It was a double-fresh day for shareholders in William Wrigley Jr.
First-quarter results beat analyst estimates on both the top and the bottom lines. Earnings per share jumped more than 17% to $0.61 as sales improved an impressive 15.8%. Growth was broad-based, highlighted by a 25% sales increase in Asia/Pacific, where the company said it "strengthened its position as the No. 1 confectioner" in China. Top-line growth in its other key international segment came in at 20%, led by strong trends in Russia, Germany, Poland, and India. North American sales held up well and moved ahead 5% despite a 10% drop in volumes.
Gross margins also improved, and selling, general, and administrative expenses grew at a slower rate than sales, contributing to an impressive 28% gain in operating profit. Benefits from a weak U.S. dollar boosted earnings about $0.07, leading to an overall bottom-line increase of 17.3%.
As sweet as the earnings report looked, the real news was that Wrigley agreed to be acquired by Mars for $23 billion -- or 4.3 times Wrigley's 2007 net sales and 35 times last year's earnings. I had found Wrigley's valuation to be rich, given its growth trends in recent years, but the game changed quickly, because Mars clearly sees plenty of strategic benefit to acquiring Wrigley at a hefty premium.
Mars plans to make Wrigley a largely independent subsidiary and leave the current management team to run things, but there should be plenty of room to cut overlapping costs and increase clout with key suppliers. Wrigley's CEO also suggested that the two companies have a number of appealing complementary qualities, which could lead to plenty of sales and distribution benefits.
If that's not enough to convince you, Warren Buffett's Berkshire Hathaway
There should be plenty of further developments, and the acquisition price may not be as rich as it seems, given the strong growth Wrigley is seeing abroad these days. Having a seal of approval from Warren Buffett isn't bad either, and should make for an even more interesting Berkshire Hathaway annual shareholders meeting this Saturday.
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