EskimoPieCase2006
Eskimo Pie Case
January 19, 2006
J. K. Dietrich - FBE 532 – Spring 2006
Basic Steps to
Valuation in Finance
Estimate cash flows
– Cash - after tax, consumable
– Sometimes easy (fixed incomes), sometimes hard
(residual claims)
Choose a discount rate
– opportunity rate on alternative
– risk adjusted
Calculate present value and net present value and decide if worth more than costs
J. K. Dietrich - FBE 532 – Spring 2006
Updated Estimates in Valuation
Eskimo Pie Profit/Cashflow '91
92
93
Sales
$61.0 $
64.9 $
65.7
Operating Expenses
41.4
44.7
45.2
SG&A
15.8
16.8
17.0
Op. Profit
$3.8
$3.5
$3.5
Free Cash Flow
$2.7
$2.5
$2.5
Net Income
$2.3
$2.1 $
2.1
Growth '90-91
29.2%
6.4%
1.2%
FCF + TV
$2.7
$2.5
$50.76
PV @ 15.5%
$37.2
Cash
$13.0
Total Value
$50.2
J. K. Dietrich - FBE 532 – Spring 2006
Sensitivity to Operating Ratios
Eskimo Pie Profit/Cashflow '91
Sales
$61.0 $
Operating Expenses
34.3
SG&A
19.0
Op. Profit
$7.8
Free Cash Flow
$5.1
Net Income
$4.7
Growth '90-91
29.2%
FCF + TV
$5.1
PV @ 15.5%
$86.0
Cash
$13.0
Total Value
$99.0
J. K. Dietrich - FBE 532 – Spring 2006
92
93
64.9 $
65.7
36.4
36.9
20.2
20.5
$8.2
$8.3
$5.3
$5.4
$4.9 $
5.0
6.4%
1.2%
$5.3
$119.61
Eskimo Pie Cost of Capital
Company
Equity Total Debt
Ben & Jerry's
110.1
2.8
Dreyer's Grand Ice Cream
534.0
44.3
Empire of Carolina, Inc.
51.4
89.8
Steve's Homemade Ice Cream
37.4
3.1
Hershey Foods Corp.
4002.5
282.9
Tootsie Roll Inds.
728.8
0.0
Average
E/TMV Equity Beta Asset Beta
0.98
1.2
1.17
0.92
1.4
1.29
0.36
0.3
0.11
0.92
2.5
2.31
0.93
1.0
0.93
1.00
1.0
1.00
0.85
1.23
1.14
Estimated WACC using short-term and long-term Treasuries:
WACC S Trf 4.56% 1.14 * 9.2% 15.0%
WACC L Trf 7.42% 1.14 * 7.4% 15.9%
J. K. Dietrich - FBE 532 – Spring 2006
Valuations under Varying Rates
Growth =
Discount Rate
14%
15%
16%
17%
10%
$
$
$
$
121.0
96.8
80.7
69.1
12%
$
$
$
$
246.4
164.3
123.2
98.6
14%
-535.8
267.9
178.6
Assuming $4.4 million assumed in the case FCF ($4 + .4) grows in perpetuity
January 19, 2006
J. K. Dietrich - FBE 532 – Spring 2006
Basic Steps to
Valuation in Finance
Estimate cash flows
– Cash - after tax, consumable
– Sometimes easy (fixed incomes), sometimes hard
(residual claims)
Choose a discount rate
– opportunity rate on alternative
– risk adjusted
Calculate present value and net present value and decide if worth more than costs
J. K. Dietrich - FBE 532 – Spring 2006
Updated Estimates in Valuation
Eskimo Pie Profit/Cashflow '91
92
93
Sales
$61.0 $
64.9 $
65.7
Operating Expenses
41.4
44.7
45.2
SG&A
15.8
16.8
17.0
Op. Profit
$3.8
$3.5
$3.5
Free Cash Flow
$2.7
$2.5
$2.5
Net Income
$2.3
$2.1 $
2.1
Growth '90-91
29.2%
6.4%
1.2%
FCF + TV
$2.7
$2.5
$50.76
PV @ 15.5%
$37.2
Cash
$13.0
Total Value
$50.2
J. K. Dietrich - FBE 532 – Spring 2006
Sensitivity to Operating Ratios
Eskimo Pie Profit/Cashflow '91
Sales
$61.0 $
Operating Expenses
34.3
SG&A
19.0
Op. Profit
$7.8
Free Cash Flow
$5.1
Net Income
$4.7
Growth '90-91
29.2%
FCF + TV
$5.1
PV @ 15.5%
$86.0
Cash
$13.0
Total Value
$99.0
J. K. Dietrich - FBE 532 – Spring 2006
92
93
64.9 $
65.7
36.4
36.9
20.2
20.5
$8.2
$8.3
$5.3
$5.4
$4.9 $
5.0
6.4%
1.2%
$5.3
$119.61
Eskimo Pie Cost of Capital
Company
Equity Total Debt
Ben & Jerry's
110.1
2.8
Dreyer's Grand Ice Cream
534.0
44.3
Empire of Carolina, Inc.
51.4
89.8
Steve's Homemade Ice Cream
37.4
3.1
Hershey Foods Corp.
4002.5
282.9
Tootsie Roll Inds.
728.8
0.0
Average
E/TMV Equity Beta Asset Beta
0.98
1.2
1.17
0.92
1.4
1.29
0.36
0.3
0.11
0.92
2.5
2.31
0.93
1.0
0.93
1.00
1.0
1.00
0.85
1.23
1.14
Estimated WACC using short-term and long-term Treasuries:
WACC S Trf 4.56% 1.14 * 9.2% 15.0%
WACC L Trf 7.42% 1.14 * 7.4% 15.9%
J. K. Dietrich - FBE 532 – Spring 2006
Valuations under Varying Rates
Growth =
Discount Rate
14%
15%
16%
17%
10%
$
$
$
$
121.0
96.8
80.7
69.1
12%
$
$
$
$
246.4
164.3
123.2
98.6
14%
-535.8
267.9
178.6
Assuming $4.4 million assumed in the case FCF ($4 + .4) grows in perpetuity