividing each year’s total revenue into three major
segments and then into divisions; based on percent of revenue. Revenue was
then projected for each segment and division based on expected future growth.
Cost of Goods Sold
General Mills also faces pressure to lower its prices in order to gain market
share. This in turn could adversely affect the company’s margins or profit
earning ability by lowering its revenues. With commodity prices rising through
2013, General Mills will have higher COGS which will put it at a deficit in
gaining market share. However as General Mills begins to expand
internationally its margins decrease which shows the company does not have as
strong of a brand image in international regions.
SG&A
Selling General and Administrative Expenses have historically been around 21%
of revenue. With the upcoming acquisition of Yoki Alimentos SG&A expenses
will rise slightly in 2013 through 2014 due to costs of altering factories to
coincide with General Mills standards. General Mills has also recently
announced its plan to lay off 850 workers in order to have more money to put
towards research and development. This plan is just moving cost with in SG&A
expenses which won’t affect it as a percent of revenue.
Depreciation
In order to project depreciation I used straight-line depreciation method.
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Capital Expenditures
Previously capital expenditures have been about 5% of revenue. Overtime
General Mills should become more efficient in the use of its assets, therefore
trending down a very small amount over time.
Acquisitions
General Mills just announced that it would be acquiring Yoki Alimentos, a
private company based in Brazil. It was bought at a price on $840 million and I
have projected this out by following management guidance. General Mills also
makes small acquisitions at least every other year, if not every year. This is why
after the Yoki Alimentos
acquisitions were projected as a percent of revenue at
Undervalued/(Overvalued)
1%.
Implied Price
Adjusted Beta
Terminal Growth Rate
54
1.5%
2.0%
2.5%
3.0%
3.5%
0.43
60.35
71.97
89.41
118.52
176.85
0.53
48.49
56.05
66.55
82.12
107.58
0.63
39.94
45.18
52.08
61.59
75.51
0.73
33.48
37.28
42.10
48.40
57.03
0.83
28.44
31.28
34.80
39.23
45.00
Cost of Debt:
Cost of debt was projected as a weighted average of all consisting outstanding
debt. This was found in the most recent 10-k, which was for fiscal 2011.
0
Undervalued/(Overvalued)
Beta
Running a 5 year monthly and 1 year weekly calculated out a .18 and .24 beta,
respectively. Also, given that the comparable betas derived anywhere from a
negative beta to .63, this made using a Hamada and Vasicek Beta unreasonable.
I derived the General Mills beta by using a bottom up approach. This allowed
the beta to push out a CAPM that was reasonable with respect to the cost of
debt. GIS beta was given a .63. This accurately represents the risk of GIS going
forward and given that we are measuring the risk of the FCF, I believe given the
stability of the company, while looking at the capital structure, this is reasonable
beta going forward.
Working Capital
Valuation
Weighting Implied Price
Discounted Cash Flows
35% $
53.94
LTM Comps
30% $
30.34
Forward Comps
35% $
33.70
Implied Price
$
39.78
Current Price
$
37.80
Undervauled
5.23%
Working capital is made up of accounts receivable, accounts payable, and
inventory. I have projected that accounts receivable will stay in a range of 35 to
30 average days outstanding, which is an average of what it has been
historically. It is based off the assumption that buyers have power due to their
price sensitivity. Accounts payable was also projected on average days
outstanding, although it was based off the assumption that suppliers have little to
no power due to the fact General Mills is such a large company and every
supplier wants its business. Lastly, inventory was projected as a percent of
revenue. It is based off the assumption that as a result of the recent of
acquisitions, the amount of inventories in General Mills possession will
increase.
Recommendation
I am recommending a hold for the Tall Firs Portfolio and a sell for the Sivgals
Portfolio. I feel that the company has many qualitative factors that depict it as
having a positive future outlook. This leads me to believe it will remain a good
company to diversify our portfolio. However, based on the different strategies of
the portfolios I would recommend a hold for Tall Firs and a sell for Svigals. It
should also be noted that Tall Firs is underweight large cap and Svigals is
underweight small to mid-cap.
