NDIC CONSUMER DIVISION
Recommendation: Buy Wrigley (WWY)
Lauren Wilcox- Associate
Analysts:
Renee Gipson & Steve Howenstein (GPS)
Greg Stewart (WMT)
Colleen Day & Carolyn White (JNJ)
Frank Barra & Randy Yang (PEP)
Patrick Schafer (WWY)
CONSUMER HOLDINGS
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Insert Pie Chart
SECTOR OVERVIEW
Gap Inc. (GPS)
GPS current trading price - November 4, 2004 - approx. 22.37
Gap Inc. Overview

Gap is an International specialty retailer selling casual apparel,
personal care items, and other accessories for men, women, and
children, celebrating its 35th anniversary in 2004.

Fiscal 2003 Revenue of $15.9 billion
 October 2004: Comparable store sales grew 3%, as net
revenue for the month increased 5%, compared to a year ago

Controls various affiliates that target different consumer interests
with diverse marketing styles: The Gap, Gapkids, babyGap, Banana
Republic, and Old Navy.

As of October 22, 2004, Operates 3,038 stores in the United
States, the United Kingdom, Canada, France, and Japan.
Competitor Comparisons
Major Competitors:
American Eagle Outfitters
Abercrombie & Fitch
SWOT Analysis

Strengths



Diversity under different
brands
 Appealing to all ages
and genders and
providing products in all
price ranges
Brand recognition and
effective advertising…2004
“How Do You Wear It?”
campaign and tour
New private label credit card
awarding customers at Gap,
Old Navy, and Banana
Republic

Weaknesses

Heavily influenced by
consumer spending and
current economic state of the
nation

Gap must be able to
compete with its competitor
in the market for teen
apparel
SWOT Analysis

Opportunities



Gap and Old Navy maternity
and Old Navy plus-size lines
Appeal to Internet shoppers with
new credit card and special
offers
Development of an entire new
line for women over 35 years old
 Former Oscar de La Renta
VP of design and senior
designer of J Crew will
oversee product design
 Ten stores in two markets
will open in Fall 2005

Threats

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

Gap continues transitions with
new management and designers
American Eagle continues to
report increased sales
Gap CEO, Paul Pressler, could
potentially return to Disney
New set of competitors with the
new brand
Stability of international
operations
Future Outlook

Stock re-purchase program is up to $750 million

Continue “pop culture” marketing campaign with
various entertainment stars

Focus on inventory management

Likely to be more management changes

Keep an eye on development and success of
new line
PepsiCo, Inc (PEP)
PepsiCo, Inc Overview

PepsiCo, Inc. is a global snack and beverage company. The Company
manufactures, markets and sells a variety of salty, convenient, sweet and
grain-based snacks, carbonated and non-carbonated beverages and
foods.

It is organized in four divisions: Frito-Lay North America, PepsiCo
Beverages North America, PepsiCo International and Quaker Foods
North America.

Its North American divisions operate in the United States and Canada. Its
international divisions operate in nearly 200 countries, with its largest
operations in Mexico and the United Kingdom.
Competitor Comparison
SWOT Analysis
Strengths
Weaknesses


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Strong brand name
(Number 2 in
industry)
Strong international
market
 Rising earnings in
2004
People are
questioning its water
purification process
 Health craze may
lower consumption
of products
SWOT Analysis
Opportunity
Threats

Changed name of Diet
Sierra Mist to Sierra Mist
Free

Relationship with
Advertising Agency is in
jeopardy

Growing international
market after CocaCola’s European antitrust settlement

NHL Lockout means
lack of exposure for
Pepsi Center in Denver
Future Outlook

Growing international market should bring on
greater sales

May need to focus on healthier products

Expecting increase earnings and growth in
2004 of 13-15%.
Johnson & Johnson (JNJ)

GRAPH
JNJ Overview

Johnson & Johnson is engaged in the manufacture and sale of products
related to human health and well-being.

Over 200 operating companies worldwide.

The Company's business is divided into three segments: Consumer,
Pharmaceutical and Medical Devices and Diagnostics.


