Soda

Industry Surveys
Foods & Nonalcoholic Beverages

(Includes Agribusiness) Tom Graves, CFA, Packaged Foods Equity Analyst Esther Y. Kwon, CFA, Beverages Equity Analyst JUNE 2013
Current Environment ............................................................................................ 1 Industry Profile .................................................................................................... 10 Industry Trends ................................................................................................... 12 How the Industry Operates ............................................................................... 32 Key Industry Ratios and Statistics ................................................................... 37 How to Analyze a Food or Beverage Company ............................................. 39 Glossary ................................................................................................................ 45 Industry References ........................................................................................... 47
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Comparative Company Analysis ...................................................................... 49

This issue updates the one dated December 2012. The next update of this Survey is scheduled for December 2013.
Topics Covered by Industry Surveys

Aerospace & Defense Airlines Alcoholic Beverages & Tobacco Apparel & Footwear: Retailers & Brands Autos & Auto Parts Banking Biotechnology Broadcasting, Cable & Satellite Chemicals Communications Equipment Computers: Commercial Services Computers: Consumer Services & the Internet Computers: Hardware Computers: Software Computers: Storage & Peripherals Electric Utilities Environmental & Waste Management Financial Services: Diversified Foods & Nonalcoholic Beverages Healthcare: Facilities Healthcare: Managed Care Healthcare: Products & Supplies Heavy Equipment & Trucks Homebuilding Household Durables Household Nondurables Industrial Machinery Insurance: Life & Health Insurance: Property-Casualty Investment Services Lodging & Gaming Metals: Industrial Movies & Entertainment Natural Gas Distribution Oil & Gas: Equipment & Services Oil & Gas: Production & Marketing Paper & Forest Products Pharmaceuticals Publishing & Advertising Real Estate Investment Trusts Restaurants Retailing: General Retailing: Specialty Semiconductor Equipment Semiconductors Supermarkets & Drugstores Telecommunications: Wireless Telecommunications: Wireline Thrifts & Mortgage Finance Transportation: Commercial
Global Industry Surveys

Airlines: Asia Autos & Auto Parts: Europe Banking: Europe Food Retail: Europe Foods & Beverages: Europe Media: Europe Oil & Gas: Europe Pharmaceuticals: Europe Telecommunications: Asia Telecommunications: Europe
S&P Capital IQ Industry Surveys

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E XECUTIVE E DITOR : E ILEEN M. B OSSONG -M ARTINES C LIENT S UPPORT : 1-800-523-4534. ISSN 0196-4666. V ISIT THE S&P C APITAL IQ W EBSITE : www.spcapitaliq.com
S&P CAPITAL IQ INDUSTRY SURVEYS (ISSN 0196-4666) is published weekly. Reproduction in whole or in part (including inputting into a computer) prohibited except by permission of S&P Capital IQ. To learn more about Industry Surveys and the S&P Capital IQ product offering, please contact our Product Specialist team at 1-877-219-1247 or visit getmarketscope.com. Executive and Editorial Office: S&P Capital IQ, 55 Water Street, New York, NY 10041. Officers of McGraw Hill Financial: Harold McGraw III, Chairman, President, and CEO; Jack F. Callahan, Executive Vice President, Chief Financial Officer; John Berisford, Executive Vice President, Human Resources; D. Edward Smyth, Executive Vice President, Corporate Affairs; Charles L. Teschner, Jr., Executive Vice President, Global Strategy; and Kenneth M. Vittor, Executive Vice President and General Counsel. Information has been obtained by S&P Capital IQ INDUSTRY SURVEYS from sources believed to be reliable. However, because of the possibility of human or mechanical error by our sources, INDUSTRY SURVEYS, or others, INDUSTRY SURVEYS does not guarantee the accuracy, adequacy, or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Redistribution or reproduction is prohibited without written permission. Copyright 2013 Standard & Poors Financial Services LLC. All rights reserved. STANDARD & POORS, S&P, S&P CAPITAL IQ, S&P 500, S&P MIDCAP 400, S&P SMALLCAP 600, and S&P EUROPE 350 are registered trademarks of Standard & Poors Financial Services LLC.
A SSOCIATE E DITOR : C HARLES M AC V EIGH
S TATISTICIAN : S ALLY K ATHRYN N UTTALL
CURRENT ENVIRONMENT
Rebound expected in crop harvests
In 2013, we look for the US agricultural sector to benefit from improved weather conditions, following drought-related harvest shortfalls in 2012. We anticipate that increased production, especially for corn, will help inventories to build, and lead to crop prices sharply below the highs reached in the summer of 2012. According to the US Department of Agriculture (USDA), 2012 brought the most severe and extensive US drought in at least 25 years. The drought seriously affected US agriculture, affecting both the crop and livestock sectors. In the Midwest, large portions of major field crops, particularly corn and soybeans, were destroyed or damaged, resulting in lower supply. Higher farm prices for field crops affected various parts of the food supply chain, including animal feed for livestock. In the contiguous US, the JanuaryAugust 2012 period was the warmest such period on record since 1895, breaking the previous record set in 2006 by 1F (Fahrenheit). July 2012 was the hottest month ever, with temperatures reaching 77.6F, breaking the previous record of 77.4F set in July 2006 and 3.3F above the 20th century average, according to the National Oceanic and Atmospheric Administration (NOAA), a unit of the US Department of Commerce. As of June 2013, the USDA was forecasting that US corn production would reach a record 14.0 billion bushels in the 201314 marketing season, up 30% from an estimated 10.8 billion bushels in 201213. This included a projected 27% rise in the yield per acre. For soybeans, the forecast was for 3.4 billion bushels in 201314, an increase of 12%, year to year, primarily due to increased yield. We expect corn and soybeans to be the largest US field crops in terms of both acreage and dollar sales.
US COMMODITIES PRICES
- - 2009 - - - - - - - - 2010 - - - - - - - - - - - - - - - - 2011 - - - - - - - - - - - - - - - 2012 - - - - - - - - - - - 2013 - OCT. AGRICULTURE INPUTS APR. OCT. APR. OCT. MAR. SEP. APR.
Wheat (/bushel) Corn (/bushel) Soybeans (/bushel) Soybean oil (/lb.) Sugar (/lb.) Milk ($/cw t)
PACKAGING INPUTS
B09: US 504.5 343.3 COMMODITIES 960.1 PRICES

33.1 22.6 14.3 855.0 757.5
496.8 350.8 958.7 37.1 19.3 14.6 855.0 757.5
744.0 560.0 1,113.0 44.0 37.0 18.5 945.0 855.0
933.0 734.3 1,350.2 56.6 27.4 19.6 1,040.0 910.0
806.5 640.8 1,181.6 51.7 27.8 20.0 1,030.0 920.0 93.2 3.6
765.0 643.0 1,347.2 53.4 24.7 17.2 1,030.0 920.0 103.0 2.2
982.5 758.0 1,681.5 53.8 19.6 19.7 1,030.0 880.0 92.2 2.8
880.0 675.8 1,416.4 49.3 17.7 19.3 1,025.0 905.0 93.5 4.1
Unbleached kraft board ($/ton) Recycled folding boxboard ($/ton)

ENERGY INPUTS
Crude oil ($/barrel) 77.0 86.2 81.4 113.9 Natural gas ($/mil. Btu) 3.5 3.9 3.5 4.2 Sources: US Department of Agriculture; Pulp & Paper Week; Wall Street Journal.
With significantly higher production, the USDA was looking for inventories to rebound from droughtreduced levels. US corn stocks were projected to more than double from a forecast 17-year season-ending low in 201213. Similarly, the US soybean inventory was estimated to more than double in 201314, following an estimated drop of 26% in 201213. However, US wheat production was expected to decline 8.3% in 201314, with less harvested acreage and a decline in yield per acre from the record estimated for 2012. Season-ending US wheat stocks for 201314 were projected to be down 12%, but still sharply above where they were at the end of the 200708 season.
INDUSTRY SURVEYS
FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013
CROP PRICES PROJECTED TO DECLINE

In the US, prices for some major crops peaked in the summer of 2012, amidst concerns about drought conditions. In the futures market, the price of corn for May delivery topped $8.00 a bushel, while the price for soybeans exceeded $16.00.
STOCKS*-TO-USE RATIO
18 16 14 12 10 8 6 4 2
Chart H04: STOCKS*-TOUSE RATIO
However, as of June 2013, along with forecasts of increased production, the USDA expected the price of corn to average $4.40$5.20 per bushel in the 201314 marketing season, versus an estimated $6.75$7.15 per bushel for 201213. For soybeans, the USDA forecast a price of $9.75$11.75 per bushel in 201314, compared with an estimated $14.35 per bushel in 201213.
Meanwhile, the USDA was forecasting that the price of US wheat would average $6.25$7.55 per bushel in 201314, Corn Soybeans down from an estimated $7.80 per bushel *Ending stocks. E-Estimated. in 201213. Although US wheat Source: US Department of Agriculture. production was projected to decline in 201314, higher production in the rest of the world was forecast to bring record world output.
0 2007-08 '08-09 '09-10 '10-11 '11-12 E'12-13 E2013-14
Size of the harvest remains vulnerable to weather conditions For agriculture, weather is an important factor. According to a report published by the United Nations Intergovernmental Panel on Climate Change, global warming has led to change in some extremes in the weather since 1950. Further, according to a report published by the House Committee on Natural Resources and the House Committee on Energy and Commerce titled Going to Extremes: Climate Change and the Increasing Risk of Weather Disasters in September 2012, nine of the top 10 warmest years globally have occurred since 2000. While the expectation for this year is for a record production of crops, the size of the harvest remains vulnerable to weather conditions. For instance, cold, wet weather from Nebraska to Ohio delayed US corn plantings this spring. While the rains tapered off in time for the pace of planting to pick up, we think wet weather has already dampened optimism for the 201314 season. Large Brazil corn harvest expected in 2013, but logistics an issue We anticipate relatively large crops in 2013 from South America, where the production cycle is different from that in the US, with much of the harvesting taking place in the spring. However, we think Brazil has been facing logistical issues due to a lack of a more adequate infrastructure to handle its bumper crops. USDA forecasts for meat and chicken In 2013, we look for a modest rise in US livestock production. The USDA projected in June 2013 that US production of beef would decline by 1.8% in 2013, while pork production would rise 0.7%. For broiler chickens (a type of poultry bred for its meat and which have a faster breeding cycle), the USDA projected a 2.0% production increase for 2013. We think the prospect of lower grain prices has improved the economic outlook for livestock production. We anticipate that roughly 20% of US beef, pork and chicken production in 2013 will go to export markets. We think that rising incomes are leading to higher per capita consumption of animal protein in developing international markets, especially in Asia. Based on April 2013 USDA forecasts, the US would account for a leading 19.8% of world beef and veal production tonnage in 2013, followed by Brazil (16.5%) and the European Union (13.4%). Meanwhile, China would account for a leading 50.1% of world pork tonnage, followed by the European Union (21.0%) and the US (9.9%). Also based on May 2013 USDA forecasts, the US would account for 20.1% of
2 FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013 INDUSTRY SURVEYS
world broiler production in 2013, followed by China (16.6%) and Brazil (15.2%). In addition, China was projected to account for about half (50.7%) of the worlds pork consumption, and the US was expected to be among the largest exporters of pork.
PROFIT ENVIRONMENT FOR US FARMERS

Although farmers are likely to receive lower prices for some crops, especially in the latter part of 2013, we look for volumes to be high enough to help 2013 be a relatively profitable year for agriculture. In February 2013, the USDA forecast that cash receipts of the US farm sector would total $392.9 billion in 2013, up 0.4% from the year before. Of this, crops would represent $216.3 billion (down 1.5%) of the receipts, with corn accounting for about 32% of the crop total, and soybeans representing about 18%. Also, the USDA projected that livestock receipts would total $176.5 billion in 2013, up 2.8% from the year before. Sales of meat animals were estimated at $89.8 billion (up 1.3%), while poultry and eggs were expected to total $41.8 billion (up 4.2%), and dairy receipts were projected at $38.5 billion (up 4.2%). After including other farm-related sources and direct government payments, the USDA forecast gross cash income of $440.1 billion in 2013, up 1.5% from the previous year. The USDA projected that cash expenses would rise 6.3%, leading to projected net cash income of $123.5 billion in 2013. This would be down 8.9% from the forecast for 2012, but up from a 200211 average of $83.8 billion. On a non-cash basis, the USDA forecast a 14% increase in farm income to a record $128.2 billion in 2013. Looking ahead, we think tighter immigration controls and enforcement could reduce the supply of farm labor available in the US. According to the Labor Department, more than 1.4 million people were employed as field workers in the US each year, more than half of which are working illegally. Uncertainty regarding federal programs As of June 2013, the US Congress had yet to replace a multi-year federal farm bill that expired on September 30, 2012. Such legislation addresses a variety of agriculture- and food-related matters. With no new farm bill in place, there was uncertainty about the fate or shape of a number of federal programs. In January 2013, a resolution was passed, extending the existing bill until September 30, 2013. In June 2013, the US Senate approved, by a vote of 6627, a new farm bill that would have reshaped the federal safety net for farmers. This legislation would have ended some direct payments to farmers, but would have potentially boosted federal subsidies for crop insurance. However, later in June, the US House of Representatives rejected, by a vote of 234195, a related Farm Bill. It looked like stumbling blocks included the prospective size of cuts related to the food stamp program (more formally known as the Supplemental Nutrition Assistance Program, or SNAP), and the prospective addition of work requirements related to that program.
CONTINUED STRONG DEMAND FOR US AGRICULTURAL EXPORTS

In November 2012, the USDA reported that agricultural exports totaled $135.8 billion in the fiscal year ending September 2012, down 1.2% from a record $137.4 billion the year before. With imports rising 9.4%, to $103.4 billion, the US had an agricultural trade surplus of $32.4 billion for fiscal 2012, down 24% from fiscal 2011. (We note that the US has consistently shown a positive trade balancethat is, exports higher than importswith agricultural goods.) We believe that some of the rise in world trade was attributable to higher agricultural prices. In May 2013, the USDA forecast that agricultural exports would total a record $139.5 billion in fiscal 2013, up about 2.7% from fiscal 2012. With an estimated increase in imports of about 7.4%, to $111.0 billion, the trade surplus would decline about 12.0%, to $28.5 billion. However, we expect 2012s drought to have an impact on US corn exports, with less supply being available. In June 2013, the USDA forecast that US corn exports in 201213 would be down 55% from the year-ago period, reaching the lowest level since 197071.
INDUSTRY SURVEYS FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013 3
Canada, China, and Mexico among major export markets In May 2013, the USDA said that agricultural exports to China (likely excluding Hong Kong) totaled about $23.4 billion in fiscal 2012, constituting 17.2% of total agricultural exports. Exports to Canada and Mexico totaled $20.0 billion (14.7%) and $18.9 billion (13.9%), respectively. US FOREIGN TRADE IN FOOD PRODUCTS
(In billions of dollars)
140 120 100 80 60 40 20
Chart H03: US FOREIGN TRADE IN FOOD PRODUCTS
The significance of China to trade has increased sharply. In fiscal 2002, US agricultural exports to China were valued at $1.8 billion, or less than one-tenth of the total for fiscal 2012. Meanwhile, agricultural imports from China to the US totaled $4.3 billion in fiscal 2012, up from $1.0 billion 10 years earlier.
In fiscal 2012, in dollar terms, soybeans were the top US agricultural export, at 0 $19.8 billion, followed by corn ($11.2 2003 04 05 06 07 08 09 10 11 2012 2012*2013* billion) and unmilled wheat ($8.4 billion). Imports Exports Other exported products included pork *Through March. ($5.0 billion) and chicken ($3.9 billion). Source: US Department of Agriculture. The leading agricultural commodity imports in fiscal 2012 were coffee products ($7.8 billion), miscellaneous horticultural products ($5.7 billion), and wine ($5.0 billion). Safety issues and trade barriers can be an issue In June 2013, a report from the Organisation for Economic Co-operation and Development (OECD), an international group that focuses on improving economic and social well-being. and the Food and Agriculture Organization of the United Nations (FAO) said that global agricultural production is expected to average 1.5% annual growth in the decade ahead, versus annual growth of 2.1% from 200312. However, the report indicated that farm commodity supply should keep up with global demand, with prices remaining relatively high. We see world trade being a key factor in moving food supplies to where they are needed. Trade barriers (i.e., protectionism) remain a prospective threat to agricultural trade. In February 2013, Russia announced a ban on beef imports from the US because it suspected such beef contained ractopamine, a feed additive used to promote lean muscle growth. According to the US Meat Export Federation, a trade group, exports to Russia were at record levels in 2012. Further, in February 2013, China asked a third party to verify if pork shipped from the US was free of such additives as ractopamine. On a more favorable note for US beef producers, Japan and Hong Kong have eased CHANGE IN CONSUMER PRICE INDEXES FOR FOOD restrictions on imports of US beef. (Year-to-year percent change)
2010 2011 2012 2013*
Food at home 0.0 Cereal & bakery products (1.0) Meats, poultry, B01: fish & CHANGE eggs 1.4 CONSUMER Dairy & related IN products 0.7 Fruits & vegetables (0.1) PRICE Nonalcoholic beverages (1.1) INDEXES FOR Sugar & sw eets 2.4 FOOD Fats & oils (0.9) Other prepared foods (0.6) Food aw ay from home 1.5 All Food 0.7 *Data through April. Source: US Bureau of Labor Statistics.
4.8 3.9 7.4 6.8 4.1 3.2 3.3 9.3 2.3 2.3 3.7
2.5 2.8 3.5 2.1 (0.6) 1.1 3.3 6.1 3.5 2.8 2.6
3.5 3.7 4.5 3.0 2.4 1.3 2.4 5.7 4.1 4.3 3.8
US RETAIL PRICES RISING SOMEWHAT

Consumer food price inflation has been moderating. In the 12 months ended May 2013, overall food prices were up 1.4% from the year-ago period, including a 0.8% increase for at-home food, and a 2.3% rise for away-from-home food, according to the US Bureau of Labor Statistics. However, according to a USDA forecast in June 2013, overall consumer food cost inflation was expected to rise 2.5% to 3.5% in 2013. In calendar year 2012, overall consumer food prices rose 2.6%, versus 3.7% growth in 2011, according
INDUSTRY SURVEYS
to the USDA. Looking back over a longer period, retail food prices have been relatively benign, rising about 2.5% annually, on average, from 1997 through 2009. However, volatility has increased in recent years. The carbonated beverages category continued its longer-term trend of decline and market share loss in 2012, after gaining share as consumers traded down to lower-cost options in 2009. According to the Beverage Marketing Corp., a beverage industry consulting firm, the US liquid refreshment beverage market (a category that includes bottled water, carbonated soft drinks, energy drinks, fruit beverages, ready-todrink coffee and tea, sports beverages, and value-added water) rose 1.0% in volume in 2012, but carbonated beverages lost 1.8%. Higher-priced and sometimes healthier categoriessuch as energy drinks (up 14.3% in 2012), ready-to-drink coffee (+9.5%), bottled water (+5.8%), ready-to-drink teas (+4.9%), and sports drinks (+2.3%)all accelerated, and outperformed the overall beverage industry in 2012. Of note, the more economically sensitive and profitable single-serve and fountain business has improved for the beverage companies. We expect these trends to continue as the economy rebounds.
ECONOMIC ENVIRONMENT REMAINS SOFT

In the US, economic conditions have improved, with unemployment declining and the housing market rebounding. In addition, higher stock market prices have boosted the wealth (at least on paper) of many Americans. However, we think lower-income households have participated less fully in the stronger economy and stock market. We expect that some of the frugal behavior adopted in recent years will remain in place. This includes more eating and cooking at home, purchasing less expensive private label products, increased use of discount coupons, and more interest in community or home gardens. In addition, we think that the use of new media (e.g., social networks, iPhones) is here to stay and will have a growing impact on consumer behavior and companies marketing efforts. According to the US Bureau of Labor Statistics (BLS), the US unemployment rate stood at 7.6% in May 2013, which was an improvement from the recent monthly peak of 10.1% in October 2009, but still much higher than the 4.4% rate in May 2007. Based on BLS data, the number of unemployed people totaled 11.8 million in May 2013, down from 13.9 million at the end of 2010. The long-term unemployed continue to be a significant part of the unemployment picture: as of May 2013, 4.4 million people had been unemployed for 27 weeks or more, representing 37.3% of the total unemployed. Women represent a large portion of the civilian work force. While we are not dismissing the ability of men to help with food preparation, we think that working women are still likely to be carrying much of the food and child care responsibilities in various households. We expect that this has contributed to purchases of prepared foods or items that parents or their children can easily heat up in a microwave oven. In June 2013, Standard & Poors Economics (which operates separately from S&P Capital IQ) projected that the US economy would grow 2.4% (inflation-adjusted) in 2013 and 3.3% in 2014, following growth of 2.2% in 2012. It also expected that the unemployment rate would average 7.4% in 2013 and 6.8% in 2014, versus 8.1% in 2012.
IMPACT OF SOFT ECONOMY ON CONSUMER BEHAVIOR

The combination of a weak economy and higher prices has spurred some changes at the consumer level. In some categories, we see cost-conscious consumers trading down to less expensive products, often in the form of store-brand private label foods. We also expect a further shift in where people shop, with consumers cutting down their visits to malls and doing more shopping online and at discount stores and warehouse clubs. Smaller package sizes seem to be gaining popularity, both for health and economic reasons. Finally, we think consumers are using online resources, including social media, to better ensure that they are making their purchases at the best available prices.
INDUSTRY SURVEYS
Private label products have appeal We think a price-gap advantage for private label products should work particularly well in a weak economy. According to the 2013 Food & Health Survey released in May 2013 by the International Food Information Council (IFIC) Foundation, price is almost as important an influencer of purchase decisions as taste: 71% of consumers said price influenced their decision to buy, although 89% of consumers still consider taste as the top consideration. According to Information Resources Inc. (IRI), a research and consulting firm, private label products were priced 29% lower, on average, than nonprivate label brands. With the price advantage already in place, we think that increased sampling and favorable quality impressions of private label goods in recent years will bolster sales of such products. Apart from pricing, we think the number and variety of organic, natural, and higher-end products by the private labels, plus more colorful packaging, have boosted demand for such products. However, we also think that branded food companies have had success defending against private label with increased marketing, as well as product innovation. In doing so, we see such companies differentiating their products and bolstering brand loyalty among consumers. The Private Label Manufacturers Association, a trade group representing manufacturers and suppliers of store-brand food products, reported that for 2012, store brands (i.e., private label products) accounted for about 23.1% of all unit sales and about 19.1% of all dollar sales for products purchased at supermarkets. Overall, we think the balance of power has shifted toward large retailers (away from large manufacturers), with likely pressures including price rollbacks. In beverages, we see more value-size offerings, particularly at the all-important $0.99 per unit level, as manufacturers look to rejuvenate growth in the more profitable and impulse-driven convenience channel, as well as more special multipack offerings. In September 2011, Coca-Cola launched an even smaller size at $0.89 per unit. We think that manufacturers prefer promotions (which are one-time events) to longer-term price reductions, to ease pressure on the perceived value of their brands. Companies have also become more sensitive to the paycheck cycle: PepsiCo, for example, has tilted its more aggressive promotions toward the end of the month, when consumers have less in their wallets. Meanwhile, Wal-Mart should have major influence, as it accounts for 10%20% of sales for various packaged food manufacturers. In our view, the long-term growth of private label reflects diminishing loyalty to higher-priced nationally branded food products, and puts additional pressure on manufacturers to protect market share through such means as promotions or product innovation. In general, we would expect private label brands to pick up more market share from second- or third-tier branded food companies than they do from the category leaders. One reason, in our view, is that top-tier branded companies have more financial resources including increased marketing dollars and new product development outlaysto protect their market share. We think many nonprivate label manufacturers are looking toward new products that emphasize health and wellness in home-based eating and drinking. In our view, spending on product innovation and marketing are two key ways that such companies can try to fend off competition from private label products. Promotional activities such as lowering prices are a competitive option for non-private label manufacturers. However, although such measures can bolster sales volume, there is a risk of hurting the perceived value of the product. Further, a reduction in price can also squeeze the profit margin for the manufacturer. In addition, not all categories of food and beverage products are equally threatened by the shift toward private label brands, in our view. Based on information from research firms Nielsen and IRI, we think private label tends to fare better in categories such as dairy products and bread, but other areas, such as ready-to-drink tea/coffee and carbonated soft drinks, are much less affected by store brands. Greater economic pressure on middle- and lower-income consumers We think the economic downturn and persistently high unemployment levels have put greater cost pressure on middle- and lower-income consumers, who spend a larger percentage of their income on food and beverages. Participation in the federal governments Supplemental Nutrition Assistance Program (SNAP), which allows lower-income consumers to purchase food at lower cost from authorized stores, has increased
significantly in recent years, standing at 47.6 million (preliminary) in February 2013, up from 19.1 million in 2002. Lower- and middle-income consumers may feel pressure if a new farm bill reduces spending on SNAP. We also see an increased preference toward coupons and store loyalty programs. The REDcard Rewards program by the discounter Target Corp., for instance, has gained in popularity with shoppers. The card offers a 5% discount on in-store and online purchases. Similarly, Big Lots Inc. launched its Buzz Club Rewards program in the fall of 2009, which had over 15.3 million members at the end of 2012. These loyalty programs could be good for both the discount stores and the customers. We think some consumers are likely to be showing greater preference for smaller package sizes. Buying smaller units of beverages and/or food products reduces the strain on the wallet. Smaller package sizes also lower the potential calorie intake, which we think is gaining in importance among Americans. As an example of new packaging, Coca-Cola introduced a 12.5-ounce bottle priced at $0.89 in September 2011, following the launch of a $0.99 16-ounce bottle in 2010. The company has also reduced the size of its cans in the eight-can pack from 8.0 ounces to 7.5 ounces to bring the calorie count below 100. Many US adults live alone, and if this number increases, it builds a case for the move toward smaller package sizes. Impact from higher US payroll taxes, delayed tax refunds In January 2013, US consumers received a tax increase when the Social Security payroll tax rate returned to 6.2%, following two years at the 4.2% rate. Furthermore, the cap on earnings subject to such tax was increased to $113,700 from $110,100. As a result of these changes, US consumers are ending up with lower take-home pay. In addition, annual tax refunds for some 660,000 US taxpayers were delayed due to a software glitch.
COMPANIES LOOK OVERSEAS FOR GROWTH

With considerable competition in the relatively mature US food market and limited population growth expected, major food manufacturers are turning to the emerging markets in Asia and Eastern Europe. We look for markets such as China, India, and Brazil to offer good long-term opportunities for higher sales and profits. We believe income growth, combined with lifestyle and dietary changes, along with the extensive reach of electronic media, will increase the appeal of packaged goods that are so popular in developed markets such as the US and Western Europe. Approaches include acquisitions and partnerships Various food and beverage companies have spoken of growth in emerging markets, and we think international opportunities are being reflected in acquisition activity. For example, in December 2011, Coca-Cola acquired a roughly 50% stake in Aujan Industries Co., one of the largest independent beverage companies in the Middle East, for $980 million. Aujan, which had revenues of $850 million in 2010, has a portfolio containing fruit juice brands Rani, Vimto (a fruity drink popular during Ramadan), and malted beverage Barbican. In February 2011, PepsiCo paid $3.8 billion to acquire a 66% stake in the Russian company Wimm-Bill-Dann Foods OJSC, which it increased in September to 100%. Wimm-Bill-Dann Foods produces dairy products, juices, mineral water, and baby food. Previously, in 2008, Pepsi had bought a 75% stake in the Russian juice company JSC Lebedyansky. With these deals, Pepsi aims to expand its presence in the emerging Eastern European and Central Asian markets. (These deals are covered in more detail in the Industry Trends section of this Survey.) Besides merger and acquisition deals, we expect increased investments in emerging markets such as India and China. In July 2012, Coca-Cola announced that along with its bottling partners, it would invest $5 billion in India by 2020a significant increase from its earlier plan to invest $2 billion. The company plans to invest in increasing bottling capacity, expanding distribution, and brand building. Coca-Cola had already invested $2 billion in India over the last two decades. The company is also targeting China for investment. In August 2011, Coca-Cola disclosed its plans to invest over $4 billion in China over the next three years. The company aims to double its revenues by 2020, and Chinas market will play a major role in this expansion. PepsiCo also has expansion plans targeting China: in July 2012, it announced that it would invest $2.5 billion in China; it aims to become largest food and beverage company in that market. The company
also planned to open a research and development plant in Shanghai that would help in developing products tailored to local tastes. Risks to conducting business in foreign countries Companies looking for growth overseas face certain risks, such as trade barriers, issues related to food safety and quality, and foreign currency fluctuations. For instance, in May 2013, the European Union advised its member states to test certain wheat shipments from the US due to the discovery of unapproved genetically modified wheat in an 80-acre field in Oregon. Japan and South Korea had already suspended wheat imports from the US on the same grounds. Russia has stopped beef imports from the US as it found some residues of the livestock feed additive ractopamine. Foreign currency fluctuations also pose a risk to companies looking for overseas growth. A rise in the value of the dollar relative to a foreign currency will make it more expensive for a foreign country or company to import US agricultural products. Further, US companies investing in another country would see a fall in their investments if the currency of that country falls.
2013 FOOD AND BEVERAGE INDUSTRY OUTLOOK