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Appendix 1 – Comparables Analysis
Comparables Analys is
($ in millions)
Stock Characteris tics
Current Price
50 Day Moving Average
200 Day Moving Average
Beta
Size
Short-Term Debt
Long-Term Debt
Cas h and Cas h Equivalent
Non-Controlling Interes t
Preferred Stock
Diluted Bas ic Shares
Market Capitalization
Enterpris e Value
Profitability Margins
Gros s Margin
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Interes t Expens e
Debt/EV
Leverage Ratio
Interes t Coverage Ratio
Operating Res ults
Revenue
Gros s Profit
EBIT
EBITDA
Net Income
Valuation
EV/Revenue
EV/Gros s Profit
EV/EBIT
EV/EBITDA
P/E
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
Price Target
Current Price
Overvalued
GIS
K
General Mills
KFT
CPB
$37.80
38.87
39.30
0.63
Kelloggs
50.00%
$48.26
51.07
51.02
0.42
Kraft
35.00%
$37.65
38.69
37.81
0.54
Campbell Soup
15.00%
$31.55
33.46
32.86
0.40
1,584.00
4,254.00
404.00
2.00
0.00
373.16
17,256.75
22,692.75
1,439.90
6,194.80
525.00
482.80
0.00
793.83
30,006.94
37,599.44
1,584.00
4,254.00
404.00
2.00
0.00
373.16
17,256.75
22,692.75
5,143.00
23,198.00
1,852.00
126.00
0.00
1,791.86
66,950.07
93,565.07
751.00
2,006.00
383.00
0.00
0.00
327.33
10,040.66
12,414.66
39.76%
14.03%
16.63%
8.38%
41.04%
14.74%
17.48%
9.29%
36.44%
15.78%
18.96%
9.70%
41.04%
14.74%
17.59%
9.29%
37.38%
12.21%
14.89%
6.49%
41.08%
15.87%
17.48%
9.72%
$114.00
0.20
2.05
4.10
$813.80
0.27
2.78
9.02
$199.00
0.26
2.52
11.63
$358.00
0.20
2.48
8.60
$199.00
0.26
2.52
11.63
$1,992.00
0.30
3.47
4.10
$114.00
0.22
2.05
11.80
$54,885.00
20,516.00
6,702.00
8,172.00
3,564.00
$7,693.00
3,160.00
1,221.00
1,345.00
748.00
$26,940.20
10,353.60
3,498.35
4,218.95
1,970.60
$13,153.00
5,398.00
1,939.00
2,314.00
1,222.00
$16,225.80
5,913.00
2,560.30
3,077.20
1,574.50
$13,153.00
5,398.00
1,939.00
2,314.00
1,222.00
$54,885.00
20,516.00
6,702.00
8,172.00
3,564.00
$7,693.00
3,160.00
1,221.00
1,345.00
748.00
2.32x
6.36x
14.69x
12.22x
19.06x
1.61x
3.93x
10.17x
9.23x
13.42x
1.70x
4.29x
12.26x
10.30x
15.65x
1.70x
4.20x
11.70x
9.81x
14.12x
2.32x
6.36x
14.69x
12.22x
19.06x
1.73x
4.20x
11.70x
9.81x
14.12x
1.70x
4.56x
13.96x
11.45x
18.79x
1.61x
3.93x
10.17x
9.23x
13.42x
Max
$48.26
51.07
51.02
0.63
Min
Weight Avg.
