Monday, March 07, 2005

Check out Wrigley (WWY)

WWY may seem like a pretty boring gum company but I think there is more to the story than you might think. I have no position now but would likely go long in the mid-upper 50's.

Background
  • Famous brands include Juicy Fruit, Doublemint, Big Red, Eclipse, Extra, Orbit, Winterfresh
  • 60% of sales come from outside the U.S.
  • should do around $4B in sales this year
  • operating margins around 20%
  • historically trades at a steep premium to packaged food sector
  • balance sheet is in good shape
What I like
  • Strong market share all over the world (US, W Europe, E Europe, Asia, Australia). In each of these markets WWY is #1 except for Asia (#2)
  • No real private label threat--This is something that is a real problem for companies like KFT and even PEP and KO with private label carbonated soft drinks (I'll post on two PL companies that I like later, RAH and COT)
  • Different strategies for different geographies
    • In the U.S and W Europe, I think WWY realizes that volume (per capita) gains will be tough to come by. WWY has done a good job, though, in the past few years at pushing through price increases and benefiting from adjustments to product mix (e.g. tablets instead of gum sticks)
    • In the int'l markets (E Europe, Asia), it's all about volume. These markets consume far less gum than in the developed markets (1.0-1.6 lbs./yr). In Asia, this number is 0.1 lbs and in E. Europe it is 0.7 lbs. WWY made a smart acquisition about a year ago (Joyco). This co. had the #1 bubble gum brands in China, India and Spain and #1 lollipop brands in China and India.
    • So the opportunity in international markets is huge. I think analysts target mid-single digit growth from the US and W Europe but 10%+ growth from China, India, and E. Europe.
  • Limited competition (Cadbury through it's purchase of Adams from PFE is a distant #2)
  • Stock might be able to hang in there in the event of a huge negative market move (moreso than tech or housing for example)
What I don't like or What I am not sure of
  • Big recent acquisition of Life Savers and Altoids brands from Kraft--Though this is part of the co's strategy to move into confections (not just gum), this is a big acquisition to digest particularly with the recent Joyco move. Analysts seem to like it though, taking up their '06 estimates
  • Valuation-But like I said, I'll wait for the mid-high 50's
  • PFE might have neglected the Adams (Trident, Dentyne) business before Cadbury took it over. Cadbury might emerge as a worthy competitor

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