We see a mixed profit picture for the US food and beverage industries in 2013. In our view, volatile commodity prices continue to pose a challenge for food manufacturers, as they seek to find an optimal balance between their ingredient costs, the prices they charge for their products, and the volumes they sell. Overall, we look for modest revenue growth in 2013, with less of a contribution from price increases. We think easing commodity cost pressure reduces the need or pressure for food and beverage manufacturers to raise prices. In fact, we have seen price reductions in some categories (e.g., coffee and peanut butter), where we expect ingredient costs to be down sharply. With price inflation easing, we expect that unit volumes will at least stabilize, and perhaps increase modestly as 2013 unfolds. We anticipate generally good cash flow from larger food and beverage companies, some of which we think will be used to support dividends and stock repurchase activity. We also expect that companies will look to bolster earnings and cash flow with cost-reduction or restructuring programs. Over the long term, we expect that commodity costs will trend higher, reflecting higher demand from increased populations and changing diets. When faced with higher commodity costs, manufacturers have a variety of choices. One tactic is attempting to pass on the costs by raising the prices they charge for their finished products. However, this may generate resistance from retailers and consumers, and lead to market share loss, especially if their competitors are offering similar goods at lower prices. Alternatively, manufacturers can look to absorb the input cost pressure, and possibly offset some of it through cost reductions elsewhere (e.g., manufacturing efficiencies). If they are wary that commodity costs will continue to rise, manufacturers may increasingly look to lock in their raw material costs at price levels below those in the spot market, through such means as futures contracts (i.e., arranging for future delivery of a certain commodity at a specified price). However, by doing so, they risk the possibility that commodity prices will decline instead, leaving them with high-cost contracts. In 2013, we expect major beverage manufacturers to continue to raise prices to offset higher commodity costs, but at a diminishing rate. Manufacturers are likely to remain keenly focused on cost reductions and productivity efforts, but we see a greater emphasis on increasing the variety of package sizes and configurations to help hit specific price points that cash-strapped consumers find attractive. With the launch of several mid-calorie carbonated beverages over the past year, we expect more innovation involving natural and low-calorie sweeteners. Finally, we expect convenience stores, gas stations, dollar stores, and club stores to become an increasingly important channel of distribution for these companies. We look for higher price increases in juices: commodity input costs represent a greater percentage of the cost of this product, and volumes have fallen because consumers remain very price sensitive. As an offset,
INDUSTRY SURVEYS
S&P sees more product line extensions that offer health benefits, such as more natural ingredients, fewer calories, and other enhancements, where consumers are likely to pay more for more value. Sellers of low-end or less expensive products are likely to benefit from ongoing consumer trade-down and price sensitivity, while we think sellers of high-end products should continue to be helped by upper-income customers being mostly less sensitive to economic softness. In general, we expect sellers of mid-tier products to fare less well. We think that gasoline prices being higher than they were a year ago is a limiting factor, especially for more discretionary consumer purchases. We view strength in the US dollar relative to foreign currencies as generally being unfavorable to sales and earnings prospects for the multinational food and beverage companies. A stronger dollar should make US goods less affordable in markets with weakening currencies, and should also cause international results for US multinationals to be translated back into fewer US dollars. However, the direction of currency exchange rates varies around the globe; thus, while the dollar is strengthening against one currency, it may be weakening against another. The impact of currency fluctuation on various companies will depend on a number of factors, including what their most important international markets are, and to what extent US companies have hedges in place (e.g., through futures contracts), which can help them to lock in exchange rates. Also, currency devaluations (e.g., Venezuelas most recent devaluation of its currency in February 2013) can hurt profits. Overall, we expect currency fluctuations to be modestly unfavorable to US food and beverage companies in 2013. Longer term, we believe the packaged food and beverage industry will focus on consumer lifestyles, tastes, health considerations, and demographics, including both opportunities in developing international markets and the interests and needs of an aging US population. We think industry growth opportunities will include introduction and distribution of products that appeal to consumers interest in healthier eating.
INDUSTRY SURVEYS
INDUSTRY PROFILE
Foods and beverages: a global industry
Food and beverage choices abound for the US consumer. Taste, comfort, and nutrition are just a few of the factors that influence the manufacture and purchase of numerous consumable items, most of which are sold to consumers through retail channels. US SPENDING ON FOOD PRODUCTS
(In billions of dollars)
- - - - FOOD EXPENDITURES - - - - - - - % OF TOTAL - - - AWAY AWAY B35: US YEAR FROM SPENDING ON AT HOME HOME TOTAL FOOD AT HOME FROM HOME
2011 654.4 588.9 1,243.3 PRODUCTS 2010 617.5 561.8 1,179.3 2009 600.4 541.4 1,141.8 2008 603.0 543.7 1,146.7 2005 530.1 469.9 1,000.0 2000 428.8 359.2 787.9 1995 357.1 280.2 637.3 1990 312.9 222.3 535.2 1980 179.7 103.1 282.8 1970 74.8 33.8 108.6 1960 50.3 16.2 66.5 Source: US Department of Agriculture.
52.6 52.4 52.6 52.6 53.0 54.4 56.0 58.5 63.5 68.9 75.7
47.4 47.6 47.4 47.4 47.0 45.6 44.0 41.5 36.5 31.1 24.3
For 2012, retail sales from food and beverage stores totaled an estimated $634.3 billion, up 3.3% from 2011, according to the US Department of Commerce. Consumers also spent an estimated $529.6 billion at food service and drinking locations (e.g., restaurants), up 7.3% from 2011. Overall, the spending in these two food-related categories totaled $1.16 trillion, or about 23.8% of the overall $4.9 trillion of estimated consumer spending on retail and food services in 2012. However, we think that the food store retail sales numbers include a significant amount of non-food items. (Note: Category totals from the US Department of Commerce and the US Department of Agriculture may vary, due in part to different definitions; for example, USDA food sales data exclude alcoholic beverages.)
CHINA, US SEEN AS WORLDS LARGEST MARKETS

According to a report published in April 2012 by IGD, a UK-based industry group, China overtook the US in 2011 as the worlds biggest retail grocery market. The Chinese retail grocery market was estimated at 607 billion, followed by the US (572 billion), Japan (254 billion), India (244 billion), and Brazil (212 billion). The report further said that by 2015, the Chinese market is expected to be worth 918 billion followed by the US at 675 billion, with India, Russia, LEADING US AGRICULTURAL EXPORT DESTINATIONS and Brazil completing the top five. (In millions of dollars)
COUNTRY 2007 2012 % CHG.
China 8,314 25,964 Canada 14,062 20,570 Mexico 12,692 US 18,906 B10: LEADING Japan 10,159 13,497 AGRICULTURAL European Union 10,057 EXPORT 8,754 South Korea 3,528 6,037 DESTINATIONS Hong Kong 1,168 3,409 Taiw an 3,097 3,219 Indonesia 1,542 2,492 Philippines 1,112 2,348 Total, top 10 64,428 106,500 World total 89,990 141,342 Source: US Economic Research Service.
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
212.3 46.3 49.0 32.9 14.9 71.1 191.9 4.0 61.7 111.1 65.3 57.1
From the above estimates, we can see that growth in developing markets such as China, India, Russia, and Brazil are expected to far outpace the growth in developed markets such as the US and Japan. Further, according to a report published in March 2012 by the Worldwatch Institute, a global environmental research organization, demand for meat, egg, and dairy products is rising in developing markets. With rising income levels in countries like China, Brazil, and India, we think spending on higher-protein food like milk, eggs, and meat has increased. Related to this, we think production and consumption of animal products has been rising in emerging markets.
While demand for agricultural food is growing with the rising demand from increasing world population and production of biofuels, production needs to keep pace to ensure food security. According to a United Nations report released in October 2012, some 870 million people in the world suffer from chronic malnutrition. An estimated one-third of agricultural produce each year is lost due to drought, flooding, pests, and waste. In addition, an estimated 12 million hectares of land is lost annually due to degradation.
In order to have long-term food security, the Commission on Sustainable Agriculture and Climate Change (CSACC), a global agriculture research group, has suggested seven measures, such as asking for changes in policies, eating choices, finance, crop-growing patterns, development aid, and waste reduction, as well as investment in knowledge systems for supporting these changes. One way of increasing food security is to reduce food waste. While an estimated 870 million people in the world go hungry in the developing countries, consumers in the developed countries discard 220 million metric tons of food every year, according to the United Nationsequal to the entire food output of subSaharan Africa. If this wasteful pattern were replicated all over the world, the demand for natural resources would be unsustainable. According to the FAO, the world population will reach nine billion by 2050; to feed that population, world food output will need to increase by about 70%. While making food pricier in the developed countries may reduce some waste, it makes life difficult for the poor people in these countries. We think the best way to deal with waste is through education.
MAJOR PUBLICLY HELD FOOD & BEVERAGE COMPANIES (Ranked by latest fiscal year reported sales, in millions of dollars)
PACKAGED FOOD & LATEST - - - - - BEVERAGE SALES - - - - - - COMPANY FISCAL YEAR- END PREV. YEAR LATEST YEAR % CHG.
LARGEST OF THE LARGE

In their most recently reported fiscal year, we calculate that the top 10 publicly traded US-based food and beverage producers generated about $259 billion in total food and beverage sales, including international sales. This excludes privately held candy giant Mars Inc., which, following the October 2008 acquisition of Wm. Wrigley Jr. Co., has annual revenues of roughly $30 billion. Also excluded from this list are agribusiness companies such as privately owned Cargill Inc. ($133.9 billion in annual revenues), and publicly owned Bunge Ltd. ($61.0 billion) and Archer Daniels Midland Co. ($89.0 billion). In addition, keep in mind that revenues of food manufacturer typically represent sales to food retailers or distributors, rather than direct sales to consumers. Thus, the retail sales figures would typically exceed manufacturers sales.
Dec-12 1. PepsiCo Inc. 66,504 2. The Coca-Cola Co. TABLE B28: Dec-12 46,542 MAJORDec-12 PUBLICLY 3. Mondelez International **35,810 4. Tyson Foods Inc. Sep-12 & 32,266 HELD FOOD 5. General Mills May-12 14,880 BEVERAGE 6. Kellogg Dec-12 13,198 COMPANIES 7. ConAgra Foods May-12 12,303 8. Smithfield Foods Inc. Apr-13 13,094 9. Dean Foods Dec-12 13,055 10. Hormel Foods Oct-12 7,895 11. Pilgrim's Pride Sep-12 7,536 12. Coca-Cola Enterprises Dec-12 8,284 13. Campbell Soup Jul-12 7,719 14. The Hershey Co. Dec-12 6,081 15. Dr Pepper Snapple Group Dec-12 5,903 16. Dole Food Co. Dec-12 7,224 17. Hillshire Brands Jun-12 **4,019 18. McCormick & Co. Nov-12 3,698 19. Mead Johnson Nutrition Dec-12 3,677 20. Fresh Del Monte Produce Dec-12 3,590 ** Restated. NA-Not available. Source: Company reports.
65,492 48,017 35,015 33,278 16,658 14,197 13,263 13,221 11,462 8,230 8,121 8,062 7,707 6,644 5,995 4,247 4,094 4,014 3,901 3,421
(1.5) NA (2.2) 3.1 11.9 7.6 7.8 1.0 (12.2) 4.2 7.8 (2.7) (0.2) 9.3 1.9 (41.2) 1.9 8.5 6.1 (4.7)
Although the largest manufacturers have significant presence in the marketplace, especially in specific product categories, the food and beverage industry remains quite fragmented. Based on historical US Census Bureau data, we believe that there are more than 20,000 businesses manufacturing food, beverages, and tobacco products. Most of these US producers are fairly small and employ relatively few workers. However, the largest food and beverage companies employ many thousands of people.
WIDESPREAD OWNERSHIP OF FOOD FIRMS

The typical food company is small and produces a limited number of products (such as baked goods, dairy products, condiments, or snack foods) for local/regional or specialized markets. Regional firms may also serve as contract manufacturers of private label goods for grocery store chains. The top national firms, in contrast, enjoy significant brand-name recognition. To manage their operations and create economies of scale, they largely focus on multimillion-dollar products that can be sold nationally.
They tend to place less emphasis on regional products and preferences, except in international markets. The largest among them (based on sales for their latest reported fiscal year) are PepsiCo Inc. ($65.5 billion), Coca-Cola ($48.0 billion), Mondelez International Inc. (formerly known as Kraft Foods Inc.; $35.0 billion), Tyson Foods Inc. ($33.3 billion), and General Mills ($16.7 billion). Major foreign-based food and beverage competitors include Nestl S.A. (Switzerland), Unilever PLC (UK), and Groupe Danone (France).
TOP 10 CARBONATED SOFT DRINK BRANDS (Ranked by 2012 sales)
BRAND COMPANY - - MARKET SHARE (%) - - VOLUME 2011 2012 CHG. % CHG.
BEVERAGE INDUSTRY IS HIGHLY CONCENTRATED

According to Beverage Marketing Corp., an 0.0 (1.0) industry consultant, the US liquid refreshment (0.2) (3.0) beverage market grew 1.0% to nearly 29.8 (0.3) (3.4) billion gallons in 2012, following a rise of 0.7% in 2011 and 1.2% in 2010; in 2009 and 2008, 0.1 0.6 the market fell 2.8% and 2.1%, respectively. 0.1 0.3 0.0 (1.0) Only a few key segments comprise the vast (0.2) (6.2) majority of the market. Carbonated soft drinks 0.1 1.7 account for less than 45% of the market and 0.1 7.0 bottled water about 30%. In 2012, premium 0.0 (2.0) beverages (e.g., ready-to-drink coffee, sports drinks, and energy beverages) accelerated strongly, while carbonated beverages declined. Energy drinks advanced 14.3%, while ready-to-drink coffee was up 9.5%; sports drinks rose 2.3%. Bottled VOLUME water was up 5.8%.
(2.8) (4.2) (1.6) (8.2) NA
1. Coke Coke 17.0 17.0 2. Diet Coke Coke 9.6 9.4 3. Pepsi-Cola Pepsi 9.2 8.9 TABLE B04: TOP 10 4. Mt. Dew Pepsi 6.7 6.8 CARBONATED SOFT 5. Dr Pepper DPS 6.4 6.5 DRINK BRANDS 6. Sprite Coke 5.7 5.7 7. Diet Pepsi Pepsi 4.9 4.7 8. Diet Mt. Dew Pepsi 2.0 2.1 9. Fanta Coke 1.9 2.0 10. Diet Dr Pepper DPS 1.8 1.8 Source: Beverage Digest.
TAKE-HOME CARBONATED SOFT DRINK MARKET SHARES2012
BRAND MARKET SHARE (%) SHARE CHANGE
CHANGE (%)
TOP 10 0.2 Coca-Cola Co.TABLE B02: 35.6 CARBONATED PepsiCo 31.9 SOFT (0.3) DRINK BRANDS Dr. Pepper Snapple 20.7 0.4 private labels 8.5 (0.5) All others 3.2 0.1 NA-Not available. Source: Beverage Digest.
In terms of market share, the nonalcoholic beverage industry is highly concentrated. In the carbonated soft drink segment, for example, we believe that about 88% of US retail sales are represented by the beverage brands of just three companies: the Coca-Cola Company, PepsiCo, and Dr Pepper Snapple Group.
However, we have also seen fragmentation in the beverage market, with smaller niche categories and limited-edition products, which are more profitable. Thus, we see the market requiring more flexibility and increased ability to respond quickly to changes.
INDUSTRY TRENDS
Consumers have become increasingly demanding of food and beverage products in recent years, often expecting meals and snacks that go far beyond the basic need of satisfying hunger and thirst. Today, consumers often expect that food and drink, in addition to tasting good, should offer some or all of the following characteristics: be low in calories; provide supplemental vitamins and minerals; create energy; and offer other health benefits. In response, we see major food companies refocusing their best product lines and acquiring brands in encouraging new areas. They are selling off or discontinuing products that dont resonate with consumers.
FOOD COMPANIES RESTRUCTURE

We see many food companies cutting costs, removing unprofitable products, and placing more emphasis on the business lines they think will experience the greatest demand in the coming years. In our view, publicly owned companies face pressure to grow their profits as a way to potentially boost their stock price and please shareholders. Food manufacturers have been seeking to offset commodity cost pressure through increased productivity (more efficient manufacturing and distribution) and price increases.
Corporate cost-reduction programs focus on a variety of areas. We see a particular emphasis on what socalled supply chain improvementsmore efficient or less costly ways of getting products to customers. These can range from centralized, more economical purchasing of commodities to better utilization of manufacturing plants. In some cases, when energy prices are very high, companies may look to lower their transportation costs by moving manufacturing or distributions facilities closer to their customers. Beverage companies are also working on increasing productivity and focusing growth initiatives on highervalue, healthier products in which they can charge premium prices. Consumers have been willing to pay more for beverages with perceived health or other functional benefits. In addition, bottlers such as Cott Corp. have been seeking to offset costs by investing in production lines with lighter-weight plastic bottles that also reduce the environmental impact of their products. Merger and acquisition activity picks up Within the food and beverage industry, we have seen a recent pick-up in acquisition activity, which we think has been bolstered by the appeal of the industrys global nature, and by a relatively attractive financing environment. We see acquisitions offering geographic and product diversification. In addition, mergers can boost opportunities for profit growth, including costs reductions (e.g., duplicate expenses, economies of scale) and higher revenue (e.g., better leveraging of distribution systems). In June 2013, H.J. Heinz Co. was acquired for more than $23 billion, by a consortium comprised of Berkshire Hathaway and an investment fund affiliated with 3G Capital. We think that what attracted these firms to Heinz included the strength of its Heinz ketchup brand, and the companys active investment in markets outside the US and Western Europe, including China and Brazil. Based on dollar value, this is one of the largest deals ever completed in the US food industry. In May 2013, a merger agreement was announced under which Smithfield Farms would be acquired by Hong Kongbased Shuanghui International Holdings Ltd. for about $4.7 billion. Subject to regulatory approval, we look for the acquisition to close by year-end 2013. Although we believe Smithfield is the largest US hog producer and pork processor, we do not expect concerns about foreign ownership to block the deal. In April 2013, it was announced that an investment group led by Joh. A. Benckiser GmbH (JAB), a privately owned affiliated group of companies, had conditionally agreed to buy D.E. Master Blenders 1753 NV, a coffee and tea company whose brands include Douwe Egberts and Pilao, for what we expect would be close to $10 billion. JAB chairman Bart Becht indicated that the purchase of D.E. Master Blenders, which was spun off by Sara Lee Corp. last year, would provide a platform for growth in the coffee and tea categories. Between October 2012 and January 2013, JAB had acquired US-based coffee chains Peets Coffee & Tea Inc. and Caribou Coffee Co. for a total of about $1.3 billion. In April 2013, Itochu Corp., Japans third-largest trading house, acquired Dole Food Co.s worldwide packaged foods and Asia fresh produce businesses for $1.685 billion. Doles packaged food business produces canned fruits and juices, while the Asia fresh produce business grows, sources, and distributes fresh fruit and vegetables mainly in Asia. The two businesses had combined revenue of $2.5 billion and adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $190 million in 2011. The remainder of Dole is a fresh fruit and vegetables company with annual revenue of about $4.2 billion. In January 2013, ConAgra Foods acquired food company Ralcorp Holdings Inc. for about $5.1 billion. We expect the combined company to have annual sales of about $18 billion, including private label sales of approximately $4.5 billion. With the acquisition of Ralcorp, we look for ConAgra to be the largest privatelabel packaged foods company in North America. Private label or brand (sometimes called store brand) products often are less expensive than competing goods, which can increase their appeal to cost-conscious consumers. ConAgra indicated that prior to acquiring Ralcorp, its private-brand business was about 7% of total sales. Over time, we expect revenue-related and cost synergy benefits from the Ralcorp acquisition. In December 2012, Swiss company Nestl S.A. acquired Pfizer Nutrition for $11.85 billion, increasing Nestls position in the child nutrition market. Nestl estimated the acquired business 2012 sales at $2.4
MAJOR MERGERS AND ACQUISITIONS2003 to 2013 (Transaction value of at least $1 billion)

ACQUIRER TARGET VALUE (BIL. $) DATE COMPLETED
Berkshire Hathaw ay, and an investment fund affiliated w ith 3G Capital ITOCHU Corp. ConAgra Foods Nestl SA Kellogg Co. PepsiCo General Mills
H.J. Heniz
23.58
Jun-13
billion, and said that 85% of Pfizer Nutritions sales are in emerging markets, including many with large, fast-growing populations. We are also seeing acquisition activity that we think is aimed at boosting the presence of US companies in international markets. For example, Archer Daniels Midland Co. is seeking to acquire GrainCorp Ltd., which is a leading Australian agribusiness company. The transaction has an indicated value of about A$3.4 billion (approximately US$3.6 billion). Subject to regulatory approval, we look for the acquisition to be completed by December 2013. In January 2013, Hormel Foods agreed to buy the Skippy peanut butter business from Unilever for $700 million. We think the acquisition will help Hormel diversify away from meat products and expand in overseas markets such as China, where Skippy is the leading peanut butter brand. Hormel expects annual sales from Skippy of about $370 million, with almost $100 million outside the US. In early 2013, Hormel acquired the US-based Skippy business, and we expect Hormel to acquire the China-based Skippy business by fall 2013.
Funds affiliated w ith Kohlberg Kravis Roberts & Co L.P., Vestar Capital Partners, and Centerview Partners PepsiCo
Dole Food's packaged foods and Asia 1.69 fresh produce businesses Ralcorp Holdings *4.75 Pfizer Nutrition 11.85 Pringles 2.70 Russian food and drink company Wimm- 5.10 Bill-Dann 51% controlling interest in Yoplait 1.20 S.A.S. and 50% interest in Yoplait Marques S.A.S. Del Monte Foods Co. 4.00
Apr-13 Jan-13 Dec-12 May-12 Sep-11 Jul-11
Mar-11
66% of Russian food and drink companyWimm-Bill-Dann Coca-Cola Coca-Cola Enterprises North American bottling business Corn Products International Table National B03:Starch MAJOR Ralcorp Holdings American Italian Pasta Co. MERGERS AND Kraft Foods Cadbury plc ACQUISITIONS Nestle Kraft Food's North American frozen pizza business PepsiCo Pepsi Bottling Group and PepsiAmerica J.M. Smucker Procter & Gamble's Folgers coffee business Mars Inc. Wm. Wrigley PepsiCo/Pepsi Bottling Group 75.5% of JSC Lebedyansky Ralcorp Holdings Inc. Kraft Foods' Post cereal business Ospraie Special Opportunities ConAgra Foods' commodity trading and merchandising operations Kraft Foods Danone Group biscuit business Danone Group Numico Nestl Gerber JBS SA Sw ift & Co. Nestl Medical nutrition business of Novartis Coca-Cola Energy Brands Inc. (Glacau) Pilgrim's Pride Corp. Gold Kist Inc. The Blackstone Group L.P. Pinnacle Foods Group Inc. Kraft Foods United Biscuits' Spanish and Portugese units Cadbury Schw eppes Plc Dr Pepper/Seven Up Bottling Group American Foods Group Inc. Rosen's Diversified Inc. Wrigley Kraft Foods confectionery brands Cadbury Schw eppes Plc Adams (Pfizer's chew ing gum
3.80 12.30 1.30 1.20 18.50 3.70 7.80 3.53 22.00 1.40 1.65 2.10 7.70 17.80 7.70 1.47 2.50 4.10 1.10 2.27 1.07 1.18 NA 1.48 4.20
Feb-11 Oct-10 Oct-10 Jul-10 Jun-10 Mar-10 Feb-10 Dec-08 Oct-08 Oct-08 Aug-08 Jun-07 Nov-07 Nov-07 Aug-07 Jul-07 Jul-07 Jun-07 Jan-07 Jun-05 Sep-06 May-06 Jun-05 Jun-05 Mar-03
NA- Not available. Note: Some ac quisition pric es may be approximate or rounded. Also, some transac tions may be mergers in whic h there is some ambiguity regarding what party is or may be the ac quirer or ac quiree. * Net of c ash ac quired. Sourc e: Company reports.
14
INDUSTRY SURVEYS
In May 2012, Kellogg acquired the Pringles snack food business from Procter & Gamble in a transaction valued at about $2.7 billion. In our view, the Kellogg transaction was announced after it appeared that a Diamond Foods bid to acquire the Pringles business was falling through. We think the acquisition has significantly expanded Kelloggs snack food business, including giving the company more of an international presence. Separation plans becoming more common In addition to making acquisitions, we have seen companies reshape themselves through various forms of split-ups. In our view, there are various potential motivations for this, including a goal of boosting shareholder value, or the market value of the companys stock. Also, in making a divesture, a company may be choosing to put more of a future focus on core, faster-growing, and/or profitable businesses. Below we discuss several companies engaged in recent split-up transactions. Kraft Foods. In October 2012, Mondelez International Inc. (formerly known as Kraft Foods Inc.) spun off ownership of a large North American grocery food business. The spun-off company, which is named Kraft Foods Group Inc., includes brands such as Kraft, Maxwell House, Oscar Mayer meats, and Philadelphia cream cheese. Meanwhile, Mondelez (the remaining part of the old Kraft Foods) is a global snacks company, including brands such as Cadbury, Jacobs, LU, Milka, Nabisco, Oreo, Tang, and Trident. [Regarding the name Mondelez: Kraft says that monde is derived from the Latin word for world, and delez is an expression of delicious.] We think the snacks business has better long-term growth prospects, and that the North American grocery foods business will be more of a dividend payer. In addition, we see Krafts 2010 acquisition of confectionery company Cadbury plc offering strategic value for Mondelez, including the opportunity to boost its presence in developing international markets. Dean Foods. This major dairy company has been divesting assets or ownership interests. In May 2013, it spun off a majority equity interest in WhiteWave Foods, a supplier of organic and soymilk products. We believe that Dean retained about a 19.9% equity interest in WhiteWave, which we expect will be divested within the next 18 months. Earlier, in October 2012, Dean had sold about a 13% ownership interest in WhiteWave through an initial public stock offering (IPO). In addition, in January 2013, Dean sold its Morningstar Foods division, a manufacturer of dairy and non-dairy extended shelf-life and cultured products, to Canada-based dairy company Saputo Inc. for $1.45 billion. Net proceeds, after taxes and expenses, were expected to be $887 million. The Morningstar Foods business had sales of $1.3 billion in 2011, including private label products. Sara Lee Corp. This company completed the spinoff of its international coffee and tea business in June 2012. The spun-off business is known as D.E. Master Blenders 1753, which we think was intended to highlight the history and heritage of the Douwe Egberts coffee brand, especially in Europe. The new publicly traded company is domiciled in the Netherlands. In conjunction with the separation, Sara Lee issued its shareholders a special dividend of $3.00 per share. The remainder of Sara Lee, now known as the Hillshire Brands Co., includes various North American operations, including meat products sold under the Ball Park, Hillshire Farm, and Jimmy Dean brands, and sales to foodservice operators. Ralcorp Holdings. In February 2012, Ralcorp Holdings Inc. completed the separation of its Post Holdings Inc. business through a tax-free spinoff. Ralcorp shareholders received one share of Post common stock for every two common shares held. Furthermore, in September 2012, Ralcorp exchanged the remaining 6.8 million Post shares (about a 20% interest), in settlement of nearly $200 million in outstanding debt. Ralcorps full ownership of the Post business was relatively short-lived: it acquired the US and Canadian operations of the Post Foods cereals business from Kraft Foods Inc. in 2008. We think Ralcorp may have been under pressure to bolster its stock price while fending off an acquisition attempt in 2011. Chapter 11 bankruptcy for Hostess Some of the most familiar US snack food brands are coming under new ownership, following the liquidation of Hostess Brands Inc., a US manufacturer of bread and snack cakes. In January 2012, Hostess filed for Chapter 11 bankruptcy. The company said in its filing that it owed more than $1 billion to
creditors. In November 2012, Hostess announced that the US Bankruptcy Court for the Southern District of New York had approved a motion for an orderly wind down of its business and sale of assets. The company said that Judge Robert Drain approved the motion after Hostess and the Bakery, Confectionary, Tobacco, and Grain Millers Union (BCTGM) were unable to reach an agreement through mediation. As of April 2013, Hostess Brands had received US Bankruptcy Court approval for five transactions totaling about $860 million in proceeds. This included the sale of most of Hostesss snack cake businessincluding the Hostess and Dolly Madison snack cake brandsto affiliates of Apollo Global Management LLC and Metropoulos & Co. for $410 million. Related products include Twinkies, Ho Hos, and Ding Dongs snack cakes. Based on press reports, we look for Twinkies to be back in stores in the summer of 2013. Also approved was the sale of most of Hostesss bread business, including its Wonder brand, to affiliates of Flowers Foods Inc. for $360 million. PepsiCo restructures At the end of February 2010, PepsiCo completed the acquisition of the remaining shares it did not already own of its two largest bottling companies, Pepsi Bottling Group Inc. and PepsiAmericas Inc., for a total price of close to $8 billion. The PepsiCo bottling acquisitions effectively reversed the spinoffs of Pepsis bottling assets 10 years ago, which we believe was done in an effort to increase shareholder value. Although we see some merits to the acquisition of the bottling businesses now, we do not believe a deal was vital to PepsiCos growth prospects, as we still see significant opportunities for PepsiCo to expand internationally. However, the bottler deal targets the changing beverage landscape in North America, as noncarbonated beverages increasingly dominate market growth. PepsiCo views a bottler combination as speeding innovation and go-to-market efforts. In the beverages industry, there had been speculation that PepsiCo Inc. may consider a spinoff of its beverage and snack businesses. However, with the formation of the Power of OneAmericas Council in September 2011, the likelihood of a spinoff declined. This council was formed to align the two businesses across North, South, and Central America. The company believes that the food and beverage businesses are complementary across the operations in the value chain and better coordination among them will result in synergies. Further, Pepsi observes that snacks and beverages are usually bought and consumed together. Along with the formation of this council, a Global Snacks Group (GSG) was formed, which is responsible for innovations pertaining to its global snack foods brands. The company also has in place a Global Nutrition Group and a Global Beverages Group. In November 2011, to build its snacks business, Pepsi acquired privately held Grupo Mabel, a Brazilian cookie company, for approximately $500 million. In April 2012, to revive its fortunes, the company said that that it wants to be judged on its overall beverage portfolio, rather just the carbonated beverages. Further, according to an article published on April 19 2013 in the Wall Street Journal, Nelson Peltzs Trian Fund Management has accumulated shares worth $1.4 billion in both PepsiCo and Mondelez International Inc. This has led to speculation that the investor could push PepsiCo to split its snack and drink businesses or merge with Mondelez, or both. PepsiCo has been looking to restructure its North American drinks business, which has underperformed the snacks business. PepsiCo has said that it held meetings with Trian to discuss and consider their ideas and initiatives as part of our ongoing evaluation of all opportunities to drive long term growth and shareholder value. However, with the beverage division showing improved performance in recent quarters, we think there is less pressure for PepsiCo to make a move in the short term, although we do not rule out a transaction involving the spin-off its bottling division in the longer term. Additionally, the snack and beverage businesses share numerous functions, which would add complexity to a separation of the businesses. Beverage deals focus on international, healthier products Coca-Cola. In early 2009, we saw the Chinese government block Coca-Colas $2.4 billion bid to acquire China Huiyuan Juice Group Ltd., Chinas largest juice manufacturer and distributor. However, we believe that Coca-Cola will continue to look to bolster its position in the noncarbonated arena worldwide. With more than $20 billion in free cash flow generation likely in the next three years, according to our estimates,
we think Coca-Cola will seek to take advantage of an acquisition and investment environment where other companies may be handicapped by stringent capital markets. In 2009, Coca-Cola took a minority stake in British smoothie manufacturer Innocent, a fast-growing top brand that markets its healthy ingredients and social commitment. Innocent was one of the first consumer brands launched in Britain to gain a large following through ethical marketing. It gives 10% of its profits to charity and uses recycled bottles. We think that Innocents recycling expertise could be valuable to Coke, while Coke could provide Innocent further access to other noncarbonated markets, particularly in Europe. In April 2010, Coca-Cola raised its stake in Innocent to 58%. In March 2011, Coca-Cola acquired the remaining stake it did not own of Honest Tea, a leading organic bottled tea company. Since the initial investment from Coca-Cola three years ago, the company has introduced a plastic bottle that uses 22% less material and has doubled the number of offerings, as well as the sale of organic, zero-calorie drinks. In May 2013, Coca-Cola announced four global business initiatives to contribute to healthier, happier, and more active communities. First, it plans to offer low or no-calorie beverage options in all of its markets. Second, it plans to provide transparent nutrition information on the front of all packages. Third, it will support physical activity programs in all countries. Finally, it made a commitment to market responsibly, including no advertising to children under the age of 12. Coca-Colas purchase of Energy Brands in 2007 was criticized at the time for its price tag of more than $4 billion. However, this deal increased Coca-Colas distribution in both the US and Great Britain, and appears to have helped the company outperform the noncarbonated beverage category in 2008 and 2009. Wider international distribution began in 2010 and continued through 2011 and 2012. PepsiCo. PepsiCo has also focused on building its international presence in some faster-growing categories. In 2008, the company purchased Britains V Water, a maker and distributor of enhanced waters, and, along with Pepsi Bottling Group, acquired Russias top juice manufacturer, JSC Lebedyansky, for $1.4 billion. In February 2011, PepsiCo completed the acquisition of 66% of the outstanding shares of WimmBill-Dann Foods OJSC, Russias leading branded food and beverage company, for approximately $3.8 billion; in September, it increased its stake to 100%. Wimm-Bill-Dann is a leader in traditional and valueadded dairy products, with a strong position in the juice market; it is expected to make PepsiCo a leader in the food and beverage market in Russia as well as build its position in Eastern Europe and Central Asia. Pepsi is also taking steps to boost its nutrition portfolio. For example, in late 2011, the company entered a joint venture with the German dairy company, Theo Mller Group, to introduce a new yogurt brand in the US. Pepsi, which had no dairy business in the US, wanted to capitalize on the rapidly growing yogurt market there. In July 2012, the joint venture company started selling yogurt in the Northeast and mid-Atlantic states. While initially the company will sell the product manufactured in Europe, it plans to construct a state-of-the-art facility in Batavia, New York, with an investment of $206 million. The plant, which will create 186 new manufacturing and support jobs and was expected to be online in 2013, will churn out five billion cups of yogurt every year. This is a part of the companys plan to double its revenues from nutritious drinks and snacks to $30 billion by 2020. In line with this plan, Pepsi in September 2011 acquired WimmBill-Dann Foods, a Russian company producing dairy products, juices, baby food, and mineral water. In November 2011, PepsiCo agreed to sell its bottling operations in China to Tingyi-Asahi Beverages Holding Co. and give the joint venture exclusive rights to manufacture and distribute PepsiCos trademark beverages in exchange for a 5% stake. The deal gave Pepsi a new platform for expanded distribution in China and has re-invigorated it business in China, making it a stronger competitor to Coca-Cola Co.
WHY ARE FOOD PRICES SO VOLATILE?