$31.55
$42.04
33.46
44.10
32.86
43.67
0.40
0.46
Median
$37.65
38.69
37.81
0.42
5,143.00
23,198.00
1,852.00
482.80
0.00
1,791.86
66,950.07
93,565.07
751.00
2,006.00
383.00
0.00
0.00
327.33
10,040.66
12,414.66
2,704.70
10,547.20
907.65
45.10
0.00
862.83
33,567.00
45,956.35
41.08%
15.87%
18.96%
9.72%
36.44%
12.21%
14.89%
6.49%
$1,992.00
0.30
3.47
11.80
Implied Price
Weight
$
25.21
0.00%
$
22.37
0.00%
$
29.99
40.00%
$
30.34
40.00%
$
31.04
20.00%
$30.34
37.80
(19.74%)
UOIG 11
University of Oregon Investment Group
June 8, 2012
Appendix 2 – Discounted Cash Flows Analysis
Discounted Cash Flow Analysis
($ in millions)
Total Revenue
2008A
13652.10
% YoY Growth
Cost of Goods Sold
8319.10
2009A
2010A
2011A
2012E
2013E
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
14555.80
14635.60
14880.20
$17,224.97
$19,106.05
$20,271.08
$21,194.98
$22,071.37
$22,924.05
$23,732.47
$24,483.35
$25,218.74
6.62%
0.55%
1.67%
15.76%
10.92%
6.10%
4.56%
4.13%
3.86%
3.53%
3.16%
3.00%
$25,976.42
3.00%
8927.30
8378.30
8454.10
10463.46
11941.28
12618.75
13140.89
13629.07
14098.29
14536.14
14934.84
15320.38
15715.73
% Revenue
60.94%
61.33%
57.25%
56.81%
60.75%
62.50%
62.25%
62.00%
61.75%
61.50%
61.25%
61.00%
60.75%
60.50%
Gross Profit
$5,333.00
$5,628.50
$6,257.30
$6,426.10
$6,761.51
$7,164.77
$7,652.33
$8,054.09
$8,442.30
$8,825.76
$9,196.33
$9,548.50
$9,898.36
$10,260.68
Gross Margin
39.06%
38.67%
42.75%
43.19%
39.25%
37.50%
37.75%
38.00%
38.25%
38.50%
38.75%
39.00%
39.25%
39.50%
Selling General and Administrative Expense
2625.00
2893.20
3162.70
3192.00
3418.75
4203.33
4358.28
4503.93
4634.99
4814.05
4983.82
5141.50
5295.94
5455.05
% Revenue
19.23%
19.88%
21.61%
21.45%
21.50%
22.00%
21.50%
21.25%
21.00%
21.00%
21.00%
21.00%
21.00%
21.00%
Depreciation and Amortization
459.20
453.60
457.10
472.60
351.55
408.16
468.22
531.02
596.42
664.34
734.66
807.20
881.92
958.89
% Revenue
3.36%
3.12%
3.12%
3.18%
2.04%
2.14%
2.31%
2.51%
2.70%
2.90%
3.10%
3.30%
3.50%
3.69%
0.00
-84.90
0.00
-17.40
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00%
-0.58%
0.00%
-0.12%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Restructuring, Impairment, and Other
21.00
41.60
31.40
4.40
0.90
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
% Revenue
.15%
.29%
.21%
.03%
.01%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
$2,227.80
$2,325.00
$2,606.10
$2,774.50
$2,990.31
$2,553.28
$2,825.83
$3,019.14
$3,210.89
$3,347.37
$3,477.85
$3,599.80
$3,720.50
$3,846.75
16.32%
15.97%
17.81%
18.65%
17.36%
13.36%
13.94%
14.24%
14.55%
14.60%
14.65%
14.70%
14.75%
14.81%
421.70
382.80
401.60
346.30
362.41
3,846.75
Divestitures
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest Expense
% Revenue
Earnings Before Taxes
% Revenue
Less Taxes (Benefits)
Tax Rate
Net Income
3.09%
2.63%
2.74%
2.33%
2.10%
1,806.10
1,942.20
2,204.50
2,428.20
2,627.90
2,553.28
2,825.83
3,019.14
3,210.89
3,347.37
3,477.85
