12 January 2009
Fast Food Facts
The Year Ahead...2009
Eric Katzman, CFA
Research Analyst
(1) 212 250 4968
eric.katzman@db.com
Christina McGlone
Research Analyst
(1) 203 863 2283
christina.mcglone@db.com
Our 2009 Top Pick: Smucker...Jam On It
Continuing our theme from late last year, we argue that companies with pricing
power, greater exposure to U.S. center of the store, less international and
foodservice sales will outperform. Combined with a relatively low valuation vs.
the peer group and solid balance sheet, we believe Smucker stock is best
positioned among packaged food.
Deutsche Bank Securities Inc.
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factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Industry Update
Top picks
Campbell Soup Company (CPB.N),USD29.24 Buy
Dean Foods (DF.N),USD19.25 Buy
Flowers Foods (FLO.N),USD22.40 Buy
General Mills (GIS.N),USD58.51 Buy
Smuckers (SJM.N),USD43.20 Buy
Companies featured
Campbell Soup Company (CPB.N),USD29.24 Buy
2008A 2009E 2010E
EPS (USD) 2.01 2.10 –
P/E (x) 17.3 13.9 –
EV/EBITDA (x) 10.0 8.5 –
General Mills (GIS.N),USD58.51 Buy
2008A 2009E 2010E
EPS (USD) 3.67 4.00 4.32
P/E (x) 15.8 14.6 13.6
EV/EBITDA (x) 10.1 9.6 9.1
Heinz (HNZ.N),USD36.68 Hold
2008A 2009E 2010E
EPS (USD) 2.63 2.87 2.96
P/E (x) 17.4 12.8 12.4
EV/EBITDA (x) 10.4 8.8 8.3
Kellogg (K.N),USD44.37 Buy
2007A 2008E 2009E
EPS (USD) 2.94 3.16 3.38
P/E (x) 17.9 14.0 13.1
EV/EBITDA (x) 10.9 9.1 8.6
Kraft Foods (KFT.N),USD27.99 Hold
2007A 2008E 2009E
EPS (USD) 1.82 1.93 2.09
P/E (x) 18.4 14.5 13.4
EV/EBITDA (x) 12.7 9.8 9.2
McCormick (MKC.N),USD31.31 Buy
2007A 2008E 2009E
EPS (USD) 1.92 2.13 2.34
P/E (x) 19.5 14.7 13.4
EV/EBITDA (x) 11.7 10.2 9.2
Related recent research Date
Embracing Change
Eric R. Katzman, CFA 15 Dec 2008
Fast Food Facts
Eric R. Katzman, CFA 10 Oct 2008
CSR
Eric R. Katzman, CFA 09 Jan 2008
Upcoming events Date
DB Small & Mid Cap Conf.
Naples, Florida 10 Feb 2009
CAGNY 2009
Boca Raton, Florida 17 Feb 2009
Global Markets Research Company
Packaged Food Strategy…Stay At Home
We are neutral on the group and believe selectivity will be key. Although the
direction for the US dollar remains unclear, we are still concerned about the EU
consumer and power of EU-based retailers. As a result, we continue to
recommend more U.S. based companies rather than making a macro-based
investment call. In the U.S., we don’t see much change with the consumer eating
more at home and focusing on lower cost center-of-the-store items. Thus we
continue to focus on CPB, DF, FLO, GIS and SJM.
Deflation: Not So Fast
We believe it is premature to declare victory over volatility and inflation in
agricultural inputs, although this doesn’t mean other inputs such as energy won’t
be a relief. Farmers are reacting to commodity prices with less acreage and
fertilizer usage. Combined with minimal change in global demand for food and still
low stocks to use ratios for major raw materials, we see a long term upward bias
in agricultural input cost particularly if weather is unforgiving.
Embracing Change
Change is afoot in packaged food. We recently published a detailed report titled
“Embracing Change” (dated 15 Dec 2008) which examined dynamics including
tertiary brands, private label, retailer power, price negotiations and an eventual
impact on M&A. Category leadership, scale and pricing power will be critical to
deliver on LT EPS growth targets in 2009 and beyond. Depending upon capital
markets and the resolution of the above factors, M&A could play a more important
role in packaged food late in 2009 and into 2010 in our opinion.
Valuation & Risks
The S&P Food Products Index was down 16.8% in 2008, handily outperforming
the S&P 500 Index, which plummeted 36.5%, in the midst of global recession.
Valuation for the overall group on 2009E multiples = 12.5x P/E, 10.3x EBIT, 8.2x
EBITDA, 1.0x Sales, 7% FCF Yield. We are neutral on the group as low absolute
valuation is offset by concerns over pricing power, input cost / hedges and a
pressured consumer. We note relative valuation to the S&P500 is particularly
difficult to assess at this time, given the large variance in S&P500 EPS estimates
for 2009. Risks for a typical company include competition (branded, private label),
input costs (raw materials, packaging, transportation, energy), currency (various),
and M&A integration.

Table of Contents
Smucker…Jam On It ......................................................................... 3
Top Pick…2009.........................................................................................................................3
Fundamental Reasons Supporting Our BUY Opinion................................................................3
Valuation & Risks ......................................................................................................................4
Investment Thesis ............................................................................. 5
Industry Outlook .......................................................................................................................5
Food Group Valuation ...............................................................................................................5
Risks ........................................................................................................................................6
Archer Daniels Midland..................................................................... 7
Bunge.................................................................................................. 8
Campbell Soup .................................................................................. 9
ConAgra Foods ................................................................................ 10
Corn Products .................................................................................. 11
Dean Foods ...................................................................................... 12
Del Monte Foods ............................................................................. 13
Flowers Foods.................................................................................. 14
General Mills .................................................................................... 15
H.J. Heinz ......................................................................................... 16
Hershey Foods ................................................................................. 17
Hormel Foods................................................................................... 18
Kellogg.............................................................................................. 19
Kraft Foods....................................................................................... 20
McCormick ....................................................................................... 21
Smucker ........................................................................................... 22
Sara Lee............................................................................................ 23
Smithfield Foods ............................................................................. 24
Tyson Foods..................................................................................... 25