Over time, we think various factors contribute to changes in food commodity prices and food demand. These can be best understood as long-term and short-term factors. Long-term factors affecting food supply and demand We think longer-term factors affecting food supply include the following:
Improved agricultural productivity. A boost in agricultural productivity caused by advancement in technology over time can help improve supply. New farm equipment, disease resistant varieties of seeds, and similar developments can improve the output level for various crops. According to the September 2012 issue of Amber Waves, a quarterly publication by the USDA, evidence points towards healthy but uneven agricultural productivity growth globally. More efficient global distribution/allocation. With a better international infrastructure in place, and new free trade agreements being signed among countries, global distribution should become much more efficient, leading to better allocation of the food supply in the long term. Amount of land and water resources available. The amount of arable land and water available for irrigation is an important factor affecting the long-term supply. According to the FAO, expansion in the land resources available for cultivation will account for around 20% of the growth in agricultural produce until 2030.
Among the longer-term factors affecting food demand, we see: Growing overseas demand due to higher incomes and changing lifestyles. As populations in developing countries become wealthier and more urbanized, demand for packaged foods should rise. Demographic profile in developed markets. With an aging population in developed markets such as the US and Western Europe, we think demand for healthier, more nutritious, food is on the rise. Meanwhile, in some other countries, fertility or birth rates are much higher, which can both contribute to population growth and boost demand for food. Bio-energy markets. Crops such as corn, sugar, and rapeseeds are increasingly being used to produce ethanol to generate energy. Shorter-term factors affecting food supply and demand Short-term factors affecting food supply may include the following: Climate change or extreme weather. Agricultural produce is prone to suffer from excessive rain or drought conditions. Poor harvests are especially likely to affect prices when inventory levels of a crop are relatively low. Trade restrictions. These include export bans or tariffs. Changes in food stocks/inventories. Lower inventory generally increases the likelihood of price volatility. Feed costs for livestock. Crops such as wheat, oat, barley, and canola are used mainly as feed for livestock, and changes in their prices add to food price volatility. Short-term factors affecting food demand may include the following: Economic conditions. Recent economic difficulties made consumers increasingly conscious about their spending; many have traded down to lower-cost product categories. In addition, consumers may be less likely to keep extra food in their pantries when money is tight. Fluctuation in currency exchange rates. A weaker US dollar can boost international demand for US crops as it gives foreign buyers more purchasing power.
FOOD AND HEALTHCARE OVERLAPPING

We continue to believe that that there is a growing overlap between the food and the healthcare industries. As a result, we see regulators, companies, and consumers increasingly looking at the impact of food and beverage manufacturing and consumption on food safety and ones personal well-being. However, we also anticipate questions about how much government or regulatory actioneverything from taxes on products that are viewed as less healthy, to educational efforts that encourage healthier diets and costly mandates aimed at improving food safetycan or should influence what consumers eat and drink. Obesity is an area of particular concern. According to a study released in September 2012 by RAND Corp., a nonprofit research group, the percentage of US adults who are 100 or more pounds over a healthy weight reached 6.6% in 2010, up from 3.9% in 2000. The study pegs the number of adults who are severely obese
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at 15 million. We think increasing obesity is bolstering demand for relatively low-calorie products such as protein shakes. Another emerging trend is gluten-free food, which can benefit the millions of people who are sensitive to gluten (a protein in wheat, rye, and barley) and is especially important for people suffering from celiac disease, a group that may total at least three million in the US and has quadrupled in the last 50 years. In September 2011, Euromonitor International forecast that sales of gluten-free foods would total $2.67 billion globally in 2011 and $1.31 billion in the US, with the latter rising to $1.68 billion by 2015. According to a survey conducted by the NPD Group Inc., a market research firm, in January 2013, nearly 30% of Americans wanted to cut down or eliminate gluten in their diet. Corporate health initiatives With increased consumer and government focus on the heath impact of what people eat and drink, we think many food and beverage companies today are facing the challenge of making their food products healthier while also maintaining the taste of these products. We see various manufacturers aiming to reformulate products, and to reduce the amount of such ingredients as sodium and saturated fat. Manufacturers are constantly innovating and coming out with healthier products. Some new products listed on the website foodprocessing.coms New Food and Beverage Rollout section for October 2012 included the following: Tabatchnick Fine Foods Oatmeal Singles line of singleserve frozen oatmeal, which has high fiber and low calorie and sugar content, and YoCrunch Breakfast Blends, a nonfat vanilla yogurt with a topping of Post Fruity Pebbles cereal. During its investor conference in March 2010, PepsiCo outlined its goals for the next 10 years, including cutting average added sodium per serving by 25% in key global food brands in important markets by 2015 and adding more whole grains, fruits, vegetables, and low-fat dairy to its products. PepsiCo also outlined a commitment to display calorie count and key nutrients on food and beverage packaging by 2012 and aims to increase sales from its Good for You portfolio of healthier products to $30 billion in annual sales from $10 billion. In recent years, Pepsi switched from frying its Lays potato chips in trans fats to sunflower oil. In January 2013, PepsiCo announced that it would stop the use of brominated vegetable oil in Gatorade after consumers complained. Studies have suggested that the possible side effects of the ingredient include neurological disorders and altered thyroid hormones. More recently, in response to consumer desires to eat healthier, we see PepsiCo moving to make half of its snacks sold in the US with only natural ingredients (though it is not clear that making snacks with natural ingredients makes them healthier). Many of these products are already in stores. PepsiCo is removing monosodium glutamate and about three dozen other artificial ingredients in more than 60 snack varieties in the Lays, Tostitos, SunChips, and Rold Gold brands. In May 2013, Wm. Wrigley Jr. Co. temporarily halted production and sales of Alert energy gum as the US Food and Drug Administration (FDA) investigates the safety of caffeinated-food products. The FDA in March 2013 said that it is taking a fresh look at the effects of caffeinated products on children and adolescents, after doctors asked the FDA to limit the amount of caffeine in energy drinks. In a move to educate consumers, companies such as Coca-Cola Co., PepsiCo Inc., and Dr Pepper Snapple Group have decided to start displaying calorie content for their drinks in vending machines. Government health initiatives In April 2011, an inter-agency working group (IWG), which included the Federal Trade Commission, the FDA, the Centers for Disease Control and Prevention, and the USDA, proposed voluntary principles that the industry can refer to as a guide for marketing food to children (defined as those under 18 years of age). The two basic principles outlined were as follows. First, food advertising and marketing to children should encourage them to make healthy food choices such as vegetables, fruit, whole grains, fat-free or low-fat milk products, fish, poultry, eggs, nuts or seeds, and beans. Second, saturated fat, sugar, and sodium levels in foods marketed to children should be at levels that will restrict the adverse impact on childrens health. However, we think there was concern from food and beverage companies and advertising trade groups about marketing guidelines being overly strict. In October 2011, the proposed IWG guidelines were modified.
The final guidelines included a 350-calorie limit on foods marketed to children (defined as those under the age of 12). These voluntary guidelines cap the sugar level in cereals marketed to children at 10 grams. We have also seen the Obama Administration and First Lady Michelle Obama pursue various food-related initiatives, including a focus from the First Lady on childhood obesity and home gardens. Lets Move!an initiative launched in 2010 by the First Ladyis aimed at addressing childhood obesity. President Obama created a Task Force on Childhood Obesity to review programs and policies relating to child nutrition and physical activity, and to develop a national action plan to maximize federal resources and set benchmarks toward the First Ladys national goal. The Task Force recommendations include providing healthy food in schools; improving access to healthy, affordable foods; and increasing physical activity. In December 2010, President Obama signed the Healthy, Hunger-Free Kids Act of 2010, which gives the USDA the authority to set nutritional standards for all foods regularly sold in schools during the school day, including vending machines. The legislation also provides additional funding to schools that meet updated nutritional standards for federally subsidized lunches. Under the terms of the Act, the USDA in February 2013 established nutrition standards for all foods sold in schools. The Smart Snacks in School proposed rule is a step forward in the process of creating national standards. The rules limit the amounts of sodium, sugar, and calories in snack items. Snack items are limited to a maximum of 200 calories and a maximum of 200 milligrams of sodium per portion. There are two alternatives for sugar, one a maximum 35% of calories or the other a maximum of 35% of weight, with exemptions for fruits and vegetables packed in juice, extra-light syrup, and for certain yogurts. In the case of beverages, schools are allowed to sell water and low fat or fat-free milk and 100% fruit/vegetable juice. Elementary schools are allowed to sell up to 8ounce portions, while middle schools and high schools can sell up to 12-ounce portions. In January 2012, the US government announced a major overhaul to school meals. According to the new rules, fresh tomatoes and chef salads will replace breaded patties and canned fruits. The rules were different from the 2011 draft in that they require more fruits and food rich in whole grains, instead of a meat or meat alternative. Starting in 201415, schools would have to offer only whole-grainsrich products, while they can serve tofu as an alternative to meat. The schools have started to implement the guidelines by providing more whole grains, while limiting protein and calories. We believe that the diets of children and related obesity issues are of growing concern. Under new federal healthcare legislation (the Patient Protection and Affordable Care Act), various restaurant chains will be required to provide calorie information on products they offer. According to FDA Commissioner Dr. Margaret A. Hamburg, Americans consume about one-third of their calories from foods prepared outside the home. If consumers pay more attention to such data, we expect that it will influence some purchase decisions, though we do not expect availability or demand for indulgent foods to disappear anytime soon. States have started campaigns against obesity. New York State, which has 23% of its population classified as obese, has launched a $500,000 ad campaign encouraging people to eat and drink less. In September 2012, New York City health officials voted to ban the sale of sugary drinks larger than 16 ounces in restaurants, mobile food carts, delis, and concessions at movie theaters and stadiums in order to curb obesity. The ban, which is effective from March 2013, will not apply to juices, milk shakes, or sweetened lattes, and grocery and convenience stores are exempt. Beverage companies and restaurants oppose the ban and have filed suit against it in the State Supreme Court in Manhattan, arguing that Board of Health cannot ratify the new rules unilaterally. In November 2012, two cities in California that are facing budget deficitsRichmond and El Monteput a referendum to tax sugary beverages on the ballot, proposing a penny-per-ounce tax on sugar-sweetened drinks. The American Beverage Associationa soft-drink industry trade group that has been an outspoken foe of the New York City soda ban and the proposed taxesspent $2.5 million in Richmond and $1.3 million El Monte in campaigning against the taxes (it was the most expensive campaign ever in El Monte). The proposal was roundly defeated in both cities, with only 23% of voters in El Monte and 33% in Richmond in favor.
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FOOD SAFETY, SECURITY REMAIN A CONCERN

Partly due to the global nature of the food industry, we see a heightened focus on the safety and sourcing of industry products. This includes both products manufactured in the US and foods imported from elsewhere. In our view, efforts to improve the regulation of products in the food chain may add to the costs of food businesses, including smaller farms and local agricultural outlets. We think that such costs could relate to new regulations in such areas as food safety, storage, and transportation. Especially during a period of rising agricultural trade between different parts of the world, we see increased risk of inconsistent or poorly applied quality control. With additional or new product sources, and greater distance between where products are produced and where consumers ultimately buy them, we think it becomes more difficult to monitor and assure product quality. Increasingly, we expect consumers to focus on the origins of the food they buy, and wanting to know what the food contains. With origins comes the idea of traceabilitybeing able to track the source and production process for a food item. Nevertheless, a number of the food-borne illnesses in the US have been linked to domestic, rather than international, sources. Regulatory efforts: the Food Safety Modernization Act We have seen a growing emphasis on food production standards, inspections, and labeling, and efforts to provide government officials with more enforcement power to facilitate food safety. The FDA is the US federal agency largely responsible for overseeing the safety of the food supply. In addition, the US Department of Agriculture (USDA), which has food safety programs covering meat, poultry, and processed egg products, is an integral part of the regulatory framework. In January 2011, President Obama signed the FDA Food Safety Modernization Act into law. The legislation is aimed at ensuring the safety of the US food supply, including a focus on preventing contamination. The FDA says that for the first time, it has a legislative mandate to require comprehensive, preventive-based controls across the food supply chain. Under provisions of the bill, companies would be required to develop and implement written food safety plans, and the FDA would have the authority to better respond and require recalls when food safety problems occur. In addition, the FDA would be able to better ensure that imported foods are as safe for consumers as foods produced in the US. However, the implementation process for elements of the bill seems to have been rather slow. With the new legislation, the FDA is expected to establish standards for the safe production and harvesting of fruits and vegetables, and to increase the frequency of food-related inspections. In May 2011, the FDA issued its first rules under the new legislation, one of which would provide greater ability to detain food that the agency believes was produced under insanitary or unsafe conditions. The second rule requires anyone importing food into the US to inform the FDA if any country has refused entry to the same product, including food for animals. Both rules went into effect on July 3, 2011. The FDA said that some, but not all, provisions of the legislation exclude restaurants and food retailers. More information on the Food Safety Modernization Act can be found at http://www.fda.gov/Food/FoodSafety/FSMA/default.htm. In January 2013, the FDA proposed two food-safety rules to help prevent contamination. The first proposed rule requires food makers (whether domestic or abroad) who sell food in US, to develop plans for preventing and correcting problems causing food-borne illnesses. The second rule proposes safety standards for the production and harvest of farm produce. Proposed rules require farmers to take new precautions against contamination, such as making sure workers hands are washed, irrigation water is clean, and that animals are away from the fields. Manufacturers have to submit safety plans to the government to show they are keeping their operations clean. Food-related illness There are primarily five types of bacterialisteria, E. coli, salmonella, staph bacteria, and hepatitis-Athat can make their way into the food supply chain and are capable of causing food poisoning outbreaks that results in illness or even death. Food-borne illness can result from a variety of factors: the manufacturing or
distribution process, or by the way food is handled or stored in the home. A number of US-produced foods have been affected by product recalls related to bacterial contamination. Energy drinks/caffeinated products draw regulatory scrutiny In November 2012, the FDA said that it had received reports of 13 deaths since 2008 possibly related to the use of 5-hour Energy shots and that it was investigating the situation. Earlier the agency had confirmed that it was investigating the deaths of five people since 2009 who may have died after consuming Monster Beverage Corps energy drinks. According to research presented at the American Heart Associations Epidemiology and Prevention/Nutrition, Physical Activity and Metabolism 2013 Scientific Sessions, energy drinks may increase blood pressure and disturb the hearts natural rhythm. The researchers analyzed data from seven published observational and interventional studies to determine the impact of energy drinks on heart health. In March 2013, a group of doctors, which included doctors from centers like Johns Hopkins University School of Medicine and the University of Maryland School Of Public Health, asked the FDA to limit the level of caffeine because of health risks, particularly to children. In the US, energy drinks avoid the kind of FDA scrutiny that foods and beverages face because they are marketed as dietary supplements, which are given special status under a 1994 law that exempts them from FDA approval and rules requiring nutritional labeling information. However, the European Union requires drinks with more than 150 mg of caffeine per liter to be labeled as having high caffeine content. The British Soft Drinks Association, a trade group, recommends labeling energy drinks as not suitable for children or pregnant women. In March 2013, energy drink makers Monster Beverage and Rockstar Energy decided to market their drinks as beverages instead of dietary supplements. Consumers have taken notice of the recent adverse publicity, leading to a significant slowdown in growth for the category to single-digit percentage growth from previous double digits. Cola recipes changed over cancer alerts Coca-Cola and PepsiCo have decided to change the ingredients of their colas after California added an ingredient used in Coke and Pepsi to its Proposition 65 list of substances that can cause cancer. This ingredient, 4-Methylimidazole (4-MEI), is a component of the caramel used to give Pepsi and Coke their brown color. In California, businesses that manufacture or sell products that cause exposures to significant amounts of 4-MEI must provide a warning. However, state scientists have developed a safe harbor number for 4-MEI (a level of exposure that does not cause a significant cancer risk), and products that expose the public to less than the safe harbor level do not require warnings. Both Coca-Cola and PepsiCo have asked their suppliers to reduce the level of 4-MEI used in caramel. Increased focus on food labels We think Americans are increasingly feeling the need to be more informed about the food that they buy in order to make better food choices. Nutrition Keys is a program started in January 2011 by the Grocery Manufacturers Association (GMA) and the Food Marketing Institute (FMI) that places nutrition information (e.g., calories, saturated fat, sodium, and total sugar content) on the front of packages. In September 2011, the GMA and the FMI announced Facts Up Front as the theme for a consumer education campaign. The Institute of Medicine (IOM) has recommended a simplified labeling program whereby the front of the package would provide nutrition and ingredient-related informationin the forms of stars and checks, along with the number of calories per servingthat could help consumers assess the healthiness of a product. The number of stars or checkmarks, ranging from zero to three, would depend on simple criteria to indicate what is present in the food product (e.g., levels of saturated fats, sodium, and added sugars). While this labeling system could be easier for consumers to comprehend (e.g., a three-star product would be viewed as better than a two-star product), some food or beverage products, such as candy and sweetened soft drinks, might always be labeled with zero stars. The GMA planned to go ahead with its own Facts Up Front labeling plan.
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Calorie labels. The nonalcoholic beverage companies have undertaken a calorie label initiative. The calorie counts for packages containing 20 ounces of fluids and containers larger than 20 ounces of fluids are to be labeled per 12-ounce serving for all beverages. (100% juices and juice beverages are an exception to this rule; the FDA requires them to be labeled per eight-ounce serving.) As a part of this initiative, members of the American Beverage Association (ABA) have decided on using a calorie label, which would be uniform in its design and location. The presence of very few calories in diet carbonated soft drinks (CSDs) can result in a large gap in calorie count with respect to other CSDs. In diet CSDs, juice and citric acid can add a few calories. As per the labeling regulations, if the calorie count for the beverage ranges between five and 49.9 calories, it has to be rounded off to the nearest five-calorie increment and if the beverage contains more than 50 calories, it is rounded off to the nearest 10-calorie increment. While the purpose of labeling is to help consumers, regulations such as these could lead to some misunderstanding or confusion. We think that food labeling is getting increased attention, as consumers and regulators focus both on ingredients and any health claims that food companies make. In April 2011, the FDA proposed rules that would require fast food chains and restaurants to disclose the calorie content of their foods. These rules would also be applicable to vending machines, coffee shops, convenience, and grocery stores, but will exclude movie theaters, bowling alleys, and airlines. The focus of these rules will be on food chains, which serve standardized items, rather than on stand-alone restaurants that customize their offerings. In February 2013, the FDA proposed a regulation that would require storeowners to label prepared, unpackaged foods found in salad bars and food bars, soups, and bakery items. According to the storeowners, the proposed rule will overburden them to the tune of $1 billion in the first year, as testing the foods for nutritional data will require either expensive software or off-site laboratory assessments, which are costly. Nutrition labels. Nutrition claims are increasingly coming under challenge in the beverage arena. In July 2010, a federal judge allowed a lawsuit to proceed over health claims made by Coca-Colas Vitaminwater. The suit was filed by the Center for Science in the Public Interest, which claimed deceptive and unsubstantiated health claims on Vitaminwater labels. In September 2010, the FDA warned Dr Pepper Snapple Group Inc. and Unilever for making misleading statements on labels about green tea. We expect this kind of scrutiny to continue as authorities balance a desire to protect the public and companies rights to communicate information on the attributes of their products. The FDA intends to develop standardized, science-based criteria on which front-of-package nutrition labeling must be based. The FDA has noted that, although nutrition-related front-of-package and shelf labeling are currently voluntary, they are subject to provisions that prohibit false or misleading claims and restrict nutrient content claims to those defined in FDA regulations. The FDA said that it would consider enforcement actions against clear violations. GMOs. We see the production and consumption of genetically modified foods (GMOs) as being controversial, including some concern about possible side effects, including the environmental impact of increased amounts of herbicide. We expect there will be continuing efforts to require labeling on food, providing consumers with more information about whether various items have been grown with genetically modified seeds. As of October 2011, consumer groups had filed a petition requesting the FDA to ask for compulsory labeling of genetically modified products. The FDA has rejected the labeling of genetically modified products since 1992. The Center for Food Safety has asked the FDA to revise its old policies on the matter. Currently, the FDA is in the process of deciding whether to approve genetically modified salmon and the labeling of that item. A proposal that would have made California the first state in the country to require labeling of foods that contain genetically modified ingredients was defeated on November 6, 2012, with 53.1% of voters against it. The Right to Know Genetically Engineered Food Act (Proposition 37) would have required that such foods be labeled as partially produced with genetic engineering. A month before the vote, polls indicated that 60% of voters favored the proposal, but support declined after a series of ads against it by food and biotech companies. According to MapLight, an organization that tracks campaign contributions, food and biotech companies raised $46 million to defeat the measure against $9.2 million raised by its proponents.
Some other states like Washington are considering a ballot initiative that would require labeling foods containing genetically engineered ingredients. According to the New York Times, some of the major food companies and Wal-Mart Stores Inc. have been discussing lobbying for a national labeling program. In March 2013, Whole Foods Markets Inc. became the first retailer in the US to require labeling of all genetically modified foods sold in its stores. According to the company, the new labeling requirement was in response to consumer demand and would be in place within five years. We view food and beverage labels as a significant source of portion and calorie information, as well as other data that could have a bearing on disease management or prevention. Looking ahead, we expect increased pressure and requirements for food companies to provide evidence of third-party scientific studies that support claims that various foods or ingredients offer significant potential for improved health. We anticipate that food manufacturers will be more cautious about the language they use to publicize the prospective health benefits of their products. We think that increasing research and development costs, along with the need to meet more regulatory requirements, will become an accepted part of doing business for food and beverage companies that want to benefit from the health and wellness needs of the US consumer. What is natural? We believe that Americans today are more conscious of their food habits, of the kind of food that they eat, and many people clearly prefer healthier food options. According to the International Food Information Council (IFIC), Americans consider the nutritional value of food as the third most important factor while making their purchase decision after taste and price. In the wake of this rising consciousness, we think organic or natural food is growing in popularity among consumers. To cash in on this popularity, manufacturers are selling food products ranging from ice cream to potato chips under the natural label, although we think there is a lack of an official definition of what can be considered natural. In May 2013, Groupe Danone (France) agreed to buy Happy Family, a US maker of organic baby food, to strengthen its fast-growing infant-nutrition division. The FDA, responsible for regulating packaged food and beverages, put forth a loose definition of natural about 20 years ago. Several products are involved in a lawsuit relating to a claim of being natural; however, certain of their ingredients may not justify the claim. Corn sugar is also becoming a point of contention between sugar companies and corn processors. In April 2011, sugar companies sued corn processors, claiming that the industry is incorrectly using the term corn sugar in place of high fructose corn syrup (HFCS), which is an ingredient in various snacks and fruit drinks. According to the sugar companies, the practice of labeling HFCS as corn sugar is misleading consumers. Last year, the FDA approved the corn refiners request to replace HFCS with corn sugar while labeling packages. This request by corn refiners might have come up due to declining sales of HFCS and its being associated with the national obesity problem. We think many consumers prefer sugar to HFCS, as they believe sugar is natural and thus a healthier option. Affordability important In addition to safety, access to affordable products is another aspect of food security. In our view, the increased volatility of food prices puts additional pressure on governments to have affordable supplies available to their people. In some cases, to conserve domestic inventories and gain more control over prices, governments will take actions such as banning food exports or imposing quotas. In 201011, we think that social unrest in parts of Africa were fueled, at least in part, by food shortages or higher prices. We see affordability also being an issue in the US, where the number of people receiving aid under the Supplemental Nutrition Assistance Program (SNAP, more familiarly known as food stamps), totaled 47.6 million in February 2013, which we estimate represented about 15% of the US population. The total number of people receiving assistance was up 34% from four year earlier. In February 2013, the average monthly benefit per person was $132.55. According to the USDA, the American Recovery and Reinvestment Act of 2009 increased SNAP benefit levels and expanded eligibility for jobless adults without children. However, a new federal farm bill is expected to cut SNAP spending and may reduce eligibility.
In addition, we see a focus in the private sector on improving access to food. In May 2011, eight foundations launched AGree, a new initiative to address long-term food and agriculture policy issues, which we expect will include a focus on natural resource limitations and environmental challenges. According to AGree, the worlds population is expected to increase by 2.6 billion (38%) over the next four decades, and there are currently 925 million people suffering under-nutrition or hunger. The organizations funding AGree are the Ford Foundation, the Bill & Melinda Gates Foundation, the William & Flora Hewlett Foundation, the David and Lucile Packard Foundation, the W.K. Kellogg Foundation, the McKnight Foundation, the Rockefeller Foundation, and the Walton Family Foundation. Frito-Lay (a unit of PepsiCo) has decided to create different snacks for different markets. For higher-end consumers, the company has introduced products like Olive Coast, kettle-cooked chips with a Mediterranean twist; for value consumers, theres Taqueros, a low-priced tortilla chip. Companies like Coca-Cola are moving to smaller package sizes as more consumers start counting their calories and their money. After introducing a 16-ounce bottle at 99 cents in 2010, it introduced a 12.5-ounce bottle at 89 cents in September 2011.
DEMAND FOR HEALTHY FOOD CONTINUES

