Financial Statement Analysis
Course Project – Week II
Nestle (NSRGY) and Hershey Foods (HSY)
I. Choice of Companies and an Overview of Their Operations and Industry – briefly outline what the company does and its industry. (5 pts) Nestle (NSRGY) is the largest food and beverage company in the world operating within the global food and beverage industry. It provides nutrition, health, wellness products, baby foods, bottled water, cereal, chocolate, coffee, pet care products and more thru many major consumer brands. It is one of the most geographically diverse companies; only 42% of its food and beverage sales comes from North America. Nestlé’s major competitors include Hershey Foods, Kraft Foods, Unilever NV and Cadbury Schweppes. It already has a strong seat as a leader. So going forward, Nestle aims to increase the nutritional value of its products and to expand the product lines to offer therapeutic foods to people with illnesses. They desire to transform themselves from a food manufacturer to the world’s leading nutrition, health & wellness company. In pursuit of this, Nestle launched a subsidiary in 2010 which creates food-based products that prevent and treat different medical diseases.
* In FY 2010, Nestle had Revenues of $84.81B, a Profit Margin of 11.33% and an Operating Margin of 15.61% * Rising food prices (such as grains and dairy) increase Nestlé’s costs of production and threaten profits * Nestle operates under eight different business segments: Milk Products (18.7% of sales), Beverages (18% of sales), Prepared Dishes & Cooking Aides (16% of sales), Confectionery (11% of sales), Other Foods & Beverages (9.5% of sales), Pet Care (9.3% of sales), Pharmaceutical Products (0.7% of sales) and the newest subsidiary, Healthcare Nutrition (just launched in 2010). * NSRGY is presently trading at $59.90. Its 52-week range is 52.85 – 65.12. NSRGY has a P/E ratio of 10.5.
Hershey Foods (HSY) is the largest producer of chocolate in North America, holding 42.5% of the US chocolate market. They primarily make cocoa for the production of chocolates, candies and other confectioneries. Hershey’s operates as a single reportable segment in the Consumer Goods sector of the Confectioners industry. It provides chocolate, candy items, pantry items (like baking ingredients), toppings & beverages, and gum & mint refreshment products thru 80 different brand names in 70 different countries. Hershey’s operates globally, but more than 90% of its revenue and profits comes from the US. This makes it one of the most geographically concentrated major food and beverage companies. Competitors of Hershey’s are Mars Inc (25% of the US market), Russell Stover (7%), Nestle USA (8%) and several others. Hershey’s distributes to Wal-Mart (its largest customer) thru the McLane Company, which accounts for 27% of its sales (in 2009). Interestingly enough, Hershey’s enjoys rights to manufacture and sell some of its competitors’ products, such as Kit-Kat bars (which is available thru a licensing agreement with Nestle) and Cadbury Schweppes (which is thru Kraft Foods). Hershey’s pays for these rights and is protected somewhat from foreign competition because these two dynamic companies are prevented from entering the US market. Going forward, Hershey’s will diversify geographically by acquiring companies in India, Singapore and China. The company is particularly challenged with rising costs of some of their key ingredients (cocoa, milk, sugar and peanuts). They have lowered product weight and raised wholesale prices in the US. Hershey’s is keeping a watch on the state of affairs along the Ivory Coast since they produce 40% of the world’s raw cocoa. Prices have jumped in excess of 15% since November 2010 (when the latest conflict began).
* In FY 2010, Hershey’s had Revenues of $6.25B, a Profit Margin of 10.68% and an Operating Margin of 18.82% * Cocoa, milk,...