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Consumer segment: baby and child care, skin care, oral and wound care
and women's healthcare fields, as well as nutritional and over-the-counter
pharmaceutical products.
Pharmaceutical segment: antifungal, anti-infective, cardiovascular,
dermatology, gastrointestinal, hematology, immunology, neurology,
oncology, pain management, psychotropic and urology fields.
Medical Devices and Diagnostics segment: products used by or under the
direction of physicians, nurses, therapists, hospitals, diagnostic laboratories
and clinics.
SWOT Analysis
STRENGTHS
WEAKNESSES


Patients taking JNJ’s arthritis
drug Remicade may have
higher risk of lymphoma

Relative price strength
decreasing

P/E to growth ratio suggests
stock may be overvalued


Surpass industry averages in
sales and income
 JNJ: 45,850.0 mil vs.
15,012.1 mil
 JNJ: 9,137.0 mil vs. 2,747.3
mil
For the nine months revenues
rose 13% to $34.6 billion:
 Revenues reflect a strong
performance of RISPERDAL,
LEVAQUIN, and TOPAMAX
36.30% one-year income growth
SWOT Analysis
OPPORTUNITIES



Most pharmaceutical stocks
rose as a Bush victory is
seen as reducing the threat of
government-imposed price
cuts on drug companies & the
threat of drug imports
FDA approved a JNJ
company’s CHARITE artificial
disc to treat severe low back
pain
Viactiv introduced new
Vitamin Chews in new flavors
THREATS

PG has been very successful
(billion dollar sales) in China
market

Negative financing cash flow
Wal-Mart, Inc. (WMT)
Wal-Mart Stores, Inc. Overview

Wal-Mart Stores, Inc. operates discount stores and Supercenters, as well
as Sam's Clubs. The Company's Wal-Mart discount stores and
Supercenters offer merchandise such as apparel, housewares, small
appliances, electronics, and hardware.

The products are categorized into grocery, candy and tobacco;
hardgoods; soft goods-domestics; pharmaceuticals; electronics; sporting
goods and toys; health and beauty aids; stationery; one-hour photo;
jewelry; apparel and shoes.

In the United States Wal-Mart operates 1478 discount stores, over
1,471 Supercenters, 538 SAM's CLUBs and 64 Neighborhood
Markets. It also operates 1,400 units internationally.

The company operates in the United States, the United Kingdom,
Argentina, Brazil, Canada, China, Germany, South Korea, Mexico and
Puerto Rico.
Competitor Comparisons
SWOT Analysis

Strengths

Gross margins stronger in 3rd Qtr.,

changed tax rate pushed earning to "high end" of pershare forecast range of 52 cents to 54 cents
Foods division producing steady profits,
becoming even greater threat to supermarkets
 Steady international expansion and sales
abroad
 For October, total sales increased 10.4 % For
the quarter, sales rose 11.4%

SWOT Analysis

Weaknesses

Sales at stores open longer than a year rose only 2.8
percent

lower end of an earlier forecast of 2 percent to 4 percent

Senior management dedicating too much time to legal and
publicity issues, hurting WMT’s focus

Focusing on price points: quantity rather than quality



Targeting low-end customers
Losing high income shoppers
Disturbing trend in non-food/general merchandise

Only exceeded 2% growth sales in one quarter since 3rd
Qtr. ’02
SWOT Analysis
Opportunities







Food market is strong
Higher consumer spending
post-election
Worst is behind us attitude
Stocked price target around
$64
Increased holiday sales
Wal-Mart International:
continued growth
Beginning to focus on quality
Threats



Target:
 Capturing high income
customers
 Focusing on quality with
more high-end products
 Gap between companies
increasing
Employee health care issues
Retail stocks risen without
WMT about 11% since
August, while WMT has done
nothing
Future Outlook
Analysts believe that WMT’s next move
is up.
 Company is beginning to focus on
quality to better compete with Target.
 Positive impact of increasing consumer
spending.
 Continuous improvements in stores.

PROPOSAL: BUY Wm. WRIGLEY Jr.
Company (WWY)

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World’s #1 maker of chewing gum. World famous
brands marketed in over 180 countries.
Manufactures & markets chewing gum and other
confectionary products.
Factories: 4 in U.S. and 11 abroad
Subsidiary: Amurol Confections--maker of novelty
gums and candies, such as Bubble Tape, Everest,
Squeeze Pop and Velamints.
2 Domestically wholly owned associated companies:
L.A. Dreyfus Company (gum base) & Northwestern
Flavors, LLC (processes flavorings and rectifies mint
oil)--both manufacture products other than chewing
gum.
Chairman & CEO Bill Wrigley Jr. represents 4th
generation of company’s helm.
Products

Taste:





Juicy Fruit
Spearmint
Doublemint
Extra
Oral Care:

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

Orbit White
Orbit
Freedent
Breath-Freshening:

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Winterfresh
Big Red
Eclipse
Eclipse Flash
Wellness:


Airwaves
Alpine
Recent News/ Past Performance


CHICAGO, Oct. 26: WWY announced today double-digit volume, sales
and earnings growth for the third quarter and the nine months ended
September 30, 2004. Earnings per share of $0.56 for the quarter and
$1.67 through nine months were up 12% from the year-ago periods
on global sales growth of 17% for the quarter and 20% year to date.