3,599.80
3,720.50
13.23%
13.34%
15.06%
16.32%
15.26%
13.36%
13.94%
14.24%
14.55%
14.60%
14.65%
14.70%
14.75%
14.81%
622.20
720.40
771.20
721.10
742.46
893.65
989.04
1,056.70
1,123.81
1,171.58
1,217.25
1,259.93
1,302.17
1,346.36
34.45%
37.09%
34.98%
29.70%
28.25%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
35.00%
$1,183.90
$1,221.80
$1,433.30
$1,707.10
$1,885.44
$1,659.63
$1,836.79
$1,962.44
$2,087.08
$2,175.79
$2,260.60
$2,339.87
$2,418.32
$2,500.38
Net Margin
8.67%
8.39%
9.79%
11.47%
10.95%
8.69%
9.06%
9.26%
9.46%
9.49%
9.53%
9.56%
9.59%
9.63%
Add Back: Depreciation and Amortization
459.20
453.60
457.10
472.60
351.55
408.16
468.22
531.02
596.42
664.34
734.66
807.20
881.92
958.89
Add Back: Interest Expense*(1-Tax Rate)
Operating Cash Flow
% Revenue
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
276.42
240.81
261.11
243.46
260.02
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
$1,919.52
$1,916.21
$2,151.51
$2,423.16
$2,497.00
$2,067.79
$2,305.01
$2,493.46
$2,683.50
$2,840.13
$2,995.26
$3,147.07
$3,300.25
$3,459.28
14.06%
13.16%
14.70%
16.28%
14.50%
10.82%
11.37%
11.76%
12.16%
12.39%
12.62%
12.85%
13.09%
13.32%
3,620.00
3,534.90
3,480.00
3,902.00
4,580.41
5,348.93
5,660.12
5,602.37
5,760.10
5,930.99
6,087.01
6,210.86
6,356.55
6,499.87
26.52%
24.29%
23.78%
26.22%
26.59%
28.00%
27.92%
26.43%
26.10%
25.87%
25.65%
25.37%
25.21%
25.02%
4,385.90
3,097.50
3,661.80
2,627.90
3,756.87
4,063.31
4,194.17
4,362.92
4,538.84
4,622.49
4,691.23
4,815.06
4,954.62
5,087.82
32.13%
21.28%
25.02%
17.66%
21.81%
21.27%
20.69%
20.58%
20.56%
20.16%
19.77%
19.67%
19.65%
19.59%
($765.90)
$437.40
($181.80)
$1,274.10
$823.55
$1,285.63
$1,465.95
$1,239.45
$1,221.26
$1,308.50
$1,395.78
$1,395.80
$1,401.93
$1,412.05
5.44%
-5.61%
Change in Working Capital
3.00%
-1.24%
8.56%
4.78%
6.73%
7.23%
5.85%
5.53%
5.71%
5.88%
5.70%
5.56%
1203.3
-619.2
1455.90
-450.55
462.08
180.32
-226.50
-18.19
87.24
87.28
0.02
6.13
10.12
648.80
1,008.75
764.24
810.84
847.80
882.85
916.96
949.30
979.33
1,008.75
1,039.06
Capital Expenditures
460.20
562.60
649.90
% Revenue
3.37%
3.87%
4.44%
4.36%
5.86%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
4.00%
83.40
0.00
0.00
123.30
1,100.10
599.93
202.71
211.95
220.71
229.24
237.32
244.83
252.19
259.76
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
.61%
0.00%
0.00%
.83%
6.39%
3.14%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1.00%
1375.92
150.31
2120.81
195.16
443.11
241.54
1,111.14
1,660.21
1,598.12
1,606.69
1,721.36
1,922.88
2,033.18
2,150.34
225.72
983.59
1392.12
1269.36
1208.85
UOIG 12
1226.81
1298.15
1300.21
1302.60
University of Oregon Investment Group
June 8, 2012
Appendix 3 – Revenue Model
Revenue Model
($ in millions)
Big G
2008A
2,028
Meals
Pillsbury
Yoplait
Snacks
Baking Products
Small Planet Foods and Other
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2,780
2,912
3,043
3,165
3,292
3,390
3,492
3,597
9.14%