Although an aging US population is facing job losses and a slow-growth economy, we think that consumers continue to be interested in what they consider health-enhancing foods. However, such items may often bear a premium price, which is likely to inhibit purchases. In general, we see food and beverage companies developing a variety of healthier foods in response to demand from consumers, many of whom are following diets designed to promote weight loss and healthier lifestyles. Foods now include a focus on such areas as nutrition, weight management, improved digestion, disease prevention, and allergy remedies. Many of the newer, healthier foods contain fewer calories, less fat, low carbohydrates, and/or less sugar and sodium. Most of the food and beverage companies are spending time and money on reformulating their products to make them whole-fiber or gluten-free. Companies are looking at ways to offer portion control to consumers. However, we believe that consumers still generally want the food they eat, no matter how healthy, to taste good. In short, consumers want the seemingly impossible: to have their cake (preferably in convenient, ready-to-eat packaging), enjoy eating it, and improve their health in the process. We expect that the long-term trend toward healthier and environmentally friendly foods will continue, but with the caveat that financially stressed consumers may be more reluctant to pay premium prices for such products. Over time, with an older US population, we anticipate that wellness and nutritional concerns will assume an increasingly prominent role in product formulations and introductions. Such changes include making traditional products healthier through reformulations, and introducing new products that may offer such features as vitamin fortification or antioxidant ingredients to potentially combat disease or aging. Reformulations may include reductions in the fat, sodium, or sugar content of a product, aimed at addressing such health-related consumer concerns as obesity, high blood pressure, and diabetes. To justify the investment in reformulations and new products, companies may need to inform or educate consumers about the prospective benefits, using such tools as marketing and product labeling. For consumers, we think that the effort to eat healthier food likely increases with age. We look for food and beverage companies to increasingly focus on what are called functional foods or nutraceuticals. These are products that are intended to provide added health benefits, such as lowering cholesterol, replacing vitamin deficiencies, or combating disease. We expect that a growing overlap between the food and beverage industry, the healthcare industry, and the cosmetics industry will continue, as scientists and product development teams discover new applications for various ingredients. However, as this occurs, we project that product labeling will become an increasingly important issue, and that new regulatory authority and standards may be needed to monitor, test, or approve new products.
INDUSTRY SURVEYS
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Beverage companies are stepping up their efforts in no- and low-calorie sweeteners after recent launches of drinks with the natural zero-calorie compound Reb-A (rebiana, derived from the leaves of the Latin American herb stevia, which is reported to be several hundred times sweeter than sugar). In August, PepsiCo and Senomyx Inc., a company focused on using proprietary technologies to discover and develop flavor ingredients for the food, beverage, and ingredient industries, signed a four-year collaborative agreement to develop and commercialize sweet enhancers in lower-calorie PepsiCo beverages. To mitigate criticism leveled against food makers for the rising obesity rates in the US, companies have raised the profile of their healthier products through advertising and new packaging. For example, manufacturers have found success with 100-calorie portions of snacks, which have proven popular with consumers looking to enjoy a treat without consuming too many calories. However, as noted earlier, we think that manufacturer labeling is going to receive increased scrutiny, and we expect that there will be growing pressure to document or validate health claims related to food or beverages. Childhood obesity has received considerable attention, and there have been efforts to restrict childrens access to less nutritional or higher calorie foods and beverages in schools. Over time, as lifestyles change overseas, we expect that obesity will be receiving increased attention in other countries as well. Stevia makes inroads Playing into obesity concerns, the beverage industry has been intensifying its focus to include new products such as the stevia-based sweetener Reb-A. We think interest in stevia has been heightened by recent calls for taxes on soda, in the belief that new beverages containing natural diet sweeteners might help quell the demand for such taxes. Coca-Colas version, Truvia, was jointly developed with Cargill Inc. PepsiCos PureVia was developed with Whole Earth Sweetener Co., a unit of Merisant Worldwide Inc. Rather than emphasizing the no-calorie aspect of these beverages, we believe the companies will appeal to consumers based on the products natural formulation and, perhaps, functional benefits. Stevia has been used commercially in Japan for more than three decades and represents approximately 40% of that countrys low- or zero-calorie sweetener market, according to Cargill and Coca-Cola. It has already been approved for use in foods in 12 countries, including Argentina, Brazil, China, and Peru. In the US, stevia is currently approved (and sold) as a dietary supplement, and a tabletop version of Truvia is currently on the market. Some research suggests that stevia may improve health. Two Chinese studies found that it can reduce blood pressure among those with mild hypertension, and Danish researchers showed that stevia reduces blood glucose levels in patients with Type 2 diabetes. However, those effects were seen in doses much greater than those used in the sweetener. Conversely, some animal studies have suggested that stevia may cause cancerous mutations or reproductive problems, though the studies methodologies have been criticized. The FDA has approved both Truvia and PureVia for GRAS (generally regarded as safe) status. The acceptance of new products with this compound will depend on the extent that consumers like the taste. Some have said stevia has a licorice-like taste, indicating that it would perform better in noncarbonated beverages with heavy flavors or in lightly sweetened drinks. Others say that Reb-A is more highly refined and does not have such a strong taste. According to some estimates, sweeteners made from this compound had taken about 10% of the US consumer market for tabletop sugar substitutes only nine months after being approved by the FDA. PepsiCo and Coca-Cola are adding stevia-based sweeteners to many of their products being sold in US and European Union countries. New stevia-containing products launched so far include Pepsis zero-calorie SoBe Lifewater and reduced-calorie Trop 50, Tropicanas new light orange juice product. Stevia is also used in Pepsis new Gatorade product, G2 Natural, which is being initially sold in Whole Foods, according to industry sources. The Coca-Cola Co.s efforts include Sprite Green (a reduced-calorie version of Sprite), Vitaminwater 10 (with 10 calories), and some Odwalla juice drinks. In March 2012, Coco-Cola added Truvia to Sprite and Nestea in France. Truvia said that there are hundreds of Truvia-sweetened products in the works, the latest of which is a light yogurt launched in January 2012 by Tillamook, a dairy-farm cooperative based in Tillamook, Oregon.
So far, consumer reception has been strong for these new products, and we see strong momentum for new product launches that include this compound. Massimo dAmore, CEO of PepsiCo Americas Beverages, has talked about an increased commitment to a stepped-up use of stevia-based PureVia in both carbonated and noncarbonated beverages. Other sweetener developments Industry sources indicate that other substances are being examined for future use as sweeteners, including monatin, which is also derived from a plant, and other derivatives of the stevia plant, including Reb-D. Cargill filed a patent for usage of monatin in beverages in 2005. Some think Reb-Ds taste profile could be better than that of Reb-A. However, new products with these substances are unlikely to reach the market for several years due to the lengthy approval process. Consumers focus on healthier lifestyles has also led to a number of prominent drink makers replacing highfructose corn syrup (HFCS) with sugar. Research has linked HFCS with obesity and diabetes. Dr Pepper Snapple Group reformulated its Snapple teas to take out HFCS and changed its logo to All Natural Snapple. PepsiCo has marketed sugar-sweetened versions of Pepsi and Mountain Dew under the Throwback brand, which comes with vintage packaging. In September 2010, PepsiCo relaunched Sierra Mist as Sierra Mist Natural, made with real sugar and nothing artificial. For its 125th anniversary, Dr Pepper Snapple Group rolled out Dr Pepper Made with Real Sugar for a limited time in summer 2010. Imperial Sugar Co. anticipates that sugar will surpass HFCS as the sweetener of choice in the US. However, this switch is unlikely to affect the overall problem of obesity in the US. Launch of mid-calorie offerings Beverage companies are coming up with beverages that lie in the mid-calorie category. The mid-calorie offerings are an attempt to strike a balance between the sugar and calorie content of the drink and its taste, and some are marketed to appeal to groups that typically avoid diet drinks. For example, in October 2011, Dr Pepper Snapple Group launched a new drink, Pepper Ten, a 10-calorie soft drink (with two grams of sugar) aimed at men, who company research has found avoid diet drinks, believing them not manly enough. In comparison, the regular Dr Pepper drink contains 150 calories and 27 grams of sugar. In December 2011, the company said that it would launch a 10-calarie variant for five more drinks in its portfolio. In March 2012, PepsiCo launched Pepsi Next, which contains half the calories of a regular Pepsi. The drink, which contains only 60 calories per can, caters to consumers who want to reduce their sugar consumption, but do not drink diet drinks because they do not want to compromise on taste. Taste is an important factor for these consumers, as they shift away from diet cokes to other options (such fruit juices and water) when they dont like the taste of these zero-calorie drinks. The sweetener that PepsiCo uses in Pepsi Next is a combination of high fructose corn syrup, aspartame, acesulfame potassium (a no-calorie sweetener marketed as Sweet One), and sucralose (Splenda). In May 2012, Coca-Cola began a very limited tested of soft drinks using a new formulation of sweetener that will lower the calories of its beverages. According to a report in the New York Times, Cokes new sweetener uses a combination of sugar, Truvia (the stevia-based sweetener) and erythritol (a sugar alcohol). Enhancements Beverages and dietary supplement companies are introducing citicoline, which is thought to enhance brain function, in their products. An organic molecule found in the body, citicoline is believed to speed up formation of brain cell membranes and may increase the production of neurotransmitters essential for the functioning of the brain. However, efforts to get FDA approval failed, as clinical trials showed citicoline to be no better than placebo. Nevertheless, companies such as Nawgan Products LLC have continued to promote their product as a brain function enhancer. Coconut water A particularly hot area recently is coconut water, which is the clear liquid inside young green coconuts (and is different from coconut milk). Celebrities such as Madonna have made coconut water famous. Coconut
water is seen as providing functional benefits similar to sports drinks, but naturally: it is low-calorie, but with high potassium and less sodium than sports drinks such as Gatorade and Powerade. Already a popular drink in Brazil, coconut water has surpassed sales of orange juice. In August 2009, PepsiCo agreed to buy Brazils largest coconut water producer, Amacoco, for an undisclosed amount. Shortly after, in September, Coca-Cola bought a stake of less than 20% in coconut water producer, ZICO Beverages LLC, for less than $15 million. In March 2011, ZICO Beverages signed Boston Celtics Kevin Garnett as an endorser; the deal included both cash and an undisclosed equity stake. Sales of coconut water are still relatively small, and hard data are not readily available, but some industry estimates peg the US market at $400 million in sales currently. Sales of coconut water have increased sharply since the products US introduction in 2005. Some believe sales of coconut water sales could match those of niche drinks and exceed $2 billion in the next 10 years.
ORGANIC, NATURAL FOODS ATTRACT INTEREST

We believe that consumers remain interested in how their food is produced and grown. Organic or natural foods have been growth drivers for a number of food manufacturers, some of which have added brands through acquisitions. (Keep in mind that natural lacks the USDA definition and certification of organic.) Organic foods are more likely to be produced by farmers who emphasize the use of renewable resources and the conservation of soil and water. To be considered organic, meat, poultry, and eggs must come from animals that are given no antibiotics or growth hormones. Organic produce is grown without conventional pesticides, bioengineering, or ionizing radiation, and without the use of fertilizers that contain synthetic ingredients or sewage sludge. In 2002, the USDA allowed food makers to label goods as USDA-Organic if they contain 95%100% organic ingredients. Foods that contain at least 70% organic ingredients can indicate that they contain organic ingredients. Use of the USDA-Organic seal on products is voluntary. The US and the European Union (EU) signed an agreement in February 2012 to allow food certified as organic by the US or the EU to be sold in either region. This agreement allows companies and farmers to connect with each other and opens new markets for all. According to the Nutrition Business Journal, a trade magazine, organic food sales in the US increased to $27 billion in 2012 (up nearly $11 billion from 2004) and accounted for more than 3.5% of US food sales. One indicator of the growing popularity of organic or natural foods is the growth of Whole Foods Markets Inc. The company had sales of more than $3.0 billion in the 12 weeks ended April 14, 2013, which was up 13.4% from the comparable year-earlier period. As of April 2013, the company, which was founded in 1980, had 348 stores in the US, Canada, and the UK. Companies focusing on organic or natural products include Hain Celestial Group Inc., with brands that include Terra Chips, Garden of Eatin, and Earths Best; WhiteWave Foods, whose product line includes Horizon organic dairy products, as well as the Silk soymilk business; and Annies Inc., whose products include pastas, pizza, and snacks. A number of large food companies offer organic foods under smaller brands. For example, General Mills Inc. owns the Cascadian Farm and Muir Glen labels; Kellogg Co. has the Kashi brand; and Kraft Foods owns the Boca and Back to Nature brands. Large food makers have also rolled out organic versions of some of their best-known products. For example, Campbell Soup Co. offers organic V8 juice, while Kraft sells organic macaroni and cheese. During the past few years, we think that supermarkets have bolstered their lineups of organic foods. WalMart Stores Inc., the worlds largest retailer and one of the biggest supermarket operators in the US, began selling organic produce in its stores in 2006. We think traditional supermarkets investment in organic foods helps them to better compete with a retailer such as Whole Foods Markets Inc. and with farmers markets. For example, we think Kroger Co., which has 2,200 grocery stores, has introduced new natural and organic foods brand to bolster profitability and be more competitive.
In a project begun by a foundation affiliated with Sabritas, its Mexican snack foods division, PepsiCo has begun working directly with small farmers in Mexico rather than middlemen to save transportation costs and improve access to corn and sunflower oil better suited to its products. PepsiCo guarantees the price it will pay for the crops upfront and allows small farmers to access credit to buy seeds, fertilizer, crop insurance, and equipment. Besides potentially improving profitability and demand, the program has raised farmer income and raised nutritional and educational standards, and likely, reduced illegal immigration. Local food movement The local food movement is on the rise in the US, with the direct-to-consumer marketing accounting for over $1.2 billion in sales annually. Farmers markets and community-supported agriculture are rising, as consumers shift to local food systems in an effort to find healthier, tastier, environmentally conscious, and energy-efficient alternatives to packaged food. According to an online survey conducted for Whole Foods Market in September 2012, consumers increasingly preferred local produce over organic food. The survey found that 47% of the people are willing to pay more for locally produced fruit, vegetables, meat, and cheese, while only 32% would pay more for food without artificial ingredients. Factor such as higher fuel prices are also forcing the consumers to source their food locally.
CHANGING DEMOGRAPHICS, CHANGING TASTES

We also see food tastes being influenced by changing US demographics. We expect that an increasingly diverse US population is boosting interest in, and availability of, various ethnic foods. We believe that this will be evidenced by purchases of ingredients and foods for preparation in the home, as well as by the types of restaurants that open. We believe that the growing variety of foods and flavors is partly due to increases in the portion of the population that has Hispanic or Asian roots. In an industry conference in March 2012, executives of large food companies said that they were increasingly targeting Hispanics with tailored products and advertisements. We expect an aging US population, with its growing concern about health, to shift its food intake toward fruits, vegetables, and fish, and away from some fried foods, dairy products, and items that contain large amounts of sugar and salt. The trend is most entrenched in beverages, where the light designation has been long established. (Light foods contain less fat and fewer calories.) Companies are also responding to other demographic shifts, such as smaller household sizes, by rolling out new products targeted to these groups. This includes single-serve desserts that can be heated in a microwave. Overall, we see food manufacturers trying to compete with the convenience of take-out or restaurant dining by offering packaged meals or ingredients that reduce preparation time for busy consumers. We think rising income levels and changing lifestyles are leading to a change in diet patterns among consumers in emerging international markets. Rising income levels have enabled a number of households to eat food away from home more often. In addition, higher income levels indicate that greater numbers of households possess refrigerators and microwave ovens, which increase demand for packaged food and ready-to-eat meals. With the number of women working on the rise in these economies, there is a clear shift toward ready-to-eat food products and ready-to-drink beverages, which help save time and offer convenience. For breakfast, we think cereals have gained popularity among urban consumers. Furthermore, we think a change in lifestyles has caused the concept of families having meals together to gradually decline in emerging economies. We expect this has added to demand for packaged food products.
TECHNOLOGY AFFECTING FOOD AND BEVERAGE INDUSTRY

The role of technology in the food and beverage industry is becoming more important as consumers focus on saving money on their grocery bill. The Internet, social media, and agricultural technology are all being looked at more seriously in the current changing scenario. Internet allows easier price comparisons, access to coupons A number of factors are contributing to the growing popularity of the Internet as a channel consumers are using for shopping. Rising gasoline prices, larger numbers of lucrative deals, easier price comparisons, and
access to coupons are some of these factors. Channels such as retail stores are experiencing a decline in customer visits as more customers are opting to shop online or at discount stores and warehouse clubs. Even if consumers are not buying online, a majority of them are using online tools to gain information on the best price at which they can buy a certain product. With consumers showing a greater interest in online coupons, the competition in this industry is also heating up. Google Offers, a competitor to sites such as LivingSocial and Groupon, has partnered with 14 other deal providers such as Gilt City, PopSugar Shop, Plum District, and Juice in the City to offer daily discounts on various products and services. In November 2011, Google launched a Google Offers mobile app for Android phones. The app will alert consumers on any deals that are of interest to them and will let consumers look up, use, and redeem deals through their mobile device. LivingSocial and Groupon had each launched their own mobile apps earlier. Farm yields may be boosted by genetically modified crops With agricultural technology coming of age, many innovative products have been introduced over the years, such as fertilizers and pest and disease control formulations. In addition, a number of crops are being modified with the use of chemicals and radiation to raise farm yields. According to an August 18, 2011, article in the New York Times, steps such as these have resulted in an almost tenfold increase in the agricultural output per acre of land cultivated in the past century. A number of new molecular methods have helped to protect plants from pests in a more environmentally friendly and a more effective manner than conventional methods. The genetic method of doing this is viewed as more effective because the crop is made resistant to pests via induction of an extra gene, which imparts resistance in the crop against certain insects, thus requiring fewer pesticides. Precision technology helps farmers Precision agriculture is a farming management concept that relies on a collection of farm-level information technologies. These technologies work toward a judicious use of inputs and curtail the harmful impact of fertilizers and pesticides on the environment. Four key technologies that have been adopted include yield monitors, variable-rate application technologies, guidance systems, and GPS maps. Among these, yield monitoring is the most popular: more than 40% of US grain crop acres being monitored, according to the USDA. Farmers using variable-rate technologies for corn and soybean fertilizer applications have seen lower fuel costs per acre. Further, guidance systems that tell farmers the exact field positions of their equipment are showing a strong growth in usage, with 35% of wheat producers having adopted it by 2009. Application of GPS maps and variable-rate input technologies still needs to pick up pace.
NONCARBONATED BEVERAGE CONSUMPTION PICKS UP PACE

According to S&P Capital IQ (S&P) estimates, carbonated beverages (both regular and light versions) make up about 50% of beverages consumed in the United States. Although this represents the largest share of beverages consumed in the US, carbonated sales have fallen in recent years while other categories experienced growth. In 2009, however, carbonated beverage sales actually outperformed the noncarbonated category, as consumers traded down to cheaper alternatives (including tap CHANGES IN US BEVERAGE CONSUMPTION water). We do not expect this phenomenon to persist over the (Percent change in volume) longer term, especially as economic conditions improve, as we see % CHG. consumer preference for healthier fare driving category growth.
2011- 12
Energy drinks Ready-to-drink coffee Bottled w ater TABLE B07: CHANGES IN US Ready-to-drink tea Sports drinks BEVERAGE CONSUMPTION Flavored & enhanced w ater Carbonated soft drinks Fruit beverages Total Source: Beverage Marketing Corp.
14.3 9.5 5.8 4.9 2.3 (1.5) (1.8) (4.1) 1.0
As we had expected, carbonated soft drink trends reversed in 2010 as the economy improved: sales fell 0.8% in 2010 1.7% in 2011, and 1.8% in 2012, and the category lost overall share in the liquid refreshment beverage market. The volume of all liquid refreshments sold rose 1.2% in 2010, 0.9% in 2011, and 1.0% in 2012, after slipping 2.8% in 2009, according to Beverage Marketing Corp. After a double-digit percentage fall in 2009, sports drinks rebounded strongly, rising 9.4% in 2010, 8.8% in 2011, and 2.3% in 2012. Smaller categories, such as ready-toINDUSTRY SURVEYS
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drink teas, energy drinks, and ready-to-drink coffee, performed well, jumping 4.9% in 2012 (4.8% in 2011), 14.3% (14.4%), and 9.5% (9.5%), respectively. However, these three categories, in aggregate, accounted for no more than a mid-single-digit percentage share of total US beverage volume. Bottled water had been one of the fastest growing beverage segments in recent years. After advancing 10.8% in 2005 and 9.5% in 2006, volume growth for bottled water slowed to 6.1% in 2007, then fell 1.0% to about 8.7 billion gallons in 2008, and dropped another 2.7% in 2009. Growth then resumed, with volumes up 3.5% in 2010, 4.1% in 2011, and 5.8% in 2012. We expect that bottled water will continue to grow in the long term, assuming that concerns about the safety of municipal water supplies, a general interest in healthy living, and the populations increasing affluence more than offset environmental concerns about plastic bottle usage. In addition, manufacturers are continually launching new products that drive bottled water consumption, especially in the flavored or enhanced water categories, including products with fruit flavors or the addition of vitamins. While there is clear growth in the noncarbonated beverage market for developed economies, this trend is also showing up in emerging markets. According to a study by Euromonitor, a market research and analysis firm, the noncarbonated beverage market in India is expected to grow faster in 2011 than the carbonated beverage market (around 14% versus 5.6%). Just as in the developed markets, consumers in emerging markets are becoming conscious about their health and have concerns over the presence of pesticides in carbonated beverages. These reasons justify the move toward noncarbonated beverages. Sports and energy drinks gain in popularity Sports and energy drinks have become increasingly popular, which we attribute, in part, to an interest in improved physical fitness and to the busy lifestyles that many people maintain. In contrast to the US carbonated soft drink industry, which is dominated by the three top franchise companies (Coca-Cola, PepsiCo, and Dr Pepper Snapple Group), in this segment, three of the top 10 companies based on market share for 2010 are smaller businesses with an energy drink emphasis. The increase in the consumption of bottled water and sports and energy drinks has contributed to a market share loss for traditional carbonated beverage manufacturers in the total liquid refreshment beverage market. Coca-Cola is still the worlds largest beverage company, but it is also the most vulnerable to losing share as consumers buy more noncarbonated beverages. The company added noncarbonated drinks to its portfolio later than some of its competitors did; until 2008, Coca-Cola had been less successful in the category. In our view, Pepsi had a more well-rounded beverage portfolio that includes the bottled water brand Aquafina and is complemented by a large snacks business. However, S&P believes that in recent years, boosted by its purchase of Energy Brands glacau products, Coca-Cola gained share as Pepsis system retrenched in the competitive water market and Gatorade weakened. Looking ahead, we expect further focus on functional foods, aimed at helping consumers to meet specific goals. This could include products meant to satisfy peoples hunger, without actually adding many calories. Such satiety foods could increasingly be used in efforts to reduce weight. However, as with other food offerings that potentially overlap into the area of consumer health, we expect that product success will at least partly depend on research efforts, including documentation of what impact, if any, a given food has related to both specific objectives and overall health.
FLEXIBLE EATING IMPORTANT TO CONSUMERS

With busier schedules brought on by dual-income households and longer commutes, there was a long-term trend of US consumers spending more of their food dollars for consumption outside of the home. In 1960, according to the US Department of Agriculture (USDA), US consumers spent 76% of their food dollars for at-home (or non-restaurant) consumption. By 2006, that share had declined to 53%. However, from 2007 09, the percentage of such at-home food dollars moved up, which we believe reflected such factors as weak economic conditions, high food prices, and increased cocooning by consumers. We think a weak job market, in which households are coping with job losses and increased economic insecurity, has limited spending on food outside the home.
In addition, we see packaged food makers trying to sell products that consumers can eat away from home. Companies have developed portable foods such as cereal bars, drinkable yogurts, and snacks in individual size packages. In addition, we think there is a growing trend among consumers to have a number of small meals each day, rather than three larger meals, because of a lack of time. Internationally, in the developing markets, growing urbanization is likely to further boost the demand for packaged and ready-to-eat foods. In developing economies, a relatively higher percentage of the total food consumed is food-at-home; however, with changing lifestyles, the trend towards packaged food as a foodat-home category is gaining strength.
HOW THE INDUSTRY OPERATES

