Drip Portfolio Report
Monday, November 10, 1997
by Randy Befumo ([email protected])

ALEXANDRIA, VA (Nov. 10, 1997) --

Company: CPC International (soon to be Bestfoods)
Ticker: CPC (soon to change to BFO)

Recent Price: $101 1/16

Trailing 12-month sales: $8,807 million
Trailing 12-month oper. earnings: $998.1 million
Trailing 12-month EPS: $3.11 EPS

Fiscal '98 EPS estimates: $4.05 EPS
Fiscal '99 EPS estimates: $4.77 EPS

Shares outstanding: 143.734 million
Annual dividend: $1.80

Website: http://www.cpcinternational.com/

Description: In the food industry, you have to have a name that has nothing to do with any of your major brands. In fact, the more boring and unknown your name is, the better off you are. Judging by our first two food companies, ConAgra and today's contestant, CPC, this is certainly true. However, CPC is doing something about this.

Recognizing this name problem, CPC is officially renaming itself "Bestfoods" at year-end after spinning off its $1.5 billion corn-refining business. The restructuring will make the resulting Bestfoods completely concentrated on what we Dripfolio Fools love -- branded food. These businesses have delivered a compound annual growth rate (CAGR) of 11% in both sales and earnings over the past decade.

CPC has corn-refining operations (which it is dumping) and a foodservice business supplying restaurants and cafeterias. The company also sells oils and starches and has a mature, overseas business where profits from Europe in 1996 were greater than U.S. profits. The real strength here is bakery foods and bread spread. CPC dominates the bread spread category with Hellmann's, Mazola, and Jiffy. Millions spread CPC on bread every morning.

Be sure to check out www.mayo.com. Amusing, although perhaps a waste of some marketing money.

Major brands: Hellmann's dressings & mayonnaise; Best Foods dressings & mayonnaise; Mazola corn oil and margarine; Skippy sugar-fortified peanut butter; Knorr soups (number two after Campbell), Entenmann's bakery goods; Thomas' English muffins; Arnold, Brownberry, Freihofer's, and Oroweat breads; Boboli pizza crusts; Mueller's pasta; and the ever-delectable Karo syrup, a real thick sweetener.

Financials: As these are simply overview reports, we will only look at a few things: how is the company currently priced relative to sales and earnings per share (valuation); what are the current operating margins (margins); how much long-term debt does the company have (leverage); and what does management do with cash (capital allocation). Keep in mind that due to the impending spin-off, we will have to do a lot of work on this company later if we find we are interested.

Valuation: CPC International's current market capitalization, the value of all of its outstanding shares, is $14,526.1 million (143.734 million * $101 1/16).

The company has $169.0 million in cash and $1,659.0 million in long-term liabilities according to the recent 10-Q filing, available at www.sec.gov. If we subtract the cash and add the debt to the market capitalization, this will give us the current value of the entire company, or the enterprise value. This is $16,016.1 million.

To get the valuation relative to sales, we simply take enterprise value and divide by the trailing sales to get 1.82 ($16,016.1 million / $8,807.0 million).

CPC trades at 32.5 times trailing earnings ($101 1/16 / $3.11 EPS), 25.0 times '98 estimates ($101 1/16 / $4.05 EPS) and 21.2 times '99 estimates ($101 1/16 / $4.77 EPS).

Margins: Operating earnings divided by revenues are the operating margins, or 11.3% ($998.1 million / $8,807.0 million).

Leverage: Long-term debt divided by revenues is one of my favorite ways to think above leverage. With $1,659.0 million in long-term liabilities and $8,807.0 million in sales, we have a 18.8% debt-to-sales ratio.

Capital allocation: Management pays a 1.8% dividend. The company routinely repurchases shares, although this has slowed in recent quarters. The company spends a fair bit on capital expenditures, about equal to its depreciation and amortization, although the spin-off of the corn refining business may make for attractive economics. Also, if there are shares to be repurchased, it makes sense to hold off until the spin-off is complete anyway.

The numbers: Although we unfortunately did not have time to do numbers today (tomorrow, I promise), for more info on how to figure out these simple ratios check Friday's report on ConAgra. If you have any questions, e-mail me at [email protected].

TODAY'S NUMBERS 

  
              Stock   Close    Change
               Intel  $75 1/8   -2 5/16

            Day   Month Year  History
        Drip:    +0.00%   0.00%  0.00% 0.00%
        S&P:     +0.00%   0.00%  0.00% 0.00%
        NASDAQ:  +0.00%   0.00%  0.00% 0.00%


        Rec'd   #    Security         In At 
       9/8/97   1      Intel         $94.69

                          
                        Base: $800.00
                    Expenses: $ 70.50 (Moneypaper)
                   Purchases: See above and below
                        Cash: $634.89**
                 Total Value: $710.00 apprx.


GOAL: The portfolio began with $500 on July 28, 1997, 
adds $100 on the 15th of every month, and the goal 
is to grow the port to $150,000 by August of the year 2017. 

**Transactions in progress:
1. $81.00 sent on 10/17/97 to buy one share of JNJ and
   enroll in its DRIP.
2. $300.00 sent on 10/23/97 to buy more shares of INTC.