5.08%
(2.52%)
7.39%
7.50%
5.00%
4.75%
4.50%
4.00%
4.00%
3.00%
3.00%
3.00%
22.35%
22.38%
23.03%
22.57%
23.08%
23.53%
23.61%
23.72%
23.86%
23.94%
24.09%
24.10%
24.12%
24.14%
2,006
2,140
2,146
2,132
2,157
2,200
2,244
2,289
2,335
2,381
2,429
2,477
2,539
2,603
6.24%
.30%
(.67%)
1.17%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.00%
2.50%
2.50%
22.11%
21.45%
21.02%
20.97%
20.21%
19.55%
19.05%
18.64%
18.30%
18.01%
17.78%
17.61%
17.54%
17.47%
1,673
1,852
1,858
1,824
1,919
2,010
2,100
2,185
2,261
2,340
2,410
2,483
2,557
2,634
9.64%
.34%
(1.88%)
5.21%
4.75%
4.50%
4.00%
3.50%
3.50%
3.00%
3.00%
3.00%
3.00%
18.45%
18.57%
18.20%
17.94%
17.98%
17.86%
17.84%
17.79%
17.72%
17.70%
17.64%
17.65%
17.67%
17.68%
1,293
1,471
1,491
1,499
1,532
1,593
1,657
1,719
1,784
1,846
1,911
1,968
2,027
2,088
12.09%
1.35%
.52%
2.21%
4.00%
4.00%
3.75%
3.75%
3.50%
3.50%
3.00%
3.00%
3.00%
14.25%
14.75%
14.61%
14.75%
14.35%
14.16%
14.07%
14.00%
13.98%
13.97%
13.99%
13.99%
14.00%
14.02%
1,198
1,238
1,316
1,378
1,470
1,573
1,667
1,750
1,821
1,889
1,955
2,018
2,079
2,141
3.24%
5.94%
4.53%
6.64%
7.00%
6.00%
5.00%
4.00%
3.75%
3.50%
3.25%
3.00%
3.00%
13.20%
12.41%
12.89%
13.56%
13.77%
13.97%
14.16%
14.26%
14.27%
14.29%
14.31%
14.35%
14.36%
14.37%
723
843
845
809
859
902
943
980
1,015
1,048
1,079
1,111
1,145
1,179
14.16%
.31%
(4.53%)
6.24%
5.00%
4.50%
4.00%
3.50%
3.25%
3.00%
3.00%
3.00%
3.00%
7.97%
8.45%
8.28%
7.96%
8.05%
8.01%
8.00%
7.98%
7.95%
7.93%
7.90%
7.90%
7.91%
7.91%
151
199
202
229
274
329
384
442
500
550
588
617
636
655
24.33%
1.58%
11.63%
19.73%
20.00%
17.00%
15.00%
13.00%
10.00%
7.00%
5.00%
3.00%
3.00%
% Growth
% U.S. Retail
2014E
2,648
% Growth
% U.S. Retail
2013E
2,463
% Growth
% U.S. Retail
2012E
2,294
% Growth
% U.S. Retail
2011A
2,351
% Growth
% U.S. Retail
2010A
2,232
% Growth
% U.S. Retail
2009A
% Growth
% U.S. Retail
1.66%
1.99%
U.S. Retail
9,072
9,974
9.04%
2.31%
(.45% )
5.02%
5.44%
4.63%
4.26%
3.91%
3.62%
3.37%
2.94%
2.91%
2.91%
66.45%
68.52%
69.76%
68.30%
61.97%
58.91%
58.09%
57.93%
57.80%
57.66%
57.57%
57.45%
57.40%
57.35%
% Growth
% Total Revenue
Europe
899
Canada
Asia/Pacific
Latin America
2.92%
11,255
3.26%
11,776
3.60%
12,278
3.92%
12,757
4.16%
13,219
4.30%
13,664
4.39%
14,066
4.39%
14,475
4.40%
14,897
860
906
2,033
2,440
2,806
2,946
3,093
3,248
3,378
3,513
3,618
3,727
1.22%
5.07%
124.53%
20.00%
15.00%
5.00%
5.00%
5.00%
4.00%
4.00%
3.00%
3.00%
35.11%
33.02%
32.02%
31.49%
45.39%
42.83%
44.87%
44.66%
44.75%
44.98%
44.98%
45.15%
45.07%
45.00%
697
646
710
770
1,046
1,150
1,208
1,268
1,319
1,372
1,426
1,469
1,513
1,559
(7.91%)
9.02%
7.79%
35.82%
10.00%
5.00%
5.00%
4.00%
4.00%
4.00%
3.00%
3.00%
3.00%
27.24%
25.11%
26.44%
26.77%
23.35%
20.19%
19.31%
19.22%
19.08%
19.00%
19.00%
18.88%
18.85%
18.82%
577
635
720
823
976
1,151
1,209
1,269
1,320
1,373
1,428
1,470
1,515
1,560
9.00%
11.88%
12.50%
18.55%
18.00%
5.00%
5.00%
4.00%
4.00%
4.00%
3.00%
3.00%
3.00%
22.57%