US food and beverage companies have evolved from regional firms that produce goods mainly for local markets to todays corporate giants, which make products for national and international markets. The shift began in the early 1900s, when companies in this sector began to adopt mass-production techniques. At the same time, Americans increased mobility raised their demand for portable packaged food products. The US processed food and beverage industry includes establishments that manufacture or process foods and beverages for human consumption, as well as certain related products, such as chewing gum, vegetable oils, and animal fats and oils.
INDUSTRY STRUCTURE
Domestic food companies generally fall into two groups: those engaged in the early or middle stages of making a processed food product, and those involved in the later stages. The US nonalcoholic beverage industry is generally divided into franchise or syrup companies and bottlers. Portions of the food and beverage industries are quite concentrated, largely due to strong brand names, successful product development, and acquisition activity. For example, products from Coca-Cola Co. and PepsiCo Inc. account for more than 70% of US carbonated soft drink sales. Other categories with a relatively high concentration, or a large portion, of sales in the hands of a few companies include ready-toeat cereals, candy, soup, and baby food. Food: early- to middle-stage firms Referred to as agribusinesses, companies that concentrate on the early to middle stages of food production tend to engage in such activities as the harvesting, milling, or processing of raw agricultural commodities. They also may plant and raise crops, although they primarily buy these commodities from farmers. Agribusiness end products generally are sold to processors and food packagers, which use the ingredients to make finished consumer food products. Agribusiness companies, such as Archer Daniels Midland Co., Bunge Ltd., and privately owned Cargill Inc., process and merchandise raw grains like corn, wheat, and soybeans. Their end products include oils, syrups, starches, and meals used in the foods and feed industries, as well as corn sweeteners used in soft drinks. Other food companiessuch as meat packers Smithfield Foods Inc. and Tyson Foods Inc., and poultry processor Pilgrims Pride Corp.slaughter and process livestock and chickens for retail sale. Late-stage firms Companies engaged in the late stages of consumer food production are generally referred to as food manufacturers or food packagers. These companiesincluding Kellogg Co., H.J. Heinz Co., Hershey Co., and Kraft Foods Inc.sell their finished goods to food retailers, which in turn sell the products to consumers. We have recently seen a shift toward consumers spending a larger portion of their food dollars for eating at home. However, we believe that food manufacturers will continue to experience growth opportunities from offering portable products for consumption by time-constrained, on-the-go consumers out of the home.
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BEVERAGE COMPANIES
Franchise companies (or brand owners) are mainly in the business of making soft-drink concentrates flavored syrups that are mixed with carbonated water to produce various beverages. These franchise companies both manufacture and sell products themselves, or they appoint bottlers to sell, distribute, and, in some cases, manufacture these products under licensing agreements. Brand owners, such as Coca-Cola Co. and Pepsi-Cola (PepsiCo Inc.s beverage unit), generally own both the beverage trademarks and the secret formulas for their concentrates. They manufacture and sell the concentrates to licensed bottlers, and develop new products and packaging for use by their bottlers. Other important functions include developing national marketing, promotion, and advertising programs to support their brands and brand image, as well as coordinating selling efforts with respect to national fountain, supermarket, and mass merchandising accounts. They also provide local marketing support to their bottlers. Bottlers are generally responsible for manufacturing, selling, and distributing products under brand names licensed from brand owners in an exclusive territory. For carbonated soft-drink products, a bottler buys the brand owners soft-drink concentrate, which it combines with sweeteners and carbonated water, packages it in bottles or cans, and sells to wholesalers or retailers. Bottlers usually handle the brand owners fountain accounts as well. These accounts are licensing agreements between the brand owner and restaurants, stadiums and arenas, or school cafeterias. The bottler combines the brand owners soft-drink concentrate with sweeteners to yield syrup, which it delivers to fountain customers. In the noncarbonated beverages category, the bottler either manufactures and packages such products or purchases them in finished form and sells them through its distribution system. Bottling networks There are three major soft-drink bottling networks in the United States and Canada. The largest is the CocaCola system, which includes Coca-Cola Refreshments and Coca-Cola Bottling Co. Consolidated, as well as other independent Coca-Cola bottlers. The next largest is the PepsiCo system, which includes Pepsi Bottling Group and PepsiAmericas Inc. The parent company of the third bottling networkmuch smaller than the first twois Dr Pepper Snapple Group Inc. In May 2008, ownership of this soft drink business was spun off from candy company Cadbury Schweppes PLC, with its successor business now known as Cadbury PLC. The major North American bottling systems are not necessarily exclusive. Some Coke or Pepsi bottlers may also handle Dr Pepper Snapple products, for example.
COSTS WITHIN THE FOOD SYSTEM

Most of what US consumers spend on food does not go to farmers. Based largely on data from the US Department of Agriculture (USDA), for domestically produced farm food, we estimate that only about 17% of what consumers end up spending represents its farm value (e.g., agricultural commodity costs). The remaining 83% of what consumers spend on such items reflects various expenditures or allocations that are made as the food makes its way from the farm to the marketplace. Various other expenses incurred in the food pipeline include wages, salaries, and benefits for workers engaged in manufacturing and packaging; transportation and fuel; advertising; depreciation; rent, repairs; utilities; and interest costs. For food consumed at home, we estimate that farm value represents about 25% of the retail price. For food consumed away from home, we think the agricultural value shrinks to about 5% of the retail price, partly due to the impact of restaurant food preparation and overhead costs on consumer prices. Where the food dollar goes A dollar spent by a US consumer on food is shared at multiple levels in the value chain in the food industry. Part of the dollar goes from the farm (commodity level) to the manufacturer to the retailer. In between these broader levels, parts of the dollar are earned by parties involved in food transportation, distribution, and storage. The Economic Research Service at the US Department of Agriculture releases a food dollar series, which gives data on where the food dollar goes. According to the food dollar series, in 2011, for every dollar spent in the US on domestically produced food, farmers received 15.5 cents.
Lower sensitivity to commodity prices The financial results of packaged food companies are less sensitive to changes in raw material costs than are those of agribusiness companies, the major buyers of such commodities. The processing of agribusiness commodities is a low-margin, low-value-added business. By comparison, there is more value added at the packaging and marketing level; therefore, costs are less commodity-based and margins are easier to maintain from year to year. Marketing costs, which constitute a high proportion of total input costs for packaged food products, tend to be relatively stable. The packaged food producers active use of hedging techniques helps to limit their exposure to commodity price fluctuations. Their growing reliance on global sourcing of important raw materials helps further limit the impact of raw material shortages in a given geographic region. Typically, we think there is likely to be a lag effect in a companys ability to pass along its higher commodity costs to consumers. In our view, rising ingredient costs have placed additional pressure on packaged food companies to operate their businesses efficiently, a focus that we see reflected in restructuring programs that include activities such as the consolidation of manufacturing facilities and reductions in the work force.
AGRICULTURAL COSTS VARY

Various factors affect farmers acreage allocation for different crops, including the prices they expect to receive and their cost of production. Then, once the crops are in the ground, weather can significantly affect how much is harvested and its quality. For farmers, the cost structure depends on what they are looking to produce. For example, the USDA estimates that for corn, operating costs per planted acre amounted to $348.96 in 2012, compared with just $148.60 for soybeans and $128.35 for wheat. For corn, fertilizer was a much larger expense, especially relative to soybeans. Both corn and soybeans had considerably higher seed costs than wheat. Excluding overhead items, the USDA estimated a return of $452.41 per acre for corn, $426.96 for soybeans, and $216.48 for wheat. For each of the crops, the USDA allocated additional overhead costs of between $165 and $290 per acre, for items such as land (e.g., opportunity cost of not renting it), capital recovery of machinery and equipment, and labor. A substantial part of the allocated overhead costs is likely to be non-cash items. However, farmers would have additional cash needs to purchase new equipment for the future. Excluding government payments, but including overhead, corn acreage produced a profit of $162.50 per acre in 2012, while soybeans and wheat averaged $154.34 and $46.93, respectively. We expect that lower profits from wheat have contributed to more US acreage going to corn and soybeans.
STORE LABELS AND PRODUCER BRANDS

The maturity of the US food and beverage marketplace limits companies pricing flexibility. One of the best ways to enhance pricing power in this crowded market is to develop customer loyalty through brand awareness. Brand loyalty is the holy grail for all US consumer product companies, including those in the packaged food and beverage industries. It is no surprise that these companies are among the nations leading advertisers. By supporting their brands with advertising, food manufacturers are better positioned to charge higher prices than they would likely receive for lesser known products or brands. Private label goodsoften, lower-priced products sold under a stores own name or brandare a constant threat to other branded goods, especially during times of economic weakness. We expect that private label sales account for about 18% of US food sales and about 13% of US beverage sales, with bottled water boosting the average for beverages. Private labels already have a substantial presence in the more commodity-like grocery categories. In general, consumers are likely to purchase items such as dairy and bakery products based more on price than brand name. However, private label or store brands have extended their reach to virtually every major grocery
category, though penetration rates vary. Going forward, we anticipate that private label offerings will increasingly become available in higher priced product categories, including the growing organic food area.
FOOD AND BEVERAGE DISTRIBUTION

Food and beverage companies distribute their products through various channels. To reach those channels, some companies use a direct-delivery system: they transport the product to a store, stock the stores shelves, and order additional product when needed by the store. Under a warehouse system, companies deliver the product to a warehouse, and the retailer or a third party transports the product from the warehouse to a store. Channel mix Channel mix refers to the distribution channels through which beverage products are sold and the relative importance of each channel. The primary retail distribution channels for beverages are supermarkets, mass merchandisers, vending machines, convenience stores, fountain accounts (such as restaurants or cafeterias), and other outlets, which include small groceries, drugstores, and educational institutions. With food that US consumers purchase to eat at home, the importance of traditional grocery stores has declined in recent years, as nontraditional stores such as supercenters and warehouse club outlets have received a growing portion of food spending. With their larger size and variety, and ability to price aggressively, supermarkets have held their own better than other grocery stores. For 2013, S&P Capital IQ estimates that traditional food retailers will account for less than 70% of food expenditures for at-home consumption, down from the 82% reported by the USDA for 1994.
GETTING IN AND STAYING IN

On a local level, the barriers to entry in the US food and beverage industry are relatively low: the technological skills and financial resources required are not substantial. Although costs related to marketing and distribution are potentially significant, they can be kept to a minimum if there are enough neighboring food establishments where a companys products can be sold. To succeed on a larger scale, however, the barriers are very high indeed. The capital requirements needed for manufacturing facilities alone can be prohibitive. Considering the high costs of marketing and distribution, it is little wonder that large corporations produce most of the packaged food and beverage products today. Growth strategies Given the capital requirements for large-scale production, food processors have three means of achieving growth. We focus on acquisitions, expanding distribution channels, and international sales. Acquisitions. For many years, the fastest and most reliable way to increase sales in the highly mature food and beverage industry has been to acquire other businesses. However, unlike diversification efforts in the 1970s and 1980s, when food and beverage companies bought completely unrelated businesses, acquisitions since the 1990s have tended more often to be add-onslines of business that complement the acquirers existing operations. Expanding distribution channels. Until recently, there was a steady long-term increase in away-fromhome eating, and many food and beverage companies have aggressively expanded their distribution outlets to reach more places where todays consumers go to eat. This includes selling products to companies that specialize in distribution services (such as Sysco Corp.) or to food service businesses directly. Companies such as H.J. Heinz, ConAgra Foods Inc., and Campbell Soup Co. have formed divisions that are responsible for distributing the companys grocery items through food service outletsretail locations other than supermarkets. This strategy helps them participate directly in what was a long-term trend toward awayfrom-home eating and can serve as a relatively low-cost way to test-market new products. International sales. International expansion lets companies participate in markets that may be growing faster or are much less competitive than the domestic market. Many of the major US food and beverage
companies initially entered foreign countries through joint ventures with local companiesa relatively lowcost way to participate in overseas markets that requires less initial investment than an outright acquisition. Through a joint-venture relationship, a US company can learn from its partner about the markets unique customs, tastes, and regulatory issues. Once they have this market knowledge, many US companies acquire their joint venture partners and build on their businesses through more joint ventures or acquisitions. Low volatility in business cycles Companies in the processed food and beverage industries make products that are staples, and thus generally are less sensitive to declines in business activity than are companies in other industries. Because people must eat, they purchase food and drinks frequently; demand does not fluctuate significantly. As a result, food and beverage companies are considered defensive in nature and have historically been safe havens for investors during domestic economic downturns.
REGULATION
Almost all food and beverage products in the United States are subject to regulations administered by the US Food and Drug Administration (FDA), or, for products containing meat and poultry, by the USDA. Among other activities, these agencies enforce statutory prohibitions against misbranded and adulterated foods, establish ingredients and/or manufacturing procedures for certain standard foods, set standards of identity for food, determine the safety of food substances, and establish labeling requirements for food products. In addition, individual states can be involved in the regulatory process. States may license and inspect food and beverage production facilities located within their borders. They may also enforce federal and state standards for identifying and grading products. Some impose their own labeling requirements. Many regulate trade practices concerning the sale of certain types of products. Many food commodities on which food and beverage businesses rely are subject to governmental agricultural programs. These programs, which can have substantial effects on prices and supplies, are subject to congressional review. Looking ahead, we expect that a growing emphasis on marketing the prospective health benefits of foods will place increased pressure on regulators to review and monitor the characteristics and labeling of such products.
FOOD AND BEVERAGE TRADE

With approximately three-quarters of its profits generated in North America, the US packaged food industry is less exposed to developing and emerging markets than are beverage companies. This insulates it from the risks of foreign operations and provides a measure of profit protection when economic problems arise in other parts of the world. In contrast, beverage industry giants Coca-Cola and PepsiCo derive substantial profits from foreign operations. Thus, both companies have seen profits reduced periodically by negative foreign currency translations and regional variability in demand. Nonetheless, both sectors are becoming more global due to the maturity of their markets in developed nations. The United States is among the worlds leaders in both exporting and importing food and beverage products. The value of agricultural imports totaled $102.9 billion in 2012, according to the USDA, while the value of agricultural exports was $141.3 billion. Among both US exports and imports of foods, most of these processed foods have been characterized as minimally processed rather than highly processed. Minimally processed products include fresh and frozen meats, frozen fish, soybean oil, and canned fruits and vegetables. Worldwide, the US is a leading supplier in these industries, reflecting the nations efficiency in field crops and meat and poultry production. Although minimally processed products should continue to account for most exports in coming years, we expect that an increasing proportion of US processed food exports will be highly processed brand-name products, such as Wrigley chewing gum, Kellogg cereals, and Frito-Lay snacks. We think future growth of such products will be driven principally by rising incomes, plus changing demographics and eating habits in many developing countries.
KEY INDUSTRY RATIOS AND STATISTICS

Disposable personal income. Reported each month by the US Department of Commerce, this figure is a measure of Americans income after taxes. Changes in disposable personal income can influence how much consumers spend on food and beverage products. Although the quantity of such products consumed tends to remain relatively steady during both good times and bad, consumers are more likely to trade down to less expensive private label goods during recessions. Conversely, in good economic times, sales of branded packaged food and beverage products tend to get a boost. US disposable personal income was up 3.5% in 2012, following an increase of 3.8% in 2011. As of June 2013, Standard & Poors Economics was projecting disposable personal income would increase 1.7% this year, followed by a 5.4% rise in 2014. The consumer price index (CPI). Released monthly by the Bureau of Labor Statistics (BLS), a division of the US Department of Labor, the CPI for urban consumers measures the rate of price changes in a representative basket of consumer goods. This figure is used as a proxy for measuring inflation (or, more rarely, deflation) in the general economy. As of June 2013, Standard & Poors Economics was projecting a 1.3% CPI rise in 2013 and a 1.7% increase in 2014, following a 2.1% rise in 2012. The BLS reports that the CPI (unadjusted) for all urban consumers was up 1.4% in the 12 months ended May 2013. The index for food was up 1.4%, while energy prices declined 1.0%. In May 2013 alone, the seasonally adjusted CPI was up 0.1% from that of the prior month, as was the food index, while the energy index increased 0.4%. The producer price index (PPI). This measure, compiled by the BLS each month, tracks price inflation (or deflation) for raw materials used by the US manufacturing sector. The PPI is helpful in assessing the cost pressures facing manufacturers in general. A rise in the PPI may reflect cost pressures that hurt profit margins, because companies in the food and beverage industries normally cannot alter their selling prices quickly enough, or at all, to pass costs along to customers. They are largely constrained by two factors: a high level of price competition and, in some cases, contractual commitments with retailers that restrict price increases. During some or all of 200607, Standard & Poors Economics saw food manufacturers facing increased cost pressures from various raw materials or ingredients, including corn, wheat, soybeans, and milk. From May 2012 to May 2013, the unadjusted finished goods price index was up 1.7%; the index for finished consumer foods increased 3.0% in that period. The PPI for finished goods was up 0.5% in May 2013 (on a seasonally adjusted basis), after being down 0.7% in April, and down 0.6% in March. Intermediate foods and feeds index. A subcomponent of the PPI compiled each month by the BLS, this index measures the prices of important commoditiessuch as flour, refined sugar, and vegetable oilsthat require further processing to become finished food products. For the food industry in particular, this measure is more helpful and specific than the overall PPI. In May 2013, the unadjusted index for intermediate foods and feeds was up 4.1% from the year-ago level. On a seasonally adjusted basis, it was up 1.1% from the prior month (April 2013). The 4.1% year-to-year rise as of May 2013 included a 30% rise from processed eggs, a 9.1% increase from prepared animal feeds, and a 7.0% rise from confectionery materials. Crude foodstuffs and feedstocks index. This subcomponent of the PPI, compiled each month by the BLS, measures the prices of commodities in an earlier stage of the production process. It includes such items as fluid milk, slaughter cattle, wheat, and corn. For the food industry as a whole, this index could be a leading indicator of future price changes in intermediate and finished products. In May 2013, the unadjusted index for crude foodstuffs and feedstocks was up 9.6% from the year-ago level. On a seasonally adjusted basis, it was up 2.1% from the prior month (April 2013). The 9.6% year-toINDUSTRY SURVEYS FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013 37
year rise as of May 2013 included a 30% increase from slaughter chickens, and a 22% rise from raw milk. Wheat and corn were up 15% and about 12%, respectively. Ending stocksto-use ratio for agricultural crops. This is a way to look at inventory levels for agricultural crops, relative to recent use levels. For example, if at the end of a crop season, ending stocks totaled 10 million bushels, and the use of that crop in the most recent season was 50 million bushels, the leftover crop equaled 20% of recent use. A relatively low ending stocks ratio may set the stage for upward price pressure on future crop prices, especially if the upcoming harvest is disappointing. However, year-end inventories may exclude some early production from the new season. Interest rates. The level and direction of interest rates may influence how active a company will be in making acquisitions and in other uses of cash, such as capital expenditures, dividends, and stock repurchases. High or rising interest rates increase the cost of borrowing; this in turn may reduce companies willingness to make big outlays, such as those needed to undertake a sizable facility expansion or a share repurchase program. The reverse is also true: low or falling interest rates decrease the cost of borrowing, thus making capital expenditures and the like more affordable. Longer-term US interest rates can be influenced by various factors, including credit demand, foreign investors interest in owning US debt, and the US inflation rate. As of June 2013, Standard & Poors Economics was projecting the interest rate on three-month Treasury bills (a proxy for short-term interest rates) would average 0.1% in both 2013 and 2014, following an average of 0.1% in 2012. The yield on 10-year notes (a proxy for longer-term rates) was projected to average 2.0% in 2013 and 2.5% in 2014, versus 1.8% in 2012. Currency exchange rates. The exchange rates between the US dollar and foreign currencies are increasingly important, given the rising proportion of US food and beverage industry sales derived from markets outside the United States. For companies with significant operations in foreign markets, a decline in the value of the US dollar compared with foreign currencies generally boosts reported profits that are denominated in US dollars. This is because the foreign profits are translated into more dollars after foreign currency exchange rate translations. The reverse is also true: an increase in the value of the dollar relative to foreign currencies generally hurts the amount of reported dollar-denominated profits. Most of the long-established US food and beverage companies have sizable operations in Japan, the United Kingdom, and Europe, making the exchange rate of the US dollar against those regions currencies (the yen, pound, and euro, respectively) particularly important to reported industry profits. However, the impact of currency translation on dollar-denomination profits does not necessarily reflect a significant change in the underlying health of the company. In general, strengthening of the dollar is likely to adversely affect reported revenue and profits from foreign markets, while a weaker dollar is beneficial. However, the impact can be limited by hedging in the foreign currency markets. As of May 27, 2013, according to currency website www.xe.com, the value of the US dollar relative to the euro had strengthened about 3.3% in the previous 12 months. Relative to the British pound, the dollar was up about 3.6% from where it was one year earlier, and against the Japanese yen, the dollar was up about 21.2%, year to year. Imports and exports. Agriculture, food, and nonalcoholic beverages are global industries, and there is a considerable amount of related trade between various geographic regions. US food and beverage companies may have opportunities for growth in foreign markets that exceed their prospects in the US, due to such factors as rising income levels overseas. Alternately, we see the diversity of the US population leading to a growing interest in ethnic foods, some of which may already be more significant product areas in foreign cultures and markets. A monthly US Department of Agriculture report on agricultural imports and exports is at http://www.ers.usda.gov/data/FATUS/monthlysummary.htm.
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HOW TO ANALYZE A FOOD OR BEVERAGE COMPANY

