EskimoPieCase2006

Topics: Net present value, Cash flow, Free cash flow Pages: 10 (719 words) Published: March 10, 2015
Eskimo Pie Case
January 19, 2006

J. K. Dietrich - FBE 532 – Spring 2006

Basic Steps to
Valuation in Finance


Estimate cash flows
– Cash - after tax, consumable
– Sometimes easy (fixed incomes), sometimes hard
(residual claims)



Choose a discount rate
– opportunity rate on alternative
– risk adjusted



Calculate present value and net present value and
decide if worth more than costs

J. K. Dietrich - FBE 532 – Spring 2006

Updated Estimates in Valuation
Eskimo Pie Profit/Cashflow '91
92
93
Sales
$61.0 $
64.9 $
65.7
Operating Expenses
41.4
44.7
45.2
SG&A
15.8
16.8
17.0
Op. Profit
$3.8
$3.5
$3.5
Free Cash Flow
$2.7
$2.5
$2.5
Net Income
$2.3
$2.1 $
2.1
Growth '90-91
29.2%
6.4%
1.2%
FCF + TV
$2.7
$2.5
$50.76
PV @ 15.5%
$37.2
Cash
$13.0
Total Value
$50.2

J. K. Dietrich - FBE 532 – Spring 2006

Sensitivity to Operating Ratios
Eskimo Pie Profit/Cashflow '91
Sales
$61.0 $
Operating Expenses
34.3
SG&A
19.0
Op. Profit
$7.8
Free Cash Flow
$5.1
Net Income
$4.7
Growth '90-91
29.2%
FCF + TV
$5.1
PV @ 15.5%
$86.0
Cash
$13.0
Total Value
$99.0
J. K. Dietrich - FBE 532 – Spring 2006

92
93
64.9 $
65.7
36.4
36.9
20.2
20.5
$8.2
$8.3
$5.3
$5.4
$4.9 $
5.0
6.4%
1.2%
$5.3
$119.61

Eskimo Pie Cost of Capital
Company
Equity Total Debt
Ben & Jerry's
110.1
2.8
Dreyer's Grand Ice Cream
534.0
44.3
Empire of Carolina, Inc.
51.4
89.8
Steve's Homemade Ice Cream
37.4
3.1
Hershey Foods Corp.
4002.5
282.9
Tootsie Roll Inds.
728.8
0.0
Average

E/TMV Equity Beta Asset Beta
0.98
1.2
1.17
0.92
1.4
1.29
0.36
0.3
0.11
0.92
2.5
2.31
0.93
1.0
0.93
1.00
1.0
1.00
0.85
1.23
1.14

Estimated WACC using short-term and long-term Treasuries:

WACC S  Trf 4.56%  1.14 * 9.2% 15.0%
WACC L  Trf 7.42%  1.14 * 7.4% 15.9%
J. K. Dietrich - FBE 532 – Spring 2006

Valuations under Varying Rates
Growth =
Discount Rate
14%
15%
16%
17%

10%
$
$
$
$

121.0
96.8
80.7
69.1

12%
$
$
$
$

246.4
164.3
123.2
98.6

14%
-535.8
267.9
178.6

Assuming $4.4 million assumed in the case FCF ($4 + .4) grows in perpetuity and omits $13 million in excess cash available for payment to buyers
J. K. Dietrich - FBE 532 – Spring 2006

Valuation Using Comparables
Company
Ben & Jerry's
Dreyer's Grand Ice Cream
Empire of Carolina, Inc.
Steve's Homemade Ice Cream
Hershey Foods Corp.
Tootsie Roll Inds.
Average

MV/BV
4.19
4.72
1.14
3.37
3.00
4.77
3.53
BV
21.80

Estimate for Eskimo Pie 1991
Valuation Using Comparables
Eskimo Pie 1991 Cash
Total Estimated Value
J. K. Dietrich - FBE 532 – Spring 2006

$
$
$

77.0 $
13.0 $
90.0 $

PE
29.76
33.58
5.84
20.78
18.23
28.58
22.80
NI
2.3
52.4 $
13.0 $
65.4 $

MV/S
1.16
1.63
0.58
1.15
1.48
3.51
1.59
Sales
61

TV/CF
16.85
24.00
8.40
15.00
14.66
22.42
16.89
FCF
2.7

96.7 $
13.0 $
109.7 $

45.6
13.0
58.6

Eskimo Pie Share Price

Eskimo Pie Share Price 1992-99
25

20

P r ic e

15

10

5

0
31-Mar-92

13-Aug-93

26-Dec-94

9-May-96
Price

J. K. Dietrich - FBE 532 – Spring 2006

21-Sep-97

3-Feb-99

Post-IPO Performance of Eskimo

V a lu e o f $ 1 0 0

Es k im o Pie and S&P 500

450
400
350
300
250
200
150
100
50
0
31-Mar-92 13-Aug-93

26-Dec-94

9-May-96

21-Sep-97

Tim e

EPIE
J. K. Dietrich - FBE 532 – Spring 2006

S&P

3-Feb-99
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