24.67%
26.82%
28.62%
21.78%
20.21%
19.33%
19.24%
19.09%
19.01%
19.01%
18.90%
18.87%
18.84%
386
442
395
377
424
955
1,031
1,114
1,181
1,228
1,277
1,328
1,381
1,436
12.75%
(11.86%)
(4.83%)
12.51%
125.00%
8.00%
8.00%
6.00%
4.00%
4.00%
4.00%
4.00%
4.00%
17.34%
% Growth
% International
2.57%
10,674
849
% Growth
% International
2.25%
10,164
(5.82%)
% Growth
% International
1.98%
10,210
% Growth
% International
15.08%
17.20%
14.73%
13.12%
9.48%
16.76%
16.49%
16.88%
17.08%
17.01%
17.01%
17.07%
17.21%
International
2,559
2,572
2,685
2,876
4,479
5,696
6,253
6,597
6,913
7,220
7,509
7,781
8,027
8,282
.51%
4.21%
6.63%
55.75%
27.18%
9.79%
5.49%
4.78%
4.45%
4.00%
3.62%
3.17%
3.17%
18.74%
17.67%
18.34%
19.32%
26.00%
29.81%
30.85%
31.13%
31.32%
31.50%
31.64%
31.78%
31.83%
31.88%
2,021
2,010
1,741
1,841
2,073
2,156
2,242
2,320
2,401
2,485
2,560
2,637
2,716
2,797
% Growth
% of Revenue
Bakeries and Foodservices
% Growth
% of Revenue
14.81%
(.54% )
(15.48% )
5.43%
12.59%
4.00%
4.00%
3.50%
3.50%
3.50%
3.00%
3.00%
3.00%
3.00%
13.81%
11.89%
12.37%
12.03%
11.28%
11.06%
10.95%
10.88%
10.84%
10.79%
10.77%
10.77%
10.77%
UOIG 13
University of Oregon Investment Group
June 8, 2012
Appendix 4 – Working Capital Model
Working Capital Model
($ in millions)
2008A
2009A
2010A
2011A
Total Revenue
$13,652.10
$14,555.80
$14,635.60
$14,880.20
$17,224.97
$19,106.05
$20,271.08
$21,194.98
$22,071.37
$22,924.05
$23,732.47
$24,483.35
$25,218.74
$25,976.42
661.00
4.84%
1081.60
29.00
7.92%
1366.80
60.13
10.01%
0.00
0.00
0.00%
510.60
22.46
3.74%
3620.00
26.52%
749.80
5.15%
953.40
23.91
6.55%
1346.80
55.07
9.25%
15.60
0.64
0.11%
469.30
19.19
3.22%
3534.90
24.29%
673.20
4.60%
1041.60
25.98
7.12%
1344.00
58.55
9.18%
42.70
1.86
0.29%
378.50
16.49
2.59%
3480.00
23.78%
619.60
4.16%
1162.30
28.51
7.81%
1609.30
69.48
10.82%
27.30
1.18
0.18%
483.50
20.87
3.25%
3902.00
26.22%
$430.62
2.50%
$1,651.71
35
9.59%
1920.69
67.00
11.15%
32.72
1.00
0.19%
544.67
19.00
3.16%
4580.41
26.59%
$668.71
3.50%
$1,832.09
35
9.59%
2191.96
67.00
11.47%
34.57
1.00
0.18%
621.60
19.00
3.25%
5348.93
28.00%
$810.84
4.00%
$1,943.80
35
9.59%
2247.17
65.00
11.09%
36.00
1.00
0.18%
622.29
18.00
3.07%
5660.12
27.92%
$847.80
4.00%
$1,737.29
30
8.20%
2333.76
65.00
11.01%
37.24
1.00
0.18%
646.27
18.00
3.05%
5602.37
26.43%
$882.85
4.00%
$1,814.09
30
8.22%
2389.75
64.00
10.83%
38.63
1.00
0.18%
634.78
17.00
2.88%
5760.10
26.10%
$916.96
4.00%
$1,884.17
30
8.22%
2433.40
63.00
10.62%
39.83
1.00
0.17%
656.63
17.00
2.86%
5930.99
25.87%
$949.30
4.00%
$1,950.61
30
8.22%
2469.15
62.00
10.40%
40.92
1.00
0.17%
677.03
17.00
2.85%
6087.01
25.65%
$979.33
4.00%
$2,006.83
30
8.20%
2489.14
61.00
10.17%
41.86
1.00
0.17%
693.69
17.00
2.83%
6210.86
25.37%
$1,008.75
4.00%
$2,072.77
30
8.22%
2518.42
60.00
9.99%
43.06
1.00
0.17%
713.55
17.00
2.83%
6356.55
25.21%
$1,049.45
4.04%
$2,135.05
30
8.22%
2583.41
60.00
9.95%
0.00
1.00
0.00%
731.97
17.00
2.82%
6499.87
25.02%
