NDIC CONSUMER DIVISION Recommendation: Buy Wrigley (WWY)

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NDIC CONSUMER DIVISIONRecommendation 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)

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CONSUMER HOLDINGS

• Insert Pie Chart

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SECTOR OVERVIEW
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Gap Inc. (GPS)
GPS current trading price - November 4, 2004 -
approx. 22.37
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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.

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Competitor Comparisons
Major Competitors American Eagle
Outfitters Abercrombie Fitch
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SWOT Analysis

• Strengths
• Diversity under different brands
• Appealing to all ages and genders and providing
  products in all price ranges
• Brand recognition and effective advertising2004
  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

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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
• 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

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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

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PepsiCo, Inc (PEP)
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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.

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Competitor Comparison
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SWOT Analysis

• Strengths
• Strong brand name (Number 2 in industry)
• Strong international market
• Rising earnings in 2004

• Weaknesses
• People are questioning its water purification
  process
• Health craze may lower consumption of products

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SWOT Analysis

• Opportunity
• Changed name of Diet Sierra Mist to Sierra Mist
  Free
• Growing international market after Coca-Colas
  European anti-trust settlement

• Threats
• Relationship with Advertising Agency is in
  jeopardy
• NHL Lockout means lack of exposure for Pepsi
  Center in Denver

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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.

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Johnson Johnson (JNJ)

• GRAPH

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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.
• 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.

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SWOT Analysis

• STRENGTHS
• 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

• WEAKNESSES
• Patients taking JNJs arthritis drug Remicade may
  have higher risk of lymphoma
• Relative price strength decreasing
• P/E to growth ratio suggests stock may be
  overvalued

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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 companys 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

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Wal-Mart, Inc. (WMT)
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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.

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Competitor Comparisons
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SWOT Analysis

• Strengths
• Gross margins stronger in 3rd Qtr.,
• changed tax rate pushed earning to "high end" of
  per-share 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

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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 WMTs 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

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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

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Future Outlook

• Analysts believe that WMTs 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.

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PROPOSAL BUY Wm. WRIGLEY Jr. Company (WWY)

• Worlds 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 companys helm.

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Products

• Taste
• Juicy Fruit
• Spearmint
• Doublemint
• Extra
• Oral Care
• Orbit White
• Orbit
• Freedent

• Breath-Freshening
• Winterfresh
• Big Red
• Eclipse
• Eclipse Flash
• Wellness
• Airwaves
• Alpine

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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.

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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.

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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
• Wrigleys 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.)

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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.

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KEY STATISTICS
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 SP 9.12
OCF (mil) 744.60
Market Cap (b) 15.169
P/E Ratio 32.05
EPS 2.11
Earnings Growth 11.10
ROE 26.28
ROA 18.73
Profit Margin 14.02
Beta .123
Operating Margin 20.53
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Competitor Comparison
WWY TOPP Industry (food processing)
Market Cap 15.17B 415.07M 181.88M
Rev. Growth 11.80 2.50 6.50
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

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SWOT Analysis

• Strengths
• 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.

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SWOT Analysis

• Opportunities
• International Expansions with Joyco acquisition
  (Global revenue up 17 in just one year.)
• New brand developments

• Threats
• Competition from companies with other big name
  products in addition to gum.
• Ex Hersheys makes Bubble Yum Cadbury Adams
  makes Bubblicious.
• Only company solely manufactures gum products/
  breath strips.

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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.

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Questions?