A number of qualitative and quantitative factors should be considered when evaluating a food or beverage company. We focus on these elements below.
QUALITATIVE ISSUES
It is important to consider how well a company is positioned and managed. Analysts making such assessments ask various questions. How big is the company, and does it exploit the potential advantages of being either large or small? Can it raise the capital needed to maintain its operations and to grow? Has the company differentiated itself from its rivals in ways that give it a competitive advantage? What is the likelihood that other companies will turn up the competitive heat in its particular markets? Product mix When studying a packaged food or beverage company, one of the most important things to note is its product mix. Ideally, the company produces hard-to-copy goods with leading market shares and premium prices in growing categories. That situation is more often the exception than the rule, but it should be an important goal of any company that wants consistent sales and profit growth in the highly competitive food and beverage industries. One way that a company can differentiate its products in the minds of consumers is to develop wellrecognized and highly regarded brand names. Effective brand management fosters all-important consumer loyalty, which in turn creates the opportunity for market share growth and above-average pricing flexibility and profitability. A strong brand name also creates an opportunity for product line extensions and, in some cases, licensing fees and royalties. Business mix Observe the trends in a companys business mix. Has the company been acquiring or divesting businesses? It is important to learn what is behind such activity. In some cases, a company can create synergies by combining similar businesses, with benefits including increased purchasing power, capacity utilization, and more products to send through an existing distribution network. However, acquiring multiple businesses with little in common can spread a companys financial and managerial resources too thin. In addition, overpaying for acquisitions that do not contribute to a companys earnings in the near term can be a strain on profit margins and finances. We also advise looking at a companys product development efforts. How much is it spending on research and development, both in absolute dollars and as a percentage of sales? To what extent are new products contributing to overall sales? Regulatory environment With the growing interest in and popularity of organic and enhanced (e.g., with added vitamins) foods, and with concerns about food safety, we view the regulatory environment as increasingly important for food and beverage companies. We advise monitoring whether a company has incurred significant product recalls, and whether governmental or safety groups are calling attention to safety concerns related to a companys products. However, in our view, one should keep in mind that a product recall does not mean there is a problem or a concern related to all of a companys products. Information or definitions related to organic food can be found at the US Department of Agricultures website, at http://www.nal.usda.gov/afsic/pubs/ofp/ofp.shtml. Geographic diversity A companys current geographic reach and its plans for international expansion are also important. Over the years, many major US food and beverage companies have fueled growth by expanding into international markets. We see a growing emphasis on developing markets such as Russia, China, and India. Some food and beverage companies now receive much of their current income from abroad.
Diversification can help smooth earnings trends, as growth in one market can offset weakness in another. For some companies, however, international expansion can include sizable investments (acquisitions, new manufacturing facilities), which can hurt near-term earnings and do not guarantee an eventual payoff. Sometimes, in an effort to facilitate growth in a new market, a US company may work with a local joint venture partner that may already have established infrastructure and relationships. Keep in mind that fluctuations in foreign currency values can influence the way that financial items (e.g., sales and earnings) are reported in US dollars. For companies with significant operations in foreign markets, a decline in the value of the US dollar compared with foreign currencies generally boosts reported US dollar profits. This is because the foreign profits are translated into more dollars after foreign currency exchange rate translations. The reverse is also true: an increase in the value of the dollar relative to foreign currencies generally hurts the amount of reported dollar-denominated profits. Moreover, remember that the impact of currency rate fluctuations on dollar-denominated profits does not necessarily reflect a significant change in the underlying health of the company. For example, if the US dollar appreciates relative to the euro, sales made in various European countries would translate into fewer dollars for US companies, even if sales measured in the local currencies are looking better. Information on foreign currency rates can be found on the financial pages of various periodicals, and on a number of websites. Although we think the long-term outlook for international sales is generally favorable, companies with business outside the US can also be affected by various trade factors, including tariffs, quotas, or even bans on some of their products. Management S&P Capital IQ looks favorably on seasoned management teams that have performed well, compared with their peers, in both good times and bad. However, some executives may be particularly good at containing costs, while others are better at creating new products or managing expansion. In evaluating a company, it is a good idea to look at top managements track recordeither at that company or at other firmsand to assess whether the skills demonstrated in the past match up well with the companys current needs or goals. Financial strength In assessing a companys financial strength, it is important to look at whether it is likely to have enough cash to operate its business well. We advise comparing the companys cash interest costs with the amount of operating cash flow (before interest costs) that the business is expected to generate. It is also important to determine if a company is likely to seek additional funds (e.g., offering debt or equity) in the future, either to finance current operations, refinance existing debt, or to grow. A companys financial strength affects its access to funds. We advise investors to look at whether a companys debt has been rated by one of the major credit agencies, such as Standard & Poors Ratings Services or Moodys. In general, debt instruments with a higher credit rating carry a lower interest rate than do those issued around the same time with a lower credit rating. However, once debt has been issued, the rating agencies may raise or lower their assessments in response to changes in business conditions.
QUANTITATIVE MEASURES
When assessing any company, it is important to analyze income statement, cash flow, and balance sheet data. The measures of particular importance to food and beverage companies are described below. Analyzing the financial statements Looking at financial statements is important. Sources of information include quarterly and annual reports to shareholders, filings with the Securities and Exchange Commission (SEC), and reports put out by advisory firms (such as S&P Capital IQ and Value Line) and brokerage companies. Investors are increasingly able to hear corporate managements talk about their businesses, via conference calls or company-provided Webcasts, often around the time that they release their quarterly earnings. Sometimes there are presentation slides available at company websites. There are various significant
financial considerations one should be aware of when analyzing a food or beverage company. We describe these considerations below. Sustainability of revenues and earnings When looking at both revenues and profits, try to determine whether contributions to the current results are likely to recur in future periods. If one-time factors have either inflated or depressed results in a prior period, these should be examined as well. For example, earnings may be unsustainably high due to a gain from an asset sale; conversely, they may be unusually low because of a restructuring charge or a one-time write-down in the value of an asset. Other items that can cause peculiarities in reported profits include unusual tax rates or the cumulative effect of an accounting change. If a particular earnings report contains a significant amount of one-time items, it is advisable to adjust the reported numbers to what would be considered normalized levels. This may provide a better base from which to project future levels of earnings. However, we advise looking at one-time items as well. The size, nature, and frequency of restructuring charges, write-downs, and asset sales gains can reflect strategic changes by management. In addition, such measures as return on overall investment (including the benefits or charges related to assets that were divested) show how well a company has been managed over time. One-time items can have significant implications for future results as well. For example, a restructuring charge can lead to cost savings in subsequent periods. In addition, while future operating results are likely to depend primarily on results from continuing operations, the companys level of profit and loss from discontinued operations provides a view of how earlier investments have fared. Furthermore, some ongoing costs of doing business can change significantly due to macroeconomic and industry factors, or world events. For example, agricultural costs could rise due to drought conditions, or higher energy costs could result from political changes. While Wall Street often focuses on short-term profits, we believe that longer-term performance (five or 10 years) also should be assessed during a company evaluation. Normalized results (which exclude financial items generally expected to be nonrecurring, such as gains on asset sales and restructuring charges) should be considered, along with results that reflect all profit and loss factors, including one-time items. Accounting items to review There are various corporate accounting issues to consider. For example, an analyst should consider if the company has significant pension or employee benefit plans, and if it is accounting for them in a realistic and conservative manner. Also, keep in mind that a change in accounting standards can affect year-to-year comparisons when calculating growth rates for key items such as earnings. Looking at the income statement When analyzing a food or beverage companys income statement, there are a number of important items to assess. Sales, profit margins, and earnings per share are among the major items, which we discuss below. Sales. In reviewing sales, growth is good to seebut it is also relative. A companys sales growth rate should be compared with those of both its markets and its competitors. It is important to determine what is behind any sales growth. Does it come from price increases or volume gains? Has the company made acquisitions? Is the company gaining market share, or is it just riding market growth? For many companies (especially beverage companies), it is also important to look at sales growth over a full year or on a year-over-year basis, rather than making sequential (quarter-to-quarter) comparisons. Seasonal factors can influence sales in any given quarter. Sales in quarters with warmer months typically constitute a greater proportion of total sales than sales in quarters with colder weather. Profit margins. Profitability ratios or margins are measures of how successful a company is in turning revenues into profits. When analyzing profitability ratios, the analyst should compare a company against its own past performance and against the performance of similar companies. In our view, trends in profit
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margins should be evaluated. A number of factorsincluding acquisitions, fluctuations in necessary raw material costs, and changes in pricingcan cause significant volatility. A companys cost structure should be examined. How important are costs of raw materials (e.g., ingredients) and labor? If raw materials are significant and their costs can be volatile, we advise trying to learn if the company has locked in a price on some of the costs for the year ahead. (Locking in a price is sometimes known as hedging.) If the companys cost structure is significantly subject to fluctuations in commodity prices, it is a good idea to keep an eye on the level and direction of such prices. Details on current and expected prices can be found in the financial pages of such periodicals as the Wall Street Journal and the New York Times, and on various websites. A companys gross profit margin, which largely reflects manufacturing costs, will depend largely on the product mix and how it runs its business. Companies such as Coca-Cola and Kellogg Co. have among the highest gross profit margins in the food and beverage industries, helped by their strong brand names and high market share positions. A companys operating margin performance includes selling, general, and administrative expenses. Marketing tends to be a significant cost for food and beverage companies, and is likely to influence sales growth. If a company has a good marketing plan, an investment in advertising and promotion should help enhance and bolster future sales. If a company scrimps on marketing outlays, longer-term growth prospects may diminish. If a company has provided good support for its brand and has a product that consumers like, this should help it to charge a premium price for a branded product and raise prices when necessary without causing a proportionate reduction in demand. In comparison, so-called private label products (typically store brands) are likely to receive less brand support, but tend to sell at lower prices. We advise keeping an eye on a companys overall operating profit margin. If it starts to narrow, this could be a warning signal that the companys cost structure is deteriorating. However, keep in mind that sometimes a company will incur additional short-term costs from which it expects to receive longer-term benefits. A companys attention to cost containment can also be reflected in restructuring efforts, which often involve such actions as employee reductions, plant closings, and/or divestitures. We advise looking at whether a companys restructuring efforts seem to be directed at a logical and favorable strategic result. The net profit margin reflects net income divided by sales (i.e., how much of each sales dollar ends up as after-tax income). For some processors of commodity-oriented food products, such as vegetables and livestock, net profit margins over the long term are likely to be relatively lowabout 1% to 4%. Archer Daniels Midland Co. and Tyson Foods Inc. are two companies in this category. For some packaged food producers, such as Kellogg and H.J. Heinz, net profit margins have typically ranged from 6% to 12%. A similar dichotomy is seen among beverage companies. For bottlersthe beverage companies that principally bottle and distribute the final productnet profit margins are relatively low; the common range is 2% to 4%. This reflects the high level of amortization of goodwill charges and acquisition-related interest expenses inherent in operating such a business. However, for companies such as Coca-Cola and PepsiCo Inc., which produce the syrups used in soft drinks, net profit margins are typically much higher. Earnings per share (EPS). Earnings per share can be analyzed in a number of ways. Be on the lookout for special (sometimes called extraordinary or nonrecurring) items, such as asset sales and restructuring charges (e.g., for plant closings or employee layoffs) that can significantly affect the reported EPS. Adjusting EPS to exclude special items may provide a more meaningful growth comparison between different quarters or years. In addition, adjusted EPS can be an important benchmark for valuing the companys stock against those of its peers, as well as against companies outside the industry. However, keep in mind that special charges may occur regularly over a multiyear period, and this should be considered when assessing the business. US accounting standards give companies substantial flexibility to prop up per-share earnings, at least for a short time. For example, this can be accomplished by repurchasing stock or by stretching out a depreciation
schedule. In addition, year-to-year results may be affected by a more extensive accounting change, such as using a different method for valuing inventory. Cash flow analysis Reported earnings do not always provide a clear reflection of cash flow generation or financial strength. It is important to evaluate businesses based on how much cash they generate and absorb. These figures may differ substantially from reported earnings. To analyze sources and uses of cash, we advise consulting a companys consolidated statement of cash flows. When looking at the income statement, be mindful that some expensessuch as depreciation, amortization, and write-downs in asset valuesare likely to be noncash items (which do not require an outlay of cash). These noncash items tend to make a companys pretax operating cash flows higher than its reported operating profit. However, companies frequently have cash outlays that are not included on the income statement, such as capital expenditures on new construction and renovations, debt repayment, and dividends to shareholders. These items, which appear on the cash flow statement and are reflected on the balance sheet, are sometimes discretionary and should be considered when evaluating a companys cash flow. Most large US food and beverage companies have excess cash that can be used for things other than just maintaining existing equipment. It is important for a company to find the optimal balance between reinvesting surplus cash in its businesses and using the cash to reward present shareholders. In recent years, most US food and beverage companies have allocated a relatively large portion of their excess cash to shareholders return, through stock buybacks and dividends. A companys dividend policy and stock repurchase activity may be affected by a variety of factors, including how much cash it generates and what the tax laws are. In our view, it is important to consider the liquidity (access to cash) of the company itself, as well as that of its suppliers and customers. The ability to produce a product could be hurt if a supplier experiences cash flow difficulty, and is unable to supply needed ingredients or materials. Financial problems for a distributor or a retailer could also affect a companys ability to get paid in a timely manner for a product shipment. Balance sheet analysis Balance sheet ratios may offer a view of a companys financial health. They also may indicate how well a company is putting its assets or capital to work. Book value measures the balance sheet value of a companys assets minus its liabilities. Particular attention should be paid to tangible book value, which gives credit to assets like land, buildings, and equipment, but excludes items such as goodwill (which may include a portion of the purchase price of previous acquisitions). Keep in mind that balance sheet valuations may not reflect assets replacement cost or their worth to someone else. In addition, the extent to which intangible assets (like a brand name or customer loyalty) contribute to a companys worth may not be adequately reflected in a companys book value, even though they may add greatly to the companys worth. Also, look for non-core assets that could possibly be divested, generating proceeds that may be used to reduce debt, repurchase stock, or invest in other businesses. When considering significant potential divestitures, it is advisable to take into account whether an asset sale likely would lead to a sizable tax bill. It is also advisable to consider whether a companys physical assets are being adequately maintained or refreshed. For companies that own properties, a portion of capital spending typically goes toward maintaining or refreshing their facilities. This is sometimes known as maintenance capital expenditures, the level of which (actual or expected) may be detailed in company news releases or conference calls. Other capital expenditures may be oriented toward expansion or growth (expanding manufacturing capacity). Keep in mind that a company may own less than 100% of some of its assets. In cases where a company has a majority ownership interest in an asset or business, the smaller ownership stake of its partner(s) may be reflected on the liability side of the balance sheet in a line item known as minority interest. Alternatively,
if a company owns less than 50% of an asset or a business, this may be reflected on the companys balance sheet in a line item related to investments. A companys success in investing its capital is indicated by ratios like return on assets (ROA) and return on equity (ROE). In these calculations, annual net income is typically divided into an average asset or equity level during the year being examined. Balance sheet ratios should be examined to spot possible cash flow problems. A significant change in a companys current ratio (the ratio of current assets to current liabilities) can signal a potential drain in the capital needed to run the business. An unusual inventory increase could lead to an asset write-down (because accounting rules require that product inventories be carried as close to their market value as possible) or a slowdown in production. The rate of inventory turnover (measured by the ratio of inventory to sales) can reveal productivity changes and production bottlenecks. The ratio of long-term debt to total capitalization varies considerably among the major food and beverage companies. However, companies with strong and relatively stable cash flow should generally be able to accommodate higher relative debt levels. In general, we see leading US food and beverage companies averaging a ratio of long-term debt to total capital in the area of 30% to 40%. The optimal amount of long-term debt depends on numerous variables; therefore, it is difficult to arrive at an exact figure. Analysts must weigh the benefits of higher debt, which could leverage EPS growth and shareholder returns, with the benefits of a cleaner balance sheet, which is likely to provide a higher degree of safety and more ready availability of funds. Too much debt increases financial risk, but too little might mean missed opportunities. Also, consider whether the company has any commitments or prospective liabilities that are not included on its balance sheet. This could include a conditional guarantee to repay debt of another firm (such as a franchisee) or a commitment to buy back, upon request, some of its own debt at a future point. Try to determine the existence or likelihood of any triggering events (e.g., weaker operating results) that could cause debt holders to demand early repayment.
VALUATION MEASURES
Valuation measures are used to determine how much a company or its stock is worth. Common measurements include multiples of cash flow and earnings, with growth rates being used as a tool in deciding which multiple to pay. Keep in mind that valuations depend on various factors, including overall investor sentiment, industry conditions, the level of interest rates, and the extent to which future earnings seem predictable. As is the case with other measures, valuations of a particular company should be compared with those of similar companies in the same industry. Price/earnings (P/E) ratio. When valuing a companys stock, a good place to start is the basic investment ratio of stock price to earnings per share, called the price/earnings ratio. This ratio (or multiple) is useful in judging a companys performance relative to firms in the same industry, as well as in other industries. In recent years, the major US food companies have tended to command higher P/E ratios than companies in other mature industries. This is attributable to the industrys relatively good earnings performance, aboveaverage financial health, and low investment risk profile during this time. Cash flow multiples. Companies may also be valued at a multiple of historical or projected cash flow. In an environment where there is considerable acquisition activity occurring, it may be helpful to look at prices that are being paid for companies. However, the acquisition environment may change: just because one company has been acquired, does not mean that another one will be purchased.
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GLOSSARY
AntioxidantA substance found in various foods that may protect against an acceleration of the aging process, and the onset or development of some diseases. Foods thought to contain antioxidants include various types of berries and beans, broccoli, garlic, and soy. CaffeineFound in many leaves, seeds, or fruits, caffeine can be a nervous system stimulant. Common sources include coffee, cola nuts, tea leaves, and cocoa beans. CalorieThe amount of energy needed to raise the temperature of one gram of water, from a standard starting point, by one degree centigrade. Energy drinksBeverages that contain relatively high levels of caffeine and may also include ginseng. Well-known examples include Red Bull and Rockstar. Enriched foodsFoods with vitamins or minerals added to replace those lost when the food was processed. FiberWith food, this typically refers to parts of fruits, vegetables, grains, nuts, and legumes that cannot be digested by humans. High-fiber diets may reduce risks of some disease. Fortified foodsFoods with additives (typically minerals or vitamins) that are intended to provide a benefit, such as combating a deficiency in the body or preventing disease. Functional beveragesAlso called new age beverages, this category includes all-natural juices and iced herbal teas. Manufacturers seek to distinguish this category from traditional soft drinks by emphasizing health benefits and using innovative packaging designs. Functional confectioneryConfectionery items (such as cough drops and chewing gum) with decongestant, analgesic, antacid, or teeth-whitening properties. Functional foodsThese are foods or ingredients that may provide health benefits that go beyond basic nutrition, such as lowering or preventing the risk of some disease. Genetically engineered (or modified) foodTo produce such food, foreign genes are inserted into the genetic code of a natural item, such as a plant or an animal. Going greenA philosophy or process in which businesses or individuals emphasize renewable resources, conservation, and concern for the natural environment. In the food industry, this may include reducing energy usage, carbon emissions and waste, and using recyclable materials. Natural foodTypically, foods that are minimally processed and have no preservatives. Unlike organic, however, which has been defined by the USDA, natural has no official or certified USDA definition when applied to foods, and thus is not interchangeable with organic. NutraceuticalsSometimes considered synonymous with functional, nutraceuticals are ingredients or foods that may provide health benefits that go beyond basic nutrition. This may include enhancing the bodys digestive system, and preventing, treating, or reducing the risk of disease. Examples include beta-carotene (found in carrots and various fruits); insoluble fiber (e.g., wheat bran); prebiotics or probiotics (found in yogurt) and soy protein. Nutraceuticals may also refer to products taken from foods and sold in medicinal forms. NutrientA substance (e.g., proteins, carbohydrates, and vitamins) that can be metabolized by an organism to provide energy and build tissue.
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Omega-3 fatty acidsEssential fatty acids found in certain fish and vegetable oils; possible benefits of eating Omega-3 fatty acids are thought to include reducing the risk of cardiovascular disease. Organic foodsThese foods are typically produced by farmers who emphasize the use of renewable resources and the conservation and quality of soil and water. In the US, there are USDA standards for a food to be certified as organic. For example, organic meat, poultry, eggs, and dairy products are expected to come from animals that are given no antibiotics or growth hormones. In addition, according to the USDA, organic food is produced without the use of most conventional pesticides, fertilizers made with synthetic ingredients or sewage sludge, bioengineering, or ionizing radiation. Farms and processors that handle organic food must undergo a USDA-related certification process. However, the USDA makes no claims that organically produced food is safer or more nutritious than conventionally produced food. A product that carries the USDA Organic seal must be at least 95% organic. PET (polyethylene terephthalate)A thermoplastic polymer resin of the polyester family that is used to make containers for foods, beverages, and other liquids. Private labelProducts that are often marketed and sold under a retailers own brand, or under the brand of a distributor or wholesaler. Many supermarket chains sell products under their own labels. These goods may be produced by a companys own facilities or by another manufacturer. Private label goods are likely to be sold at less expensive retail prices than non-private label products from national brand food manufacturers. However, private label goods also may receive considerably less advertising support. ProbioticsDietary supplements that contain potentially beneficial bacteria, yeast, or microorganisms; may be found in foods such as yogurt, cereal, and cheese. Possible benefits include helping with digestive problems. Prebiotics are non-digestible carbohydrates that act as food for probiotics and encourage the growth of generally beneficial bacteria in the intestines. Ready mealsPrepackaged meals that are canned, frozen, dried, or fresh and are meant to be consumed immediately as is, or at the convenience of the customer following minimal reheating at home. Slotting feeFees charged by retailers to secure premium shelf positioning in stores. Manufacturers that pay slotting fees may have their products placed at favorable positions within store aisles; those that do not will have their products placed on less prominent shelves. Stockkeeping unit (SKU)An individual product with a separate universal price code (UPC), a number given to every item to distinguish it from other merchandise for inventory and accounting purposes. Stocks-to-use ratio (S/U)For any given commodity, S/U is the level of carryover stock as a percentage of the total use of the commodity; it is a measure of commodities supply and demand interrelationships. Sustainable agricultureA food-growing process that is thought to be relatively healthy or favorable for consumers, animals, and the environment. Techniques used include conservation and preservation of land and other natural resources, crop rotation and minimal use of chemical pesticides, good care for animals, and fair treatment of workers. Trans fatsFats that may raise bad (LDL) cholesterol levels and reduce good (HDL) cholesterol levels. Trans fats are naturally found in such foods as beef, butter, and milk, but are also found in processed foods such as margarines and frying fats, snacks, and baked goods. Whole grainsComplete grain seeds/kernels (including the bran, germ, and endosperm), the consumption of which is thought to reduce the risk of cardiovascular disease. The whole grains most familiar to consumers include wheat, corn, oats, brown rice, barley, buckwheat, millet, quinoa, and rye.
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INDUSTRY REFERENCES
PERIODICALS Beverage Digest http://www.beverage-digest.com Biweekly newsletter; covers trends, news, and issues in the US beverage industry. Beverage Industry http://www.bevindustry.com Monthly; covers trends and issues in the US beverage industry. Beverage World http://www.beverageworld.com Monthly; covers trends and issues in the US beverage industry. Food Processing http://www.foodprocessing.com Monthly; covers strategic and technological issues facing the US food packaging industry. Milling & Baking News http://www.bakingbusiness.com Biweekly; covers the US milling and baking industry. Prepared Foods http://www.preparedfoods.com Monthly; follows trends in the US packaged food and beverage industries. Progressive Grocer http://www.progressivegrocer.com Trade magazine providing information to the retail food industry; published 18 times a year. Supermarket News http://www.supermarketnews.com Weekly trade magazine covering the food distribution industry. TRADE ASSOCIATIONS American Beverage Association http://www.ameribev.org Trade association for US nonalcoholic refreshment beverage industry. Grocery Manufacturers of America http://www.gmabrands.com Trade association of food, beverage, and consumer products companies.
INDUSTRY SURVEYS
International Dairy Foods Association http://www.idfa.org Group seeking to represent the nations dairy manufacturing and marketing industries and their suppliers. National Confectioners Association http://www.candyusa.org Association seeking to represent the confectionary industry. Organic Trade Association http://www.ota.com Membership-based business association for the organic industry in North America. Private Label Manufacturers Association (PLMA) http://www.plma.com Trade association for the private label product industry. Organizes trade shows, publishes a newsletter and yearbook, conducts market research, and represents the industry in Washington. GOVERNMENT AGENCIES Bureau of Labor Statistics (BLS) http://stats.bls.gov Principal fact-finding agency for the federal government in the broad field of labor economics and statistics; a division of the US Department of Labor. The Food and Agriculture Organization of the United Nations (FAO) http://www.fao.org Seeks to help developing countries modernize and improve agriculture, forestry, and fisheries practices, and ensure good nutrition. A source of information related to food and agriculture. US Department of Agriculture (USDA) http://www.usda.gov Government agency charged with providing key statistics on the US agricultural industry. US Department of Commerce http://www.commerce.gov Cabinet-level department providing key statistics on the US industry; its mission is to ensure and enhance economic opportunity by working with businesses and communities to promote economic growth.
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MARKET RESEARCH AND OTHER INFORMATION Beverage Marketing Corp. http://www.beveragemarketing.com Provider of consulting, financial services, and data to the global beverage industry. Datamonitor plc http://www.datamonitor.com http://www.food-business-review.com http://www.drinks-business-review.com A provider of news, data, and analysis related to various industries, including food and beverages. EDGAR Database http://www.sec.gov/edgar/searchedgar/webusers.htm A site maintained by the US Securities and Exchange Commission that provides access to corporate documents, such as 10-Ks and 10-Qs. Euromonitor International http://www.euromonitor.com A provider of data and analysis of industries, countries, and consumers. The Food Institute http://www.foodinstitute.com Membership association providing news and information on the food and beverage industries.
FoodProductionDaily.com http://www.foodproductiondaily.com Online news service available as a free website; provides daily and weekly newsletters, with news stories and data intended to be of value to decision-makers in food and beverage production in Europe. Information Resources Inc. (IRI) http://www.iriworldwide.com Supplier of food industry sales data; also provides analytics, software, and professional services The International Food Policy Research Institute (IFPRI) http://ifpri.org Organization seeking solutions for ending hunger and poverty, supported by the Consultative Group on International Agricultural Research, an alliance of various governments, private foundations, and international and regional organizations. Packaged Facts http://www.packagedfacts.com A site that provides research on the food, beverage, consumer packaged goods, and demographic sectors
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COMPARATIVE COMPANY ANALYSIS

Operating Revenues
Million $ Ticker Company Yr. End DEC OCT # MAY JUL # MAY DEC JUL DEC # MAY SEP JUN DEC JUN OCT SEP DEC DEC JUN NOV DEC DEC SEP OCT # MAR # APR # APR DEC DEC DEC SEP DEC 2012 633.8 A 551.1 NA 7,707.0 NA 11,462.3 D 981.4 3,046.5 A NA 3,859.2 1,378.2 A,C 6,644.3 4,094.0 D 8,230.7 830.8 A 14,197.0 A 18,380.0 1,131.4 4,014.2 3,901.3 35,015.0 D 958.9 2,386.1 1,276.3 A NA 5,897.7 1,618.6 A 549.9 2,182.1 A 33,278.0 2,325.5 2011 543.9 A 522.5 A 1,113.1 7,719.0 13,262.6 A 13,055.5 966.7 2,773.4 A 16,657.9 2,650.9 A 1,130.3 6,080.8 8,681.0 A,C 7,895.1 744.1 A 13,198.0 18,710.0 1,089.9 3,697.6 A 3,677.0 54,366.0 968.2 1,978.1 1,261.8 13,094.3 5,525.8 A 1,635.0 532.5 2,050.0 32,266.0 2,068.4 D 2010 513.3 398.4 942.0 7,676.0 12,303.1 D 12,122.9 D 680.2 A 2,573.8 14,880.2 1,356.8 A 917.3 A 5,671.0 10,793.0 D 7,220.7 696.7 12,397.0 17,840.0 D 1,056.6 3,336.8 3,141.6 49,207.0 A,C 996.7 1,925.4 1,194.6 A 12,202.7 4,825.7 981.8 A 521.4 1,817.0 A 28,430.0 NA 2009 501.0 344.8 910.1 7,586.0 12,079.4 D 11,158.4 570.9 A 2,600.8 A 14,796.5 803.0 A 1,135.3 5,298.7 12,881.0 6,533.7 653.0 12,575.0 NA 1,051.5 3,192.1 2,826.5 40,386.0 NA 1,789.5 1,280.1 11,202.6 4,605.3 918.2 A 499.3 1,511.7 26,704.0 NA 2008 486.9 361.5 928.8 7,998.0 12,731.2 2007 471.3 303.0 915.9 7,867.0 11,605.7 D 11,821.9 522.6 2,036.7 13,652.1 C 341.7 900.4 A 4,946.7 12,278.0 D 6,193.0 568.9 A 11,776.0 NA 1,091.2 D 2,916.2 2,576.4 37,241.0 NA 1,474.8 1,080.7 11,351.2 A,C 2,524.8 A 762.7 D 497.7 1,157.9 A 26,900.0 NA 2002 293.7 242.7 387.5 6,133.0 19,839.2 D 8,991.5 A,C NA 1,652.2 A,C 10,506.0 100.0 396.0 4,120.3 C 17,628.0 A,C 3,910.3 353.2 8,304.1 C NA 1,129.7 2,320.0 NA 29,723.0 C NA 743.7 644.4 7,904.5 1,311.7 A 542.8 393.2 C NA 23,367.0 NA PACKAGED FOODS & MEATS BGS B&G FOODS INC CVGW CALAVO GROWERS INC CALM CAL-MAINE FOODS INC CPB [] CAMPBELL SOUP CO CAG [] CONAGRA FOODS INC DF DMND FLO GIS GMCR HAIN HSY HSH HRL JJSF K KRFT LANC MKC MJN MDLZ POST SAFM SENEA SFD SJM LNCE TR THS TSN [] [] [] [] [] [] [] [] [] [] DEAN FOODS CO DIAMOND FOODS INC FLOWERS FOODS INC GENERAL MILLS INC GREEN MTN COFFEE ROASTERS HAIN CELESTIAL GROUP INC HERSHEY CO HILLSHIRE BRANDS CO HORMEL FOODS CORP J & J SNACK FOODS CORP KELLOGG CO KRAFT FOODS GROUP INC LANCASTER COLONY CORP MCCORMICK & CO INC MEAD JOHNSON NUTRITION CO MONDELEZ INTERNATIONAL INC POST HOLDINGS INC SANDERSON FARMS INC SENECA FOODS CORP SMITHFIELD FOODS INC SMUCKER (JM) CO SNYDERS-LANCE INC TOOTSIE ROLL INDUSTRIES INC TREEHOUSE FOODS INC TYSON FOODS INC -CL A CAGR (%) 10-Yr. 8.0 8.5 NA 2.3 NA 2.5 NA 6.3 NA 44.1 5-Yr. 6.1 12.7 NA (0.4) NA 1-Yr. 16.5 5.5 NA (0.2) NA 2012 216 227 NA 126 NA 127 ** 184 NA 3,859 348 161 23 210 235 171 ** 100 173 ** 118 ** 321 198 NA 450 298 140 ** 142 ** Index Basis (2002 = 100) 2011 185 215 287 126 67 145 ** 168 159 2,651 285 148 49 202 211 159 ** 96 159 ** 183 ** 266 196 166 421 301 135 ** 138 ** 2010 175 164 243 125 62 135 ** 156 142 1,357 232 138 61 185 197 149 ** 94 144 ** 166 ** 259 185 154 368 181 133 ** 122 ** 2009 171 142 235 124 61 124 ** 157 141 803 287 129 73 167 185 151 ** 93 138 ** 136 ** 241 199 142 351 169 127 ** 114 ** 2008 166 149 240 130 64 139 NA 146 140 500 267 125 75 173 178 154 NA 87 137 NA 142 NA 232 199 158 286 157 126 NA 115 NA
A A D D
12,454.6 531.5 2,414.9 A 14,691.3 500.3 1,056.4 A 5,132.8 13,212.0 D 6,754.9 629.4 12,822.0 NA 980.9 D 3,176.6 A 2,882.4 42,201.0 D NA 1,723.6 1,280.7 12,487.7 3,757.9 A 852.5 496.0 1,500.7 26,862.0 D NA
(0.6) (12.2) 13.4 1.5 8.4 9.8 NA NA 62.4 45.6
13.3 8.9 21.9 4.9 6.1 9.3 (13.6) (19.7) (52.8) 7.7 5.9 4.3 8.9 7.9 11.7 5.5 NA 0.0 5.6 NA 1.7 NA 12.4 7.1 NA 16.2 11.5 3.4 NA 3.6 NA 3.8 NA 0.7 6.6 8.7 7.6 (1.8) 3.8 8.6 6.1
(1.2) (35.6) NA (1.0) 10.1 20.6 3.4 1.1 NA NA 18.5 16.2 2.0 13.5 4.3 NA 6.7 (1.0) 3.3 6.4 3.1 12.4
WWAV WHITEWAVE FOODS CO (THE) SOFT DRINKS KO [] COCA-COLA CO CCE [] COCA-COLA ENTERPRISES INC DPS [] DR PEPPER SNAPPLE GROUP INC MNST [] MONSTER BEVERAGE CORP PEP [] PEPSICO INC AGRICULTURAL PRODUCTS ADM [] ARCHER-DANIELS-MIDLAND CO DAR DARLING INTERNATIONAL INC INGR INGREDION INC
DEC DEC DEC DEC DEC
48,017.0 8,062.0 5,995.0 2,060.7 65,492.0
46,565.0 A 8,284.0 5,903.0 1,703.2 66,504.0
35,119.0 C 6,714.0 A 5,636.0 1,303.9 57,838.0
30,990.0 21,645.0 5,531.0 1,143.3 43,232.0
31,944.0 21,807.0 5,710.0 1,033.8 43,251.0
28,857.0 20,936.0 5,748.0 A 904.5 39,474.0
19,564.0 16,889.0 NA 92.0 25,112.0
9.4 (7.1) NA 36.5 10.1
10.7 (17.4) 0.8 17.9 10.7
3.1 (2.7) 1.6 21.0 (1.5)
245 48 ** 2,239 261
238 49 ** 1,850 265
180 40 ** 1,417 230
158 128 ** 1,242 172
163 129 NA 1,123 172
JUN DEC DEC
89,038.0 1,701.4 6,868.0
80,676.0 1,797.2 6,544.0
61,682.0 724.9 A 4,632.0 A
69,198.0 A 597.8 3,890.0
69,816.0 A 807.5 4,197.0
44,018.0 A,C 645.3 3,628.0 C
23,453.6 262.2 D 1,978.9
14.3 20.6 13.3
15.1 21.4 13.6
10.4 (5.3) 5.0
380 649 347
344 685 331
263 276 234
295 228 197
298 308 212
INDUSTRY SURVEYS
49
Operating Revenues
Million $ Ticker Company Yr. End 2012 2011 2010 2009 2008 2007 2002 CAGR (%) 10-Yr. 5-Yr. 1-Yr. 2012 Index Basis (2002 = 100) 2011 2010 2009 2008
OTHER COMPANIES WITH SIGNIFICANT PACKAGED FOOD OPERATIONS CQB CHIQUITA BRANDS INTL INC DEC 3,078.3 D DOLE DOLE FOOD CO INC DEC 4,246.7 A,C FDP FRESH DEL MONTE PRODUCE INC DEC 3,421.2 PPC PILGRIM'S PRIDE CORP DEC 8,121.4 UN UNILEVER NV -ADR DEC 38,304.5 OTHER COMPANIES WITH SIGNIFICANT SOFT DRINK OPERATIONS COKE COCA-COLA BTLNG CONS DEC 1,614.4 KOF COCA-COLA FEMSA DE C V -ADR DEC 11,396.5 A,C COT COTT CORP QUE DEC 2,250.6 A FIZZ NATIONAL BEVERAGE CORP # APR NA
3,139.3 7,223.8 A 3,589.7 7,535.7 34,119.4 A
3,227.4 C 6,892.6 3,552.9 6,881.6 31,287.0
3,470.4 6,778.5 D 3,496.4 7,088.1 31,411.4
3,609.4 7,620.0 3,531.0 8,525.1 30,772.1
D D A D
4,662.8 6,931.0 D 3,365.5 7,598.6 A 35,193.2
1,990.0 4,392.1 2,090.5 A 2,533.7 33,371.7
4.5 (0.3) 5.0 12.4 1.4
(8.0) (1.9) (9.3) (41.2) 0.3 (4.7) 1.3 7.8 1.7 12.3
155 97 164 321 115
158 164 172 297 102
162 157 170 272 94
174 154 167 280 94
181 173 169 336 92
1,561.2 8,939.5 A 2,334.6 628.9
1,514.6 8,355.0 1,803.3 A 600.2
1,443.0 7,870.3 1,596.7 593.5
1,463.6 5,998.8 A 1,648.1 575.2
1,436.0 6,343.5 A 1,776.4 566.0
1,246.6 1,684.7 1,198.6 A 500.4
2.6 21.1 6.5 NA
2.4 12.4 4.8 NA
3.4 27.5 (3.6) NA
130 676 188 NA
125 531 195 126
121 496 150 120
116 467 133 119
117 356 138 115
OTHER COMPANIES WITH SIGNIFICANT AGRICULTURAL PRODUCTS OPERATIONS BG BUNGE LTD DEC 60,991.0 A,C 58,743.0
45,707.0
41,926.0
52,574.0
37,842.0
14,074.0
15.8
10.0
3.8
433
417
325
298
374
Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available. A - This year's data reflect an acquisition or merger. B - This year's data reflect a major merger resulting in the formation of a new company. C - This year's data reflect an accounting change. D - Data exclude discontinued operations. E - Includes excise taxes. F - Includes other (nonoperating) income. G - Includes sale of leased depts. H - Some or all data are not available, due to a fiscal year change.
50
INDUSTRY SURVEYS
Net Income
Million $ Ticker Company Yr. End DEC OCT # MAY JUL # MAY DEC JUL DEC # MAY SEP JUN DEC JUN OCT SEP DEC DEC JUN NOV DEC DEC SEP OCT # MAR # APR # APR DEC DEC DEC SEP DEC 2012 59.3 17.1 NA 774.0 NA 115.0 (86.3) 136.1 NA 362.6 94.2 660.9 (22.0) 500.0 54.1 961.0 1,642.0 95.8 407.8 604.5 1,540.0 49.9 53.9 41.4 NA 544.2 59.1 52.0 88.4 583.0 111.2 2011 50.2 11.1 89.7 805.0 467.8 (1,579.2) 26.6 123.4 1,567.3 199.5 55.0 629.0 338.0 474.2 55.1 1,231.0 1,839.0 106.4 374.2 508.5 3,527.0 (361.3) (127.1) 11.3 361.3 459.7 38.3 43.9 94.4 750.0 130.9 2010 32.4 17.8 60.8 844.0 828.5 86.5 26.2 137.0 1,798.3 79.5 28.6 509.8 635.0 395.6 48.4 1,247.0 1,887.0 115.0 370.2 452.7 2,470.0 92.0 134.8 17.7 521.0 479.5 2.5 53.7 90.9 780.0 NA 2009 17.4 13.6 67.8 732.0 747.3 240.2 23.7 130.3 1,530.5 55.9 (24.7) 436.0 364.0 342.8 41.3 1,212.0 NA 89.1 299.8 399.6 3,021.0 NA 82.3 48.4 (101.4) 494.1 35.8 53.5 81.3 (536.0) NA 2008 9.7 7.7 79.5 671.0 646.4 184.8 14.8 119.2 1,304.4 22.3 41.2 311.4 (41.0) 285.5 27.9 1,148.0 NA 48.4 255.8 393.9 1,849.0 NA (43.1) 18.8 (242.8) 266.0 17.7 38.8 28.6 86.0 NA 2007 17.8 7.3 151.9 823.0 518.7 130.5 8.4 94.6 1,294.7 12.8 47.5 214.2 426.0 301.9 32.1 1,103.0 NA 64.7 230.1 422.5 2,590.0 NA 78.8 8.0 139.2 170.4 23.8 51.6 41.7 268.0 NA 2002 15.2 6.9 12.2 525.0 840.1 267.8 NA 6.1 917.0 6.0 3.0 403.6 1,010.0 189.3 18.1 720.9 NA 91.9 179.8 NA 3,394.0 NA 28.8 9.1 26.3 96.3 19.9 66.4 NA 383.0 NA 10-Yr. 14.5 9.4 NA 4.0 NA (8.1) NA 36.4 NA 50.8 41.3 5.1 NM 10.2 11.6 2.9 NA 0.4 8.5 NA (7.6) NA 6.5 16.4 NA 18.9 11.5 (2.4) NA 4.3 NA PACKAGED FOODS & MEATS BGS B&G FOODS INC CVGW CALAVO GROWERS INC CALM CAL-MAINE FOODS INC CPB [] CAMPBELL SOUP CO CAG [] CONAGRA FOODS INC DF DMND FLO GIS GMCR HAIN HSY HSH HRL JJSF K KRFT LANC MKC MJN MDLZ POST SAFM SENEA SFD SJM LNCE TR THS TSN [] [] [] [] [] [] [] [] [] [] DEAN FOODS CO DIAMOND FOODS INC FLOWERS FOODS INC GENERAL MILLS INC GREEN MTN COFFEE ROASTERS HAIN CELESTIAL GROUP INC HERSHEY CO HILLSHIRE BRANDS CO HORMEL FOODS CORP J & J SNACK FOODS CORP KELLOGG CO KRAFT FOODS GROUP INC LANCASTER COLONY CORP MCCORMICK & CO INC MEAD JOHNSON NUTRITION CO MONDELEZ INTERNATIONAL INC POST HOLDINGS INC SANDERSON FARMS INC SENECA FOODS CORP SMITHFIELD FOODS INC SMUCKER (JM) CO SNYDERS-LANCE INC TOOTSIE ROLL INDUSTRIES INC TREEHOUSE FOODS INC TYSON FOODS INC -CL A CAGR (%) 5-Yr. 27.2 18.4 NA (1.2) NA (2.5) NM 7.5 NA 95.1 14.7 25.3 NM 10.6 11.0 (2.7) NA 8.2 12.1 7.4 (9.9) NA (7.3) 38.9 NA 26.1 19.9 0.1 16.2 16.8 NA 1-Yr. 17.9 54.1 NA (3.9) NA NM NM 10.3 NA 81.8 71.4 5.1 NM 5.5 (1.7) (21.9) (10.7) (9.9) 9.0 18.9 (56.3) NM NM 267.9 NA 18.4 54.4 18.4 (6.4) (22.3) (15.0) 2012 389 247 ** 147 ** 43 ** 2,223 ** NM 3,171 164 (2) 264 299 133 ** 104 227 ** 45 ** 187 458 ** 565 297 78 ** 152 ** Index Basis (2002 = 100) 2011 330 160 735 153 56 (590) ** 2,016 171 3,342 1,851 156 33 250 304 171 ** 116 208 ** 104 ** (441) 124 1,374 477 192 66 ** 196 ** 2010 212 257 498 161 99 32 ** 2,238 196 1,332 963 126 63 209 267 173 ** 125 206 ** 73 ** 467 195 1,981 498 13 81 ** 204 ** 2009 114 197 555 139 89 90 ** 2,128 167 936 (832) 108 36 181 228 168 ** 97 167 ** 89 ** 285 535 (386) 513 180 81 ** (140) ** 2008 64 112 651 128 77 69 NA 1,947 142 374 1,387 77 (4) 151 154 159 NA 53 142 NA 54 NA (150) 207 (923) 276 89 58 NA 22 NA
DEC DEC DEC DEC DEC
9,019.0 677.0 629.0 340.0 6,178.0
8,572.0 749.0 606.0 286.2 6,443.0
11,809.0 624.0 528.0 212.0 6,320.0
6,824.0 731.0 555.0 208.7 5,946.0
5,807.0 (4,394.0) (312.0) 108.0 5,142.0
5,981.0 711.0 497.0 149.4 5,658.0
3,976.0 494.0 NA 3.0 3,313.0
8.5 3.2 NA NM 6.4
8.6 (1.0) 4.8 17.9 1.8
5.2 (9.6) 3.8 18.8 (4.1)
227 137 ** NM 186
216 152 ** NM 194
297 126 ** NM 191
172 148 ** NM 179
146 (889) NA 3,567 155
JUN DEC DEC
1,223.0 130.8 428.0
2,036.0 169.4 416.0
1,930.0 44.2 169.0
1,707.0 41.8 41.0
1,802.0 54.6 267.0
2,162.0 45.5 198.0
511.1 9.4 63.4
9.1 30.2 21.0
(10.8) 23.5 16.7
(39.9) (22.8) 2.9
239 1,396 675
398 1,809 656
378 472 267
334 446 65
353 583 421
INDUSTRY SURVEYS
51
Net Income
Million $ Ticker Company Yr. End 2012 2011 2010 2009 2008 2007 2002 10-Yr. CAGR (%) 5-Yr. 1-Yr. 2012 Index Basis (2002 = 100) 2011 2010 2009 2008
OTHER COMPANIES WITH SIGNIFICANT PACKAGED FOOD OPERATIONS CQB CHIQUITA BRANDS INTL INC DEC (403.0) DOLE DOLE FOOD CO INC DEC (0.1) FDP FRESH DEL MONTE PRODUCE INC DEC 143.2 PPC PILGRIM'S PRIDE CORP DEC 174.2 UN UNILEVER NV -ADR DEC 3,343.5 OTHER COMPANIES WITH SIGNIFICANT SOFT DRINK OPERATIONS COKE COCA-COLA BTLNG CONS DEC 27.2 KOF COCA-COLA FEMSA DE C V -ADR DEC 1,028.5 COT COTT CORP QUE DEC 47.8 FIZZ NATIONAL BEVERAGE CORP # APR NA
56.8 38.2 92.5 (496.8) 3,122.1
60.6 (37.7) 62.2 87.1 3,446.0
91.2 81.1 143.9 (152.2) 2,969.6
(325.2) 145.1 157.7 (992.2) 4,083.8
(49.0) (57.9) 179.8 47.0 3,054.9
(250.2) 156.2 201.3 14.3 1,762.5
NM NM (3.3) 28.4 6.6
NM NM (4.5) 29.9 1.8
NM NM 54.8 NM 7.1
NM (0) 71 1,215 190
NM 24 46 (3,465) 177
NM (24) 31 608 196
NM 52 71 (1,062) 168
NM 93 78 NM 232
28.6 760.9 37.6 44.0
36.1 791.4 54.7 40.8
38.1 652.7 81.5 32.9
9.1 404.7 (122.8) 24.7
19.9 632.8 (71.4) 22.5
22.8 245.2 58.8 17.6
1.8 15.4 (2.0) NA
6.5 10.2 NM NA
(4.9) 35.2 27.1 NA
119 420 81 **
125 310 64 250
158 323 93 232
167 266 139 187
40 165 (209) 141
OTHER COMPANIES WITH SIGNIFICANT AGRICULTURAL PRODUCTS OPERATIONS BG BUNGE LTD DEC 406.0 942.0
2,354.0
361.0
1,064.0
778.0
278.0
3.9
(12.2)
(56.9)
146
339
847
130
383
Note: Data as originally reported. CAGR-Compound annual growth rate. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. **Not calculated; data for base year or end year not available.
52
INDUSTRY SURVEYS
Return on Revenues (%)