4325.15
764.24
-408.16
4681.23
10030.16
24.50%
4681.23
810.84
-468.22
5023.85
10683.97
24.78%
5023.85
847.80
-531.02
5340.63
10943.00
25.20%
5340.63
882.85
-596.42
5627.07
11387.16
25.49%
5627.07
916.96
-664.34
5879.69
11810.68
25.65%
5879.69
949.30
-734.66
6094.33
12181.33
25.68%
6094.33
979.33
-807.20
6266.46
12477.32
25.59%
6266.46
1008.75
-881.92
6393.28
12749.83
25.35%
6393.28
1039.06
-958.89
6473.45
12973.32
24.92%
1308.63
40.00
6.85%
1799.37
55.00
9.42%
$955.30
5.00%
4063.31
21.27%
1279.16
37.00
6.31%
1901.46
55.00
9.38%
$1,013.55
5.00%
4194.17
20.69%
1328.45
37.00
6.27%
1974.72
55.00
9.32%
$1,059.75
5.00%
4362.92
20.58%
1381.58
37.00
6.26%
2053.70
55.00
9.30%
$1,103.57
5.00%
4538.84
20.56%
1429.14
37.00
6.23%
2047.15
53.00
8.93%
$1,146.20
5.00%
4622.49
20.16%
1393.88
35.00
5.87%
2110.73
53.00
8.89%
$1,186.62
5.00%
4691.23
19.77%
1428.20
35.00
5.83%
2162.70
53.00
8.83%
$1,224.17
5.00%
4815.06
19.67%
1469.08
35.00
5.83%
2224.60
53.00
8.82%
$1,260.94
5.00%
4954.62
19.65%
1506.99
35.00
5.80%
2282.01
53.00
8.78%
$1,298.82
5.00%
5087.82
19.59%
Current Assets
Cash & Cash Equivalents
% of Revenue
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Deferred Income Taxes
Days COGS Outstanding
% of Revenue
Prepaid Expenses and Other Assets
Days Prepaid Expense Outstanding
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Other Current Liabilities
Days Taxes Outstanding
% of Revenue
Notes Payable
% of Revenue
Total Current Liabilities
% of Revenue
2012E
0.0
3620.00
0.00%
0.0
3534.90
0.00%
0.0
3480.00
0.00%
3345.9
7247.90
22.49%
3667.94
1008.75
-351.55
4325.15
8905.56
25.11%
937.30
41.24
6.87%
1239.80
54.55
9.08%
2208.80
16.18%
4385.90
32.13%
803.40
32.85
5.52%
1481.90
60.59
10.18%
812.20
5.58%
3097.50
21.28%
849.50
37.01
5.80%
1762.20
76.77
12.04%
1050.10
7.17%
3661.80
25.02%
995.10
42.96
6.69%
1321.50
57.05
8.88%
311.30
2.09%
2627.90
17.66%
1146.68
40.00
6.66%
1576.69
55.00
9.15%
$1,033.50
6.00%
3756.87
21.81%
2013E
2014E
2015E
2016E
2017E
UOIG 14
2018E
2019E
2020E
2021E
University of Oregon Investment Group
June 8, 2012
Appendix 5 – Discounted Cash Flows Analysis Assumptions
Considerations
Considerations
Discounted Free Cash Flow Assumptions
Tax Rate
Risk Free Rate
Beta
Market Risk Premium
35.00% Terminal Growth Rate
1.75% Terminal Value
0.63 PV of Terminal Value
7.00% Sum of PV Free Cash Flows
2.50%
71,827
Avg. Industry Debt / Equity
61.15%
40,250
Avg. Industry Tax Rate
27.70%
10,207
Current Reinvestment Rate
79.35%
Reinvestment Rate in Perpetuity
14.00%
Implied Return on Capital in Perpetuity
17.86%
% Equity
79.69% Firm Value
50,458
% Debt
20.31% Total Debt
7,635
Cost of Debt
5.00% Cash & Cash Equivalents
CAPM
6.16% Market Capitalization
525
WACC
5.57% Fully Diluted Shares
Terminal CAPM
7.28% Implied Price
Terminal WACC
6.46% Current Price
37.80
Terminal Risk Free Rate
2.87% Undervalued
42.71%
42,823
794
53.94
Terminal Value as a % of Total