Sales increases were driven by worldwide shipment growth of
13% in the quarter and 14% through nine months.

Volume gains reflect solid performance of WWY & impact of Joyco
Acquisition.
More International Expansion- Oct 21, 2004: Close down plant made
fresh breath film in AZ and move it to Poland because revenue from the
breath film in Europe is increasing.
International- Joyco Acquisition

Last April 2004: WWY acquired confectionery businesses of the
Joyco Group from Agrolimen, a privately held Spanish
conglomerate.
 Key additions to the Wrigley Company's portfolio of brands
will include Boomer bubble gum, Pim Pom lollipops, and
Solano candy.
 Wrigley will also acquire major sales and production
operations in China, India and Spain, smaller commercial
operations in France, Italy and Poland, as well as Cafosa,
Joyco's gum base business.
Recent Performance

Sales for the quarter in North America up 6%- driven
by volume growth and positive mix.
 U.S.- Orbit and Eclipse were key contributors to sales
 Wrigley’s EMEAI Region (particularly Europe) sales
were up 25% on strong volume growth.
 Asia: Sales up 23%
 Consolidated operating profits in quarter grew by 10%,
reflecting sales increases in all regions and positive
impact of currency (somewhat offset by increased
investment in brand support, selling infrastructure, IT,
R & D as well as costs of Joyco acquisition.)
Recent News

Dividends Declaration:


Oct 26: Wrigley Company declared a regular dividend of $0.235 on
each share of Common Stock three-month period beginning
February 1, 2005.
Stock Repurchase: Aug 18, 2004: Board of Directors authorized
future stock repurchases of up to $300 million.

This new repurchase program will follow the completion of the Share
Repurchase Program authorized by the Board in January of this
year, under which $60 million remains available for repurchase of
company stock.

“The authorization underscores the continued confidence the Board
of Directors has in the Company's financial strength and long term
business prospects," said Bill Wrigley, Jr., Chairman of the Board,
President and CEO.
KEY STATISTICS
Market Cap (b)
P/E Ratio
EPS
15.169
32.05
2.11
Earnings Growth
ROE
ROA
11.10%
26.28%
18.73%
Profit Margin
Beta
14.02%
.123
Operating Margin 20.53%
Shares Out (mil)
224.76
52-week high
67.90
52-week low
54.44
% Held by Insiders
26.85%
Dividends
.94
Price/Book
7.83%
Change Rel S&P
9.12%
OCF (mil)
744.60
Competitor Comparison
WWY
TOPP
Industry
(food processing)
Market Cap:
15.17B
415.07M
Rev. Growth
11.80%
2.50%
Revenue
3.37B
304.90M
315.64M
Gross Margin
57.39%
35.13%
26.44%
Operating Margins
20.53%
4.30%
5.78%
Net Income
473.13M
11.66M
7.14M
EPS
2.106
.281
.48
PE
32.05
36.55
18.92
181.88M
6.50%
SWOT Analysis

Strengths:




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With acquisition of Joyco, WWY
expands to new foreign markets and
increases product mix.
Exceeded estimated EPS two
consecutive quarters
Increasing product mix with
research and innovation
For the nine months ended 9/30/04,
revenues rose 20% to $2.69 billion.
Net income rose 12% to $376
million. Revenues reflect higher
Russia, China and U.S. shipments
and improved product mix. Net
income was partially offset by
higher expenses for increased
research.
Not much competition

Weaknesses:

New products? Aside from
flavors may not be much
technological improvements in
the gum business.
SWOT Analysis

Opportunities:

International Expansions
with Joyco acquisition
(Global revenue up 17%
in just one year.)

Threats:



New brand developments

Competition from
companies with other
big name products in
addition to gum.
Ex: Hershey’s makes
Bubble Yum & Cadbury
Adams makes
Bubblicious.
Only company solely
manufactures gum
products/ breath strips.
Future Outlook

Solid company with increasing revenue and net income

Growth potential internationally

Innovations- increased research spending; continue to update product
mix

Analyst Recommendations: Analysts estimate growth of 10.8% over
the next 5 years as compared to an industry growth of only 8.43%.
Questions?