Ticker Company Yr. End DEC OCT # MAY JUL # MAY DEC JUL DEC # MAY SEP JUN DEC JUN OCT SEP DEC DEC JUN NOV DEC DEC SEP OCT # MAR # APR # APR DEC DEC DEC SEP DEC 2012 9.3 3.1 NA 10.0 NA 1.0 NM 4.5 NA 9.4 6.8 9.9 NM 6.1 6.5 6.8 8.9 8.5 10.2 15.5 4.4 5.2 2.3 3.2 NA 9.2 3.7 9.5 4.0 1.8 4.8 2011 9.2 2.1 8.1 10.4 3.5 NM 2.7 4.5 9.4 7.5 4.9 10.3 3.9 6.0 7.4 9.3 9.8 9.8 10.1 13.8 6.5 NM NM 0.9 2.8 8.3 2.3 8.3 4.6 2.3 6.3 2010 6.3 4.5 6.5 11.0 6.7 0.7 3.9 5.3 12.1 5.9 3.1 9.0 5.9 5.5 6.9 10.1 10.6 10.9 11.1 14.4 5.0 9.2 7.0 1.5 4.3 9.9 0.3 10.3 5.0 2.7 NA 2009 3.5 3.9 7.5 9.6 6.2 2.2 4.2 5.0 10.3 7.0 NM 8.2 2.8 5.2 6.3 9.6 NA 8.5 9.4 14.1 7.5 NA 4.6 3.8 NM 10.7 3.9 10.7 5.4 NM NA 2008 2.0 2.1 8.6 8.4 5.1 1.5 2.8 4.9 8.9 4.5 3.9 6.1 NM 4.2 4.4 9.0 NA 4.9 8.1 13.7 4.4 NA NM 1.5 NM 7.1 2.1 7.8 1.9 0.3 NA 2012 5.1 8.7 NA 11.6 NA 2.0 NM 7.7 NA 10.6 6.3 14.4 NM 11.4 9.4 7.1 7.3 14.7 9.9 20.1 1.8 1.8 5.8 5.4 NA 6.0 3.7 6.1 3.6 5.1 5.2 PACKAGED FOODS & MEATS BGS B&G FOODS INC CVGW CALAVO GROWERS INC CALM CAL-MAINE FOODS INC CPB [] CAMPBELL SOUP CO CAG [] CONAGRA FOODS INC DF DMND FLO GIS GMCR HAIN HSY HSH HRL JJSF K KRFT LANC MKC MJN MDLZ POST SAFM SENEA SFD SJM LNCE TR THS TSN [] [] [] [] [] [] [] [] [] [] DEAN FOODS CO DIAMOND FOODS INC FLOWERS FOODS INC GENERAL MILLS INC GREEN MTN COFFEE ROASTERS HAIN CELESTIAL GROUP INC HERSHEY CO HILLSHIRE BRANDS CO HORMEL FOODS CORP J & J SNACK FOODS CORP KELLOGG CO KRAFT FOODS GROUP INC LANCASTER COLONY CORP MCCORMICK & CO INC MEAD JOHNSON NUTRITION CO MONDELEZ INTERNATIONAL INC POST HOLDINGS INC SANDERSON FARMS INC SENECA FOODS CORP SMITHFIELD FOODS INC SMUCKER (JM) CO SNYDERS-LANCE INC TOOTSIE ROLL INDUSTRIES INC TREEHOUSE FOODS INC TYSON FOODS INC -CL A
Return on Assets (%)

2011 5.0 6.6 13.1 12.3 4.1 NM 2.1 8.6 7.9 8.7 4.3 14.5 3.7 11.4 10.6 10.4 8.5 17.6 10.0 20.1 3.7 NM NM 1.5 4.8 5.3 2.6 5.1 3.9 6.9 NA 2010 3.8 13.0 9.6 13.7 7.2 1.1 3.2 10.2 9.9 7.3 2.5 12.8 7.0 10.2 10.5 10.8 NA 21.2 10.9 20.7 3.0 NA 18.2 2.4 6.8 5.9 0.3 6.3 4.8 7.3 NA 2009 2.1 10.6 11.2 11.7 6.6 3.2 7.1 9.6 8.6 9.5 NM 11.9 3.6 9.4 9.7 10.9 NA 17.5 9.1 23.3 4.7 NA 12.5 6.9 NM 6.1 7.1 6.5 5.9 NM NA 2008 1.2 5.9 14.7 10.4 5.2 2.6 5.8 10.2 7.1 7.2 3.6 7.9 NM 8.1 7.1 10.3 NA 8.7 8.5 29.6 2.8 NA NM 2.8 NM 4.7 4.0 4.8 2.0 0.8 NA 2012 19.9 16.6 NA 77.9 NA 90.6 NM 16.8 NA 17.4 10.3 70.1 NM 18.3 11.9 46.0 16.3 17.7 24.8 NA 4.6 3.7 10.2 11.7 NA 10.6 6.9 7.9 7.8 10.0 11.6
Return on Equity (%)

2011 21.6 12.0 20.0 79.9 10.2 NM 6.6 15.9 24.5 15.3 6.7 71.8 19.7 18.8 13.5 62.8 10.9 21.2 24.5 NA 9.9 NM NM 3.2 10.4 8.8 4.6 6.6 9.2 13.9 NA 2010 14.2 22.5 15.3 102.1 17.2 6.1 9.5 18.1 30.6 12.3 3.9 62.8 36.0 17.5 13.4 56.3 NA 25.9 26.6 NA 8.0 NA 25.0 5.4 16.5 9.0 0.5 8.1 10.5 16.4 NA 2009 9.4 20.2 19.1 71.6 15.5 25.2 14.9 19.3 28.9 15.3 NM 84.0 15.0 16.6 12.5 65.2 NA 23.4 25.1 NA 12.6 NA 21.0 18.7 NM 9.6 14.0 8.3 11.8 NM NA 2008 6.1 11.1 26.2 51.4 12.9 60.7 10.9 18.5 22.9 18.7 5.7 68.4 NM 14.7 9.1 57.8 NA 12.1 23.9 NA 7.5 NA NM 8.9 NM 7.9 7.3 6.1 4.6 1.8 NA
DEC DEC DEC DEC DEC
18.8 8.4 10.5 16.5 9.4
18.4 9.0 10.3 16.8 9.7
33.6 9.3 9.4 16.3 10.9
22.0 3.4 10.0 18.3 13.8
18.2 NM NM 10.5 11.9
10.9 7.3 6.9 28.3 8.4
11.2 8.5 6.7 23.4 9.1
19.4 5.0 6.0 22.5 11.7
15.3 4.6 6.4 26.7 15.7
13.9 NM NM 16.5 14.6
28.0 24.2 27.7 41.9 28.6
27.4 24.8 25.7 31.7 30.7
42.3 31.2 18.7 30.0 33.1
30.1 176.6 19.2 40.9 40.8
27.5 NM NM 25.2 34.8
JUN DEC DEC
1.4 7.7 6.2
2.5 9.4 6.4
3.1 6.1 3.6
2.5 7.0 1.1
2.6 6.8 6.4
2.9 8.8 7.8
5.5 12.1 8.0
6.1 4.9 4.2
5.0 10.2 1.3
5.8 14.6 8.5
6.7 13.2 18.9
12.2 24.5 20.4
13.7 11.8 9.2
12.6 16.0 2.7
14.6 24.9 17.9
INDUSTRY SURVEYS
53
Return on Revenues (%)

Ticker Company Yr. End 2012 2011 2010 2009 2008 2012
Return on Assets (%)

2011 2010 2009 2008 2012
Return on Equity (%)

2011 2010 2009 2008
OTHER COMPANIES WITH SIGNIFICANT PACKAGED FOOD OPERATIONS CQB CHIQUITA BRANDS INTL INC DEC NM DOLE DOLE FOOD CO INC DEC NM FDP FRESH DEL MONTE PRODUCE INC DEC 4.2 PPC PILGRIM'S PRIDE CORP DEC 2.1 UN UNILEVER NV -ADR DEC 8.7 OTHER COMPANIES WITH SIGNIFICANT SOFT DRINK OPERATIONS COKE COCA-COLA BTLNG CONS DEC 1.7 KOF COCA-COLA FEMSA DE C V -ADR DEC 9.0 COT COTT CORP QUE DEC 2.1 FIZZ NATIONAL BEVERAGE CORP # APR NA
1.8 0.5 2.6 NM 9.2
1.9 NM 1.8 1.3 11.0
2.6 1.2 4.1 NM 9.5
NM 1.9 4.5 NM 13.3
NM NM 5.7 6.0 9.6
2.8 0.9 3.7 NM 9.3
2.9 NM 2.4 2.8 10.6
4.5 1.9 5.5 NM 9.2
NM 3.2 6.5 NM 12.1
NM NM 8.2 23.8 30.7
7.4 4.8 5.6 NM 19.4
8.7 NM 3.8 14.2 17.0
16.5 13.1 9.1 NM 17.3
NM 39.9 11.0 NM 29.7
1.8 8.5 1.6 7.0
2.4 9.5 3.0 6.8
2.6 8.3 5.1 5.5
0.6 6.7 NM 4.3
2.1 8.7 3.1 NA
2.1 7.6 2.5 21.7
2.8 8.9 4.6 19.3
2.9 8.4 9.3 13.0
0.7 5.4 NM 9.8
20.4 13.9 8.2 NA
22.1 11.9 7.0 43.6
29.5 14.6 12.0 36.8
39.6 14.3 26.5 21.1
9.2 9.5 NM 15.7
5.2
0.9
2.0
1.5
3.7
9.7
1.4
4.7
3.5
8.1
23.5
4.1
16.1
Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year.
54
INDUSTRY SURVEYS
Current Ratio
Ticker Company Yr. End DEC OCT # MAY JUL # MAY DEC JUL DEC # MAY SEP JUN DEC JUN OCT SEP DEC DEC JUN NOV DEC DEC SEP OCT # MAR # APR # APR DEC DEC DEC SEP DEC 2012 1.6 1.1 NA 0.9 NA 1.6 1.3 1.3 NA 2.5 2.2 1.4 1.2 3.0 3.8 0.7 1.3 5.4 1.1 1.5 1.1 1.7 2.9 3.7 NA 2.7 2.1 3.2 3.1 1.9 1.2 2011 2.1 1.1 3.1 1.0 1.4 1.1 1.2 1.4 1.0 2.4 2.2 1.7 1.1 2.6 3.4 0.9 1.3 4.4 1.2 1.6 0.9 1.0 3.9 4.6 2.9 2.7 2.5 3.6 2.7 2.0 1.6 2010 3.5 1.3 3.3 0.8 1.8 1.3 1.4 1.3 1.1 2.1 2.3 1.5 1.4 1.7 3.1 0.9 1.4 4.1 1.2 1.5 1.0 2.0 3.2 2.1 2.7 3.4 1.7 4.1 2.2 1.8 NA 2009 3.4 1.3 2.9 1.0 1.9 1.1 1.5 1.5 0.9 4.3 2.6 1.5 1.3 2.3 3.1 1.1 NA 3.0 1.2 1.2 1.1 NA 3.1 4.0 2.8 2.6 1.9 3.8 2.5 2.2 NA 2008 3.3 1.4 2.3 0.7 2.1 1.0 2.2 1.3 1.0 2.1 2.7 1.1 1.2 1.8 2.7 0.7 NA 2.6 0.9 1.1 1.0 NA 3.4 3.1 2.2 1.3 1.5 3.2 1.9 2.1 NA 2012 55.3 9.8 NA 62.6 NA 81.9 57.0 37.3 NA 17.0 26.7 58.8 80.0 8.1 0.1 67.4 72.1 0.0 30.9 95.6 28.8 37.6 19.8 38.5 NA 27.7 33.0 1.1 39.2 22.6 43.3 PACKAGED FOODS & MEATS BGS B&G FOODS INC CVGW CALAVO GROWERS INC CALM CAL-MAINE FOODS INC CPB [] CAMPBELL SOUP CO CAG [] CONAGRA FOODS INC DF DMND FLO GIS GMCR HAIN HSY HSH HRL JJSF K KRFT LANC MKC MJN MDLZ POST SAFM SENEA SFD SJM LNCE TR THS TSN [] [] [] [] [] [] [] [] [] [] DEAN FOODS CO DIAMOND FOODS INC FLOWERS FOODS INC GENERAL MILLS INC GREEN MTN COFFEE ROASTERS HAIN CELESTIAL GROUP INC HERSHEY CO HILLSHIRE BRANDS CO HORMEL FOODS CORP J & J SNACK FOODS CORP KELLOGG CO KRAFT FOODS GROUP INC LANCASTER COLONY CORP MCCORMICK & CO INC MEAD JOHNSON NUTRITION CO MONDELEZ INTERNATIONAL INC POST HOLDINGS INC SANDERSON FARMS INC SENECA FOODS CORP SMITHFIELD FOODS INC SMUCKER (JM) CO SNYDERS-LANCE INC TOOTSIE ROLL INDUSTRIES INC TREEHOUSE FOODS INC TYSON FOODS INC -CL A
Debt / Capital Ratio (%)

2011 67.5 15.0 11.1 62.5 35.9 95.0 47.0 26.3 42.2 21.3 20.0 67.3 47.6 8.6 0.1 67.8 0.1 0.0 38.1 112.8 35.5 28.1 32.9 39.0 34.1 24.7 19.7 1.0 41.4 25.8 24.7 2010 59.3 5.9 14.4 62.2 34.7 63.3 49.6 10.3 42.5 29.8 21.9 63.1 57.2 0.0 0.2 63.2 0.2 0.0 34.2 126.9 38.0 22.5 8.5 20.1 33.8 17.1 18.3 1.0 45.4 27.8 NA 2009 58.7 16.1 20.5 69.9 37.4 66.8 36.4 22.5 45.6 10.6 26.2 67.6 55.9 14.2 0.1 64.2 NA 0.0 39.0 182.2 37.2 NA 18.5 38.1 50.1 12.3 26.7 1.1 33.4 41.3 NA 2008 71.3 26.7 24.4 49.4 39.9 80.3 12.1 27.4 46.6 43.4 27.8 81.0 43.8 14.8 0.1 70.0 NA 13.2 44.5 292.8 41.4 NA 37.6 40.5 49.2 13.0 25.4 1.1 42.3 35.2 NA 2012 998.6 135.0 NA NM NA 357.1 973.6 488.6 NA 65.0 158.7 238.3 555.6 16.3 0.2 NM 818.9 0.0 796.7 236.1 NM NM 57.3 51.5 NA 197.1 309.8 5.5 223.8 74.5 NM
Debt as a % of Net Working Capital

2011 906.6 211.1 21.5 NM 287.7 NM 934.3 257.3 NM 87.2 114.6 200.3 419.0 20.5 0.3 NM 3.9 0.0 448.5 222.1 NM NM 84.4 53.4 87.9 196.8 109.0 4.9 304.1 87.8 334.1 2010 310.5 41.1 30.9 NM 161.8 NM 715.1 139.4 NM 130.4 128.6 218.3 250.0 0.0 0.4 NM 3.3 0.0 430.6 324.1 NM 984.2 26.1 30.6 93.8 113.0 174.3 4.2 411.2 103.0 NA 2009 375.8 110.8 47.6 NM 167.7 NM 194.6 192.8 NM 17.6 121.5 316.5 279.0 39.3 0.2 NM NA 0.0 574.5 629.5 NM NA 63.4 51.4 137.1 120.8 136.9 4.8 181.8 139.9 NA 2008 468.5 164.5 84.0 NM 196.5 NM 16.6 302.7 NM 156.0 124.9 NM 373.8 53.3 0.3 NM NA 38.0 NM NM NM NA 119.4 57.8 176.9 269.5 184.0 5.8 282.5 127.9 NA
DEC DEC DEC DEC DEC
1.1 1.1 1.1 2.9 1.1
1.0 1.5 0.9 4.4 1.0
1.2 1.1 1.0 7.0 1.1
1.3 1.1 1.5 7.0 1.4
0.9 0.9 1.5 3.0 1.2
28.1 42.6 46.7 0.0 46.3
27.3 42.3 44.2 0.0 44.6
28.5 32.7 32.3 0.0 44.2
16.1 79.1 41.2 0.0 29.8
11.3 87.1 49.5 0.0 38.9
587.8 NM NM 0.0 NM
NM 357.5 NM 0.0 NM
457.2 737.5 NM 0.0 NM
132.1 NM 696.5 0.0 194.0
NM NM 807.8 0.0 389.2
JUN DEC DEC
1.8 2.2 2.5
2.1 1.7 2.3
2.1 1.2 2.0
2.2 2.1 1.8
1.7 1.9 1.5
25.8 18.4 39.9
29.6 22.7 43.9
31.2 60.1 43.0
36.2 8.6 18.4
35.5 12.1 30.2
53.0 157.7 120.8
57.9 303.0 153.1
71.4 NM 195.0
74.1 36.7 85.0
71.0 48.2 150.7
INDUSTRY SURVEYS
55
Current Ratio
Ticker Company Yr. End 2012 2011 2010 2009 2008 2012
Debt / Capital Ratio (%)

2011 2010 2009 2008 2012
Debt as a % of Net Working Capital

2011 2010 2009 2008
OTHER COMPANIES WITH SIGNIFICANT PACKAGED FOOD OPERATIONS CQB CHIQUITA BRANDS INTL INC DEC 1.4 DOLE DOLE FOOD CO INC DEC 1.9 FDP FRESH DEL MONTE PRODUCE INC DEC 2.6 PPC PILGRIM'S PRIDE CORP DEC 2.1 UN UNILEVER NV -ADR DEC 0.8 OTHER COMPANIES WITH SIGNIFICANT SOFT DRINK OPERATIONS COKE COCA-COLA BTLNG CONS DEC 1.1 KOF COCA-COLA FEMSA DE C V -ADR DEC 1.6 COT COTT CORP QUE DEC 2.2 FIZZ NATIONAL BEVERAGE CORP # APR NA
1.8 1.7 2.4 2.0 0.8
2.0 1.6 2.4 2.3 0.9
1.8 1.8 2.5 2.7 1.0
1.7 1.4 1.3 0.5 0.8
52.9 65.0 6.2 55.9 31.3
39.7 62.8 10.8 72.4 33.8
41.8 60.1 14.7 54.3 22.7
45.5 59.8 15.4 19.2 28.6
58.1 72.3 8.8 13.5 29.8
270.1 119.5 21.9 141.4 NM
172.9 224.8 40.8 195.2 NM
154.8 225.0 56.5 131.8 NM
179.8 199.9 59.0 4.8 NM
238.9 338.7 77.3 NM NM
1.0 1.3 1.9 1.9
1.5 1.5 1.6 1.4
1.4 1.0 1.5 2.3
0.7 0.8 1.1 2.7
62.9 19.4 48.0 NA
63.3 14.4 50.5 0.0
68.0 17.5 51.7 0.0
68.5 13.2 36.6 0.0
64.8 17.4 52.9 0.0
NM 151.6 179.4 NA
NM 243.4 226.0 0.0
657.6 176.5 322.8 0.0
874.8 NM 205.6 0.0
NM NM NM 0.0
1.6
1.9
1.6
24.3
22.0
17.2
27.2
26.9
61.9
54.2
43.9
64.9
59.4
56
INDUSTRY SURVEYS
Price / Earnings Ratio (High-Low)