79.8%
Implied 2013E EBITDA Multiple
17.0x
Implied Terminal Year Multiple
14.9x
Terminal Free Cash Flow Growth Rate
UOIG 15
6%
University of Oregon Investment Group
June 8, 2012
Forward Comparable Analysis
Comparables Analysis
($ in millions)
Stock Characteristics
Current Price
Beta
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
Profitability Margins
EBIT Margin
EBITDA Margin
Net Margin
Credit Metrics
Debt/EV
Leverage Ratio
2012 E
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Valuation
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
P/E
Price Target
Current Price
Overvalued
GIS
General Mills
K
KFT
CPB
Median
$37.65
0.42
$37.80
0.63
Kelloggs
50.00%
$48.26
0.42
2,704.70
10,547.20
907.65
45.10
0.00
862.83
33,567.00
45,956.35
1,584.00
4,254.00
404.00
2.00
0.00
373.16
17,256.75
22,692.75
1,439.90
6,194.80
525.00
482.80
0.00
793.83
30,006.94
37,599.44
1,584.00
4,254.00
404.00
2.00
0.00
373.16
17,256.75
22,692.75
5,143.00
23,198.00
1,852.00
126.00
0.00
1,791.86
66,950.07
93,565.07
751.00
2,006.00
383.00
0.00
0.00
327.33
10,040.66
12,414.66
14.01%
16.82%
8.03%
14.31%
17.14%
9.44%
14.16%
16.84%
8.57%
17.11%
20.25%
14.93%
14.01%
16.82%
8.57%
14.16%
16.84%
8.03%
15.62%
18.92%
15.62%
30.29%
301.24%
20.31%
186.01%
26.80%
257.52%
25.73%
248.37%
20.31%
215.90%
25.73%
248.37%
30.29%
301.24%
22.21%
186.01%
$55,850.90
19,739.40
7,910.40
9,408.00
4,486.60
$7,833.90
3,029.80
1,223.50
1,482.20
1,197.40
$27,709.45
10,217.86
3,931.17
4,690.38
2,352.54
$13,973.10
5,709.20
1,958.00
2,350.50
1,223.50
$17,462.00
6,566.20
2,987.50
3,536.20
2,607.00
$13,973.10
5,709.20
1,958.00
2,350.50
1,197.40
$55,850.90
19,739.40
7,910.40
9,408.00
4,486.60
$7,833.90
3,029.80
1,223.50
1,482.20
1,223.50
2.15x
5.73x
12.59x
10.63x
14.92x
1.58x
3.97x
10.15x
8.38x
8.21x
1.64x
4.26x
11.46x
9.56x
13.66x
1.62x
4.10x
11.59x
9.65x
14.41x
2.15x
5.73x
12.59x
10.63x
11.51x
1.62x
3.97x
11.59x
9.65x
14.41x
1.68x
4.74x
11.83x
9.95x
14.92x
1.58x
4.10x
10.15x
8.38x
8.21x
Max
$48.26
0.63
Min
Weight Avg.
$31.55
$42.04
0.40
0.46
5,143.00
23,198.00
1,852.00
482.80
0.00
1,791.86
66,950.07
93,565.07
751.00
2,006.00
383.00
0.00
0.00
327.33
10,040.66
12,414.66
17.11%
20.25%
15.62%
Implied Price
Weight
$
26.42
0.00%
$
25.68
0.00%
$
33.55
40.00%
$
33.04
40.00%
$
35.29
20.00%
$33.70
37.80
(10.86%)
UOIG 16
Kraft
Campbell Soup
35.00%
15.00%
$37.65
$31.55
0.54
0.40
University of Oregon Investment Group
June 8, 2012
Appendix 7 –Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Adjusted Beta
Terminal Growth Rate
54
1.5%
2.0%
2.5%
3.0%
3.5%
0.43
60.35
71.97
89.41
118.52
176.85
0.53
48.49
56.05
66.55
82.12
107.58
0.63
39.94
45.18
52.08
61.59
75.51
0.73
33.48
37.28
42.10
48.40
57.03
0.83
28.44
31.28
34.80
39.23
45.00
Appendix 8 – Sources
SEC Filings
Company Presentations
Press Releases
Company Investor Relations Page
Earnings Calls Transcripts
IBIS World
FactSet
Yahoo! Finance
MorningStar
UOIG 17