Chewing on Wrigley
The Coca-Cola of Chicago?

by Brian Graney (TMFPanic)

ALEXANDRIA, VA (April 29, 1999) -- Jeff climbed up into the Drip Port's control tower yesterday and took a gander at one of the companies on our radar screen, Coca-Cola (NYSE: KO). Sitting in the same airspace as Coke but cruising under a lot of investors' radars is a business that faces many of the same near-term and long-term challenges as the soft drink giant but receives only a fraction of the attention in the media and on Wall Street. I like to think of the company as the forgotten U.S. multinational, The Wm. Wrigley Jr. Co. (NYSE: WWY).

While the admittedly much-larger Coca-Cola has been a darling of the late 20th century bull market and is regularly profiled in scores of glossy financial magazines, many investors probably don't even realize that Wrigley is a publicly-traded company. Some only associate the Wrigley name with the venerable Wrigley Field, home of baseball's Chicago Cubs. Of those that are acquainted with the company, most are shocked to learn that it carries a market capitalization of $10.6 billion -- larger than Hershey (NYSE: HSY) and Tootsie Roll (NYSE: TR) put together. (Like Wrigley, Tootsie Roll is often similarly ignored by the media and the Street. Too bad.)

The low profile is no accident, as Wrigley does a good job of avoiding the spotlight. I was surprised that only a few news organizations mentioned the company's first quarter earnings release yesterday, considering the firm's relative size. So, I called the company's investor relations department to see if I could find out some more about Wrigley by listening to the conference call. This was an eye-opening experience. Here's a rough transcript of the conversation I had with the polite gentleman at Wrigley who answered my call. (Let's call him Ed, for lack of a better name.)

TMF: Hello. I was wondering, is Wrigley going to hold a conference call to discuss its first quarter results?

Ed: No.

TMF: So, there is never a conference call with sell-side analysts?

Ed: Nope.

TMF: Well then, what is management's view on providing guidance on future earnings to analysts?

Ed: They don't do it.

TMF: Ever?

Ed: No.

TMF: That's pretty unconventional in this day and age.

Ed: Yes sir, I guess it is.

TMF: OK, here's what I really want to know: Is there any way you can get Sammy Sosa's autograph for me?


Besides underlying a commendable commitment to its shareholders by avoiding selective disclosure of material information to analysts (a practice of which Coca-Cola has been accused numerous times, by the way), the "no guidance" policy in effect at Wrigley goes a long way in explaining how the company thinks of itself as a business with long-term goals and not as a short-term estimate-beating machine. It also keeps the company out of the papers and off of the Street's upgrade/downgrade merry-go-round.

It is interesting to note that while 14 sell-side analysts cover Hershey and a whopping 21 regularly cover Coca-Cola, only four take the time to submit recommendations and earnings estimates for Wrigley. There may be another explanation for this, but I'm willing to speculate that it's due in large part to the lack of business the company generates for fee-hungry brokerages. Despite its size, Wrigley prefers to grow internally rather than through acquisitions, has no long-term debt, and hasn't offered new shares to the public since Eisenhower was in the White House.

On the other hand, without any guidance, many pros may be scared off since covering the company would mean actually doing their jobs and analyzing Wrigley's business prospects on a regular basis without the helpful "cheat sheets" many companies throw their way. That doesn't scare us, however. In fact, the company's focus on its business is rather refreshing, much like a piece of its Doublemint gum.

Like Coca-Cola, Wrigley has made its long-term shareholders a ton of money over the years by perfecting the art of selling a low-cost, repeat-purchase product that millions of people enjoy but no one really needs for survival. Under such well-known brand names as Juicy Fruit, Big Red, Winterfresh, Extra, and Hubba Bubba, Wrigley sells gum in 140 countries and territories around the globe and operates plants in such vacation hot-spots as Poznan, Poland, and Guangzhou, China. With dividends reinvested in its fee-free Drip plan, Wrigley has provided a compounded annual return of 27.6% to its shareholders since 1980, compared to Coke's 27.1% annual return over that same span.

That's pretty impressive stuff, but those results are not very helpful to us in projecting either company's growth over the next 10 or 20 years. Again, resembling the Atlanta soda giant, Wrigley's revenue growth has slowed recently, producing year-over-year advances in the mid-single digits over the past five years. Wrigley's stock has also been basically flat since 1997 as slowdowns in emerging markets, particularly Russia and the Philippines, have taken their toll. As with Coke, the worldwide growth slowdown has raised questions about the company's ability to reproduce its stellar past results in the decades to come.

Of course, Wrigley has not exactly lost all of its flavor. Gross profit margins have been pegged at 58% for the past five years or so, while return on invested capital (ROIC) has consistently hovered around the 30% level. Like Coca-Cola, the company generates a good deal of free cash flow, on the order of 10% of annual revenues.

Keeping track of management changes is also not hard, as the CEO office has been occupied by four-straight generations of William Wrigleys, all of whom have kept long-term shareholder interests in the front of their minds. Consistent with the long-term focus of the company, an amazing 75% of the company's shareholders of record belong to the Wrigley Drip. If anything, Wrigley should be teaching us about long-term investing.

We'll examine Wrigley and Coca-Cola in further detail in future columns, along with other companies on our ever-active radar. Low-fliers that our sensors may be missing are always appreciated, of course. Post your bogeys on the Drip Companies message board.

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