Ticker Company Yr. End DEC OCT # MAY JUL # MAY DEC JUL DEC # MAY SEP JUN DEC JUN OCT SEP DEC DEC JUN NOV DEC DEC SEP OCT # MAR # APR # APR DEC DEC DEC SEP DEC 2012 27 - 17 26 - 19 NA - NA 15 - 13 NA - NA 31 - 17 NM - NM 24 - 18 NA - NA 30 7 35 - 16 25 - 20 NM - NM 17 - 14 23 - 16 21 17 22 22 30 17 15 18 16 21 2011 23 36 10 15 24 13 24 7 12 20 2010 20 20 15 15 14 39 40 18 14 65 41 23 19 18 19 7 12 10 13 11 15 24 15 12 36 21 16 13 13 14 2009 23 23 12 17 14 16 25 19 16 56 8 11 6 12 8 11 12 14 10 15 2008 44 40 15 23 17 24 35 25 18 48 9 11 6 15 9 9 17 16 13 25 PACKAGED FOODS & MEATS BGS B&G FOODS INC CVGW CALAVO GROWERS INC CALM CAL-MAINE FOODS INC CPB [] CAMPBELL SOUP CO CAG [] CONAGRA FOODS INC DF DMND FLO GIS GMCR HAIN HSY HSH HRL JJSF K KRFT LANC MKC MJN MDLZ POST SAFM SENEA SFD SJM LNCE TR THS TSN [] [] [] [] [] [] [] [] [] [] DEAN FOODS CO DIAMOND FOODS INC FLOWERS FOODS INC GENERAL MILLS INC GREEN MTN COFFEE ROASTERS HAIN CELESTIAL GROUP INC HERSHEY CO HILLSHIRE BRANDS CO HORMEL FOODS CORP J & J SNACK FOODS CORP KELLOGG CO KRAFT FOODS GROUP INC LANCASTER COLONY CORP MCCORMICK & CO INC MEAD JOHNSON NUTRITION CO MONDELEZ INTERNATIONAL INC POST HOLDINGS INC SANDERSON FARMS INC SENECA FOODS CORP SMITHFIELD FOODS INC SMUCKER (JM) CO SNYDERS-LANCE INC TOOTSIE ROLL INDUSTRIES INC TREEHOUSE FOODS INC TYSON FOODS INC -CL A
Dividend Payout Ratio (%)

2012 92 48 NA 48 NA 0 NM 63 NA 0 0 53 NM 32 18 65 18 40 40 41 115 NA 29 0 NA 41 74 92 0 10 0 2011 82 73 22 47 84 NM 15 64 50 0 0 50 84 29 16 49 NA 34 40 42 58 NA NM 0 0 46 112 42 0 8 NA 2010 100 41 41 44 46 0 13 52 40 0 0 57 48 28 16 47 NA 29 37 41 81 NA 10 0 0 40 NM 34 0 8 NA 2009 155 37 28 48 47 0 12 48 41 0 NM 62 84 30 17 45 NA 36 42 36 57 NA 14 0 NM 34 57 33 0 NM NA 2008 299 65 44 49 53 0 20 44 44 0 0 87 NM 35 25 43 NA 68 44 0 90 NA NM 0 NM 200 112 46 0 67 NA 2012 5.2 2.5 3.7 3.7 4.2 0.0 0.7 3.4 3.6 0.0 3.3 1.8 2.7 3.1 3.2 0.0 0.2 2.6 3.2 0.0
Dividend Yield (High-Low, %)

2011 6.5 3.0 3.1 3.9 4.3 0.0 0.7 3.7 3.5 0.0 0.0 3.0 2.9 2.1 1.1 3.5 NA 2.5 2.6 1.9 3.8 NA 1.8 0.0 0.0 3.1 3.8 1.4 0.0 1.0 NA 3.5 2.0 2.2 3.2 3.6 0.0 0.2 2.5 3.0 0.0 0.0 2.2 2.2 1.7 0.8 2.9 NA 1.8 2.2 1.4 3.1 NA 1.3 0.0 0.0 2.3 2.6 1.1 0.0 0.8 NA 2010 13.6 3.3 4.0 3.3 4.2 0.0 0.5 3.4 3.4 0.0 0.0 3.6 3.8 2.2 1.2 3.3 NA 2.7 2.9 2.1 4.3 NA 1.6 0.0 0.0 4.9 2.0 2.7 2.9 3.4 0.0 0.3 2.8 2.9 0.0 0.0 2.5 2.5 1.6 0.9 2.8 NA 1.9 2.2 1.4 3.6 NA 1.0 0.0 0.0 2009 19.4 3.3 4.7 4.1 5.6 0.0 1.0 3.3 4.1 0.0 0.0 3.9 6.4 2.6 1.3 4.0 NA 3.6 3.4 2.7 5.6 NA 2.1 0.0 0.0 4.1 3.5 1.7 0.0 2.1 NA 6.6 1.6 2.3 2.8 3.3 0.0 0.5 2.6 2.7 0.0 0.0 2.8 3.4 1.9 0.9 2.6 NA 2.1 2.6 1.4 3.9 NA 1.2 0.0 0.0 2.2 2.3 1.1 0.0 1.1 NA 2008 31.7 5.8 7.2 3.2 5.6 0.0 1.1 2.8 3.4 0.0 0.0 3.7 5.4 3.0 1.6 3.2 NA 4.3 3.1 NA 4.5 NA 2.8 0.0 0.0 6.8 1.6 3.0 2.2 3.1 0.0 0.6 1.8 2.4 0.0 0.0 2.7 2.6 1.7 1.0 2.2 NA 2.7 2.1 NA 3.2 NA 1.1 0.0 0.0
NM - NM 79 - 22 25 - 18 17 - 14 85 - 24 30 22 38 17 19 20 17 29 14 14
NM - NM 22 - 16 24 - 13 16 - 11 20 - 14 17 - 11 NA - NA 17 - 10 16 - 12 26 - 13 15 - 10 NA - NA 12 7 95 NM - NM 15 8 25 - 16 30 - 20 16 - 10 NM - NM NA - NA
31 - 14 32 - 23 NM - NM 20 - 12 24 - 16 19 - 13 NA - NA 25 - 16 21 - 14 NA - NA 28 - 20 NA - NA NM - NM 16 - 10 NM - NM 18 44 50 35 81 12 29 31 21 18
0.0 - 0.0 2.6 - 2.1 68.8 - 15.0 2.2 - 1.9 1.1 - 0.8 3.8 1.2 2.2 2.5 2.0 4.1 NA 1.9 0.0 0.0 2.9 3.0 3.8 0.0 1.1 0.0 3.0 1.0 1.8 1.9 1.4 2.4 NA 1.2 0.0 0.0 2.3 2.4 2.8 0.0 0.8 0.0
17 - 14 NA - NA 19 - 14 18 - 15 31 - 22 19 - 15 NA - NA NM - NM 32 - 19 11 8 20 43 39 25 11 15 30 30 18 8
17 - 14 NA - NA 15 - 11 17 - 13 29 - 20 23 - 19 NA - NA 10 6 23 - 15 74 16 - 13 NM - NM 32 - 25 21 - 14 10 6 NA - NA
49 - 28 25 - 16 24 - 15 96 NA - NA 18 31 33 27 13 30 14 25 24 19 9 22
3.1 - 2.5 27.6 - 16.2 1.4 - 1.1 0.0 - 0.0 1.3 - 0.8 NA NA
16.9 - 11.1 3.9 - 2.5 1.5 - 0.9 0.0 - 0.0 3.6 - 0.8 NA NA
NA - NA
NA - NA
DEC DEC DEC DEC DEC
20 14 15 43 19 -
17 11 12 20 16
19 13 16 30 18 -
16 10 12 16 14
13 17 18 23 17 -
10 10 12 10 15
20 14 14 19 17 -
13 7 5 12 11
26 - 16 NM - NM NM - NM 39 - 18 24 - 15
51 28 45 0 54
50 22 44 0 50
34 565 41 0 48
56 20 7 0 47
61 NM NM 0 51
3.1 2.5 3.7 0.0 3.4 -
2.5 2.0 3.0 0.0 2.9
3.1 2.2 3.6 0.0 3.5 -
2.6 1.7 2.8 0.0 2.8
3.6 - 2.7 55.1 - 32.7 3.4 - 2.2 0.0 - 0.0 3.2 - 2.8
4.4 3.1 1.3 0.0 4.1 -
2.8 1.4 0.5 0.0 2.8
3.8 3.9 0.0 0.0 3.3 -
2.3 1.0 0.0 0.0 2.1
JUN DEC DEC
18 17 12 -
13 12 8
12 13 11 -
7 8 7
11 26 21 -
8 13 12
12 17 59 -
9 6 32
17 26 15 -
5 5 5
37 0 16
20 0 12
19 0 25
20 0 127
18 0 14
2.8 0.0 2.0 -
2.0 0.0 1.4
2.6 0.0 1.8 -
1.6 0.0 1.1
2.4 0.0 2.1 -
1.7 0.0 1.2
2.3 0.0 3.9 -
1.6 0.0 2.2
3.6 0.0 2.9 -
1.0 0.0 0.9
INDUSTRY SURVEYS
57
Price / Earnings Ratio (High-Low)

Ticker Company Yr. End 2012 2011 2010 2009 2008
Dividend Payout Ratio (%)

2012 2011 2010 2009 2008 2012
Dividend Yield (High-Low, %)

2011 2010 2009 2008
OTHER COMPANIES WITH SIGNIFICANT PACKAGED FOOD OPERATIONS CQB CHIQUITA BRANDS INTL INC DEC NM - NM 14 6 DOLE DOLE FOOD CO INC DEC NM - NM 34 - 18 FDP FRESH DEL MONTE PRODUCE INC DEC 11 9 18 - 14 PPC PILGRIM'S PRIDE CORP DEC 12 6 NM - NM UN UNILEVER NV -ADR DEC 20 - 16 19 - 16 OTHER COMPANIES WITH SIGNIFICANT SOFT DRINK OPERATIONS COKE COCA-COLA BTLNG CONS DEC 24 - 19 KOF COCA-COLA FEMSA DE C V -ADR DEC 29 - 18 COT COTT CORP QUE DEC 17 - 12 FIZZ NATIONAL BEVERAGE CORP # APR NA - NA
14 8 NM - NM 25 - 19 32 - 13 17 - 13
10 2 98 12 5 NM - NM 19 - 10
NM - NM NA - NA 16 5 NM - NM 16 9
NM NM 16 0 63
0 0 19 NM 68
0 NM 5 0 56
0 0 0 NM 63
NM NA 0 NM 46
0.0 0.0 1.8 0.0 4.0 -
0.0 0.0 1.5 0.0 3.2
0.0 0.0 1.4 0.0 4.3 -
0.0 0.0 1.0 0.0 3.5
0.0 0.0 0.3 0.0 4.3 -
0.0 0.0 0.2 0.0 3.4
0.0 0.0 0.0 0.0 6.4 -
0.0 0.0 0.0 0.0 3.3
0.0 NA 0.0 66.7 5.2 -
0.0 NA 0.0 0.3 3.0
25 25 23 19 -
16 17 15 13
16 20 14 18 -
12 13 8 12
14 19 920 -
9 7 1 10
63 - 32 29 - 12 NM - NM 19 - 12
34 38 12 NA
32 50 0 0
25 26 0 261
24 15 0 190
101 22 NM 0
1.8 - 1.4 2.1 - 1.3 1.0 - 0.7 19.2 - 14.4
2.0 2.9 0.0 0.0 -
1.3 2.0 0.0 0.0
2.2 - 1.6 2.0 - 1.3 0.0 - 0.0 21.4 - 14.9
2.6 2.1 0.0 18.8 -
1.7 0.8 0.0 9.3
3.2 1.9 0.0 0.0 -
1.6 0.8 0.0 0.0
OTHER COMPANIES WITH SIGNIFICANT AGRICULTURAL PRODUCTS OPERATIONS BG BUNGE LTD DEC 29 - 22 12 9
5-
33 -
17
17 -
41
15
36
1.9 -
1.4
1.8 -
1.3
1.9 -
1.2
2.1 -
1.1
2.6 -
0.5
58
INDUSTRY SURVEYS
Earnings per Share ($)

Ticker Company Yr. End DEC OCT # MAY JUL # MAY DEC JUL DEC # MAY SEP JUN DEC JUN OCT SEP DEC DEC JUN NOV DEC DEC SEP OCT # MAR # APR # APR DEC DEC DEC SEP DEC 2012 1.20 1.15 NA 2.43 NA 0.62 (3.98) 0.67 NA 2.34 2.12 2.94 (0.18) 1.90 2.87 2.68 2.77 3.51 3.07 2.96 0.87 1.45 2.35 3.59 NA 5.00 0.86 0.86 2.44 1.61 0.64 2011 1.05 0.75 3.76 2.44 1.13 (8.61) 1.21 0.61 2.42 1.36 1.27 2.78 2.70 1.78 2.95 3.40 3.13 3.84 2.82 2.48 2.00 (10.47) (5.74) 0.93 2.23 4.06 0.57 0.72 2.64 2.00 0.76 2010 0.68 1.22 2.55 2.44 1.92 0.48 1.40 0.67 2.80 0.60 0.70 2.24 4.60 1.49 2.61 3.32 3.21 4.08 2.79 2.20 1.44 2.67 6.07 1.45 3.14 4.06 0.07 0.86 2.59 2.09 NA 2009 0.44 0.94 2.85 2.08 1.68 1.41 1.48 0.63 2.32 0.49 (0.61) 1.91 2.60 1.27 2.23 3.17 NA 3.18 2.29 1.96 2.04 NA 4.05 3.98 (0.65) 4.15 1.13 0.84 2.54 (1.44) NA 2008 0.27 0.54 3.34 1.80 1.43 1.24 0.92 0.58 1.97 0.21 1.03 1.37 (0.30) 1.05 1.49 3.01 NA 1.64 1.98 1.97 1.24 NA (2.13) 1.54 (1.72) 3.14 0.57 0.60 0.91 0.24 NA PACKAGED FOODS & MEATS BGS B&G FOODS INC CVGW CALAVO GROWERS INC CALM CAL-MAINE FOODS INC CPB [] CAMPBELL SOUP CO CAG [] CONAGRA FOODS INC DF DMND FLO GIS GMCR HAIN HSY HSH HRL JJSF K KRFT LANC MKC MJN MDLZ POST SAFM SENEA SFD SJM LNCE TR THS TSN [] [] [] [] [] [] [] [] [] [] DEAN FOODS CO DIAMOND FOODS INC FLOWERS FOODS INC GENERAL MILLS INC GREEN MTN COFFEE ROASTERS HAIN CELESTIAL GROUP INC HERSHEY CO HILLSHIRE BRANDS CO HORMEL FOODS CORP J & J SNACK FOODS CORP KELLOGG CO KRAFT FOODS GROUP INC LANCASTER COLONY CORP MCCORMICK & CO INC MEAD JOHNSON NUTRITION CO MONDELEZ INTERNATIONAL INC POST HOLDINGS INC SANDERSON FARMS INC SENECA FOODS CORP SMITHFIELD FOODS INC SMUCKER (JM) CO SNYDERS-LANCE INC TOOTSIE ROLL INDUSTRIES INC TREEHOUSE FOODS INC TYSON FOODS INC -CL A
Tangible Book Value per Share ($)

2012 (10.35) 5.56 NA (5.16) NA (6.07) (23.31) 0.97 NA 6.25 (1.08) 1.05 (2.03) 7.85 18.64 (13.82) (17.55) 17.12 (2.54) (1.89) (9.08) (26.68) 23.95 33.62 NA (9.16) (2.94) 6.70 (8.61) 11.12 (2.05) 2011 (13.87) 4.51 18.77 (4.91) (1.88) (10.50) (19.96) 1.95 (9.97) 3.84 1.77 0.98 6.92 7.17 16.57 (9.28) NA 15.31 (3.33) (1.91) (15.42) NA 22.80 29.81 14.21 (9.78) 1.36 6.85 (12.05) 9.77 NA 2010 (7.46) 5.53 16.20 (4.47) 0.38 (13.04) (21.28) 2.44 (6.51) 0.70 1.20 1.12 (2.10) 6.13 13.80 (8.00) NA 13.69 (1.47) (2.76) (16.01) NA 29.25 29.61 14.24 (4.03) 0.73 6.82 (15.86) 8.24 NA 2009 (7.70) 4.40 14.40 (4.94) 1.12 (14.65) (0.04) 2.00 (7.47) 3.47 2.35 0.10 (4.55) 5.10 12.60 (7.42) NA 10.75 (2.90) (4.12) (11.04) NA 21.18 28.37 9.30 (4.26) 4.63 6.45 0.90 5.98 NA 2008 (12.48) 4.19 12.38 (3.61) 0.89 (20.09) 8.49 1.57 (7.98) 0.33 1.39 (1.53) (3.07) 4.60 10.82 (9.56) NA 9.05 (4.23) (7.62) (12.46) NA 17.45 28.10 9.40 (8.03) 4.17 5.85 (3.22) 6.30 NA 2012 32.84 30.24 47.66 37.16 31.12 19.17 39.25 16.13 41.88 71.15 73.72 74.71 111.75 31.62 65.60 57.21 48.00 78.34 66.37 88.72 42.54 36.12 55.87 32.79 24.99 89.39 27.09 28.20 66.61 20.98 19.17 20.99 21.63 34.06 31.22 23.64 10.49 12.85 12.26 36.75 17.11 33.72 59.32 24.31 27.28 46.73 46.33 42.00 62.68 49.87 61.27 24.50 22.75 36.11 21.11 17.55 70.50 21.64 21.00 46.15 14.06 14.22
Share Price (High-Low, $)

2011 24.64 27.17 37.67 35.66 26.68 13.90 96.13 15.42 40.80 115.98 38.47 62.26 101.30 30.50 55.58 57.70 NA 72.04 51.26 76.91 37.93 NA 53.22 29.98 25.12 80.26 24.26 28.20 67.25 21.06 NA 13.23 18.24 27.20 29.69 22.20 7.83 26.11 10.64 34.54 32.73 25.59 46.24 78.30 24.52 41.91 48.10 NA 51.96 43.36 55.12 30.21 NA 38.07 18.13 17.79 61.16 17.06 21.51 46.73 15.60 NA 2010 13.87 24.67 38.88 37.59 26.32 18.79 55.97 12.26 38.98 38.86 28.49 52.10 88.60 26.14 50.25 56.00 NA 61.60 47.83 63.38 32.67 NA 59.43 33.54 21.48 66.28 27.11 27.44 53.30 20.57 NA 5.00 15.09 26.23 32.18 21.02 7.13 33.28 10.21 33.11 21.83 14.45 35.76 58.35 18.89 36.80 47.28 NA 43.28 35.40 43.50 27.09 NA 38.61 21.86 13.34 53.27 15.91 21.23 36.84 12.15 NA 2009 10.23 22.08 35.27 35.80 23.67 22.09 36.39 11.73 36.04 27.65 20.31 42.25 63.05 20.23 44.75 54.10 NA 53.41 36.80 50.35 29.84 NA 49.39 34.40 17.62 62.69 28.26 24.95 40.38 14.25 NA 3.51 10.50 17.01 24.63 14.00 15.74 18.39 9.07 23.18 7.12 11.18 30.27 34.00 14.58 30.12 35.64 NA 31.90 28.08 25.72 20.81 NA 26.62 18.85 5.55 34.09 18.36 16.85 24.28 7.51 NA 2008 11.80 21.74 48.80 40.85 24.87 29.23 32.14 14.52 36.01 9.94 32.34 44.32 80.40 21.39 36.38 58.51 NA 41.62 42.06 NA 34.97 NA 50.45 24.47 32.18 56.69 25.18 30.19 31.61 19.50 NA 2.54 6.00 20.75 27.35 13.52 11.20 15.83 9.21 25.50 5.11 14.09 32.10 38.70 12.40 23.38 40.32 NA 26.01 28.21 NA 24.75 NA 20.24 14.63 5.40 37.22 16.39 18.50 19.24 4.40 NA
DEC DEC DEC DEC DEC
2.00 2.30 2.99 1.96 3.96
1.88 2.35 2.77 1.62 4.08
2.56 1.84 2.19 1.20 3.97
1.48 1.49 2.18 1.16 3.81
1.25 (9.05) (1.23) 0.58 3.26
1.22 (4.83) (16.50) 3.56 (7.18)
0.88 (3.27) (16.00) 5.34 (8.02)
0.89 (2.45) (14.36) 4.41 (4.55)
2.60 (7.39) (9.83) 3.13 4.95
1.72 (8.81) (12.17) 2.26 3.36
40.67 32.55 46.06 83.96 73.66 -
33.28 25.45 36.51 39.99 62.15
35.88 29.99 43.13 49.18 71.89 -
30.65 23.03 33.68 25.83 58.50
32.94 31.80 40.24 27.38 68.11 -
24.74 18.84 26.38 12.01 58.75
29.73 21.53 30.65 22.01 64.48 -
18.72 9.70 11.83 13.95 43.78
32.79 26.99 30.00 22.82 79.79 -
20.15 7.25 13.45 10.26 49.74
JUN DEC DEC
1.84 1.11 5.59
3.17 1.47 5.44
3.00 0.53 2.24
2.66 0.51 0.55
2.80 0.67 3.59
26.74 2.92 20.13
27.31 1.50 15.75
22.45 (3.27) 12.85
20.63 2.01 19.30
20.57 1.71 13.84
33.98 18.82 66.66 -
24.38 12.83 45.30
38.02 19.62 59.50 -
23.69 11.24 36.65
34.03 13.77 48.00 -
24.22 7.00 26.23
33.00 8.48 32.37 -
23.13 2.82 17.80
48.95 17.52 54.96 -
13.53 3.27 17.51
INDUSTRY SURVEYS
59
Earnings per Share ($)

Ticker Company Yr. End 2012 2011 2010 2009 2008
Tangible Book Value per Share ($)

2012 2011 2010 2009 2008 2012
Share Price (High-Low, $)

2011 2010 2009 2008
OTHER COMPANIES WITH SIGNIFICANT PACKAGED FOOD OPERATIONS CQB CHIQUITA BRANDS INTL INC DEC (8.75) 1.25 DOLE DOLE FOOD CO INC DEC 0.00 0.44 FDP FRESH DEL MONTE PRODUCE INC DEC 2.47 1.57 PPC PILGRIM'S PRIDE CORP DEC 0.70 (2.32) UN UNILEVER NV -ADR DEC 1.95 1.82 OTHER COMPANIES WITH SIGNIFICANT SOFT DRINK OPERATIONS COKE COCA-COLA BTLNG CONS DEC 2.95 KOF COCA-COLA FEMSA DE C V -ADR DEC 5.11 COT COTT CORP QUE DEC 0.51 FIZZ NATIONAL BEVERAGE CORP # APR NA
1.34 (0.43) 1.03 0.41 2.00
2.05 (7.43) 1.38 NA 2.26 2.49 (2.06) (14.31) 1.73 2.38
(3.67) 1.69 22.80 3.35 (3.15)
1.50 (4.01) 20.99 2.39 (3.61)
(0.01) (3.57) 19.15 4.78 4.87
(2.01) (3.11) 18.63 1.22 1.99
(7.02) NM 15.89 3.84 0.75
10.57 15.19 26.86 8.68 38.91 -
4.62 8.02 21.80 4.20 30.44
17.36 14.99 28.60 8.61 35.17 -
7.53 8.02 21.26 2.90 28.89
18.60 13.93 25.24 13.05 33.10 -
11.10 8.57 19.15 5.35 26.02
19.59 12.87 26.66 10.49 33.02 -
4.32 11.28 12.23 0.46 16.91
25.77 NA 39.75 28.83 37.18 -
8.42 NA 12.94 0.14 21.27
3.11 4.08 0.40 0.95
3.93 4.29 0.64 0.88
4.16 3.54 1.10 0.71
0.99 2.19 (1.73) 0.54
(53.24) 13.05 1.97 NA
(53.85) 9.66 1.17 2.31
(54.40) 8.69 0.53 1.42
(55.85) 6.23 2.74 2.74
(60.41) 3.31 0.68 3.37
70.93 150.44 8.77 17.75 -
56.51 93.32 6.01 13.30
76.32 102.59 9.08 17.76 -
50.26 71.35 5.94 12.30
61.00 84.60 9.08 15.45 -
45.51 56.51 5.41 10.75
58.18 67.55 9.39 14.50 -
37.75 25.96 0.65 7.17
62.20 63.77 7.48 10.10 -
31.41 26.15 0.59 6.60
OTHER COMPANIES WITH SIGNIFICANT AGRICULTURAL PRODUCTS OPERATIONS BG BUNGE LTD DEC 2.53 6.20 16.20
2.24
8.11
65.09
68.02
70.99
54.77
44.82
74.00 -
56.20
76.13 -
54.03
74.04 -
45.36
72.98 -
38.75
135.00 -
27.60
Note: Data as originally reported. S&P 1500 index group. []Company included in the S&P 500. Company included in the S&P MidCap 400. Company included in the S&P SmallCap 600. #Of the following calendar year. J-This amount includes intangibles that cannot be identified.
The analysis and opinion set forth in this publication are provided by S&P Capital IQ Equity Research and are prepared separately from any other analytic activity of Standard & Poors. In this regard, S&P Capital IQ Equity Research has no access to nonpublic information received by other units of Standard & Poors. The accuracy and completeness of information obtained from third-party sources, and the opinions based on such information, are not guaranteed.
60
INDUSTRY SURVEYS

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Industry Surveys

Foods & Nonalcoholic Beverages

Comparative Company Analysis ...................................................................... 49

Topics Covered by Industry Surveys

Global Industry Surveys

S&P Capital IQ Industry Surveys

A SSOCIATE E DITOR : C HARLES M AC V EIGH

S TATISTICIAN : S ALLY K ATHRYN N UTTALL

B09: US 504.5 343.3 COMMODITIES 960.1 PRICES

496.8 350.8 958.7 37.1 19.3 14.6 855.0 757.5

744.0 560.0 1,113.0 44.0 37.0 18.5 945.0 855.0

933.0 734.3 1,350.2 56.6 27.4 19.6 1,040.0 910.0

Unbleached kraft board ($/ton) Recycled folding boxboard ($/ton)

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

CROP PRICES PROJECTED TO DECLINE

Chart H04: STOCKS*-TOUSE RATIO

PROFIT ENVIRONMENT FOR US FARMERS

CONTINUED STRONG DEMAND FOR US AGRICULTURAL EXPORTS

Chart H03: US FOREIGN TRADE IN FOOD PRODUCTS

US RETAIL PRICES RISING SOMEWHAT

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

ECONOMIC ENVIRONMENT REMAINS SOFT

IMPACT OF SOFT ECONOMY ON CONSUMER BEHAVIOR

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

COMPANIES LOOK OVERSEAS FOR GROWTH

2013 FOOD AND BEVERAGE INDUSTRY OUTLOOK

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

CHINA, US SEEN AS WORLDS LARGEST MARKETS

LARGEST OF THE LARGE

WIDESPREAD OWNERSHIP OF FOOD FIRMS

BEVERAGE INDUSTRY IS HIGHLY CONCENTRATED

FOOD COMPANIES RESTRUCTURE

MAJOR MERGERS AND ACQUISITIONS2003 to 2013 (Transaction value of at least $1 billion)

Apr-13 Jan-13 Dec-12 May-12 Sep-11 Jul-11

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

WHY ARE FOOD PRICES SO VOLATILE?

FOOD AND HEALTHCARE OVERLAPPING

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

FOOD SAFETY, SECURITY REMAIN A CONCERN

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

DEMAND FOR HEALTHY FOOD CONTINUES

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

ORGANIC, NATURAL FOODS ATTRACT INTEREST

CHANGING DEMOGRAPHICS, CHANGING TASTES

TECHNOLOGY AFFECTING FOOD AND BEVERAGE INDUSTRY

NONCARBONATED BEVERAGE CONSUMPTION PICKS UP PACE

14.3 9.5 5.8 4.9 2.3 (1.5) (1.8) (4.1) 1.0

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

FLEXIBLE EATING IMPORTANT TO CONSUMERS

HOW THE INDUSTRY OPERATES

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

COSTS WITHIN THE FOOD SYSTEM

AGRICULTURAL COSTS VARY

STORE LABELS AND PRODUCER BRANDS

FOOD AND BEVERAGE DISTRIBUTION

GETTING IN AND STAYING IN

FOOD AND BEVERAGE TRADE

KEY INDUSTRY RATIOS AND STATISTICS

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

HOW TO ANALYZE A FOOD OR BEVERAGE COMPANY

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013

FOODS & NONALCOHOLIC BEVERAGES / JUNE 2013