Packaged Food Sector Update

www.jpmorganmarkets.com

North America Equity Research17 September 2013

Equity Ratings and Price Targets

Mkt Cap Rating Price TargetCompany Ticker ($ mn) Price ($) Cur Prev Cur PrevAnnie's, Inc. BNNY US 822.45 46.73 N n/c 52.00 44.00Campbell Soup Company CPB US 13,402.76 42.28 UW n/c 38.00 40.00ConAgra Foods CAG US 13,590.44 31.88 N OW 34.00 36.00General Mills GIS US 32,761.10 49.25 N n/c 50.00 52.00Hain Celestial Group HAIN US 3,854.31 79.40 OW n/c 94.00 86.00Hershey HSY US 20,774.01 91.58 OW n/c 105.00 100.00Hillshire Brands HSH US 3,957.50 31.66 OW n/c 35.00 37.00J.M. Smucker Co. SJM US 11,431.48 107.87 OW n/c 118.00 115.00Kellogg K US 22,254.88 60.64 UW N 58.00 65.00Kraft Foods Group KRFT US 32,381.28 54.24 N n/c 57.00 59.00McCormick & Co., Inc. MKC US 9,056.74 67.79 N n/c 70.00 69.00Mead Johnson Nutrition MJN US 15,370.05 75.64 OW N 88.00 78.00WhiteWave Foods WWAV US 3,415.91 19.73 OW n/c 24.00 22.00Mondelēz International, Inc. MDLZ US 56,884.65 31.55 OW n/c 38.00 35.00TreeHouse Foods Inc. THS US 2,588.45 69.26 N n/c 76.00 74.00Source: Company data, Bloomberg, J.P. Morgan estimates. n/c = no change. All prices as of 13 Sep 13.

Packaged Food Sector Update -Go Where the Growth IsUpgrading MJN to Overweight, Downgrading CAG to Neutral and K to Underweight

Food Manufacturing and Retail

Ken Goldman AC

(1-212) 622-0359

[email protected]

Bloomberg JPMA GOLDMAN <GO>

J.P. Morgan Securities LLC

See page 65 for analyst certification and important disclosures.J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

In this note, we refresh our outlook on the US packaged food sector and highlight our top picks. We recommend investors gravitate toward names that can buck the group’s sluggish sales trend, which we think will continue. We favor stocks less tethered to dividend yields (we think the bond proxy trade has more room to reverse), and wefavor names with larger exposures to Europe and China. Though many food companies will likely benefit from lower costs, we place less value on margins, as we think margin growth not only will be fleeting but weighted less heavily by investors.

In this context, we recommend Overweight-rated WWAV, MDLZ, HAIN, MJN (upgrading MJN to OW) and HSY. We are more cautious on Underweight-rated CPB and K (downgrading K to UW), for which we think consensus revenue numbers are at risk. Finally, after further reviews of our model, we are downgrading CAG to Neutral, as we think a) earnings are more in jeopardy than we previously believed and b) upside from the Ralcorp integration has become less important than concerns regarding sales.

Top picks: WWAV, MDLZ, HAIN, MJN and HSY. In this note, we rank our stocks in order of potential total shareholder return between now and the end of 2014. In order, and with more regard for the long-term opportunity than possible short-term hiccups, we prefer: 1) WWAV, 2) MDLZ (though we are concerned about 3Q13E EPS), 3) HAIN, 4) MJN, 5) HSY, 6) HSH, 7) SJM, 8) CAG, 9) KRFT, 10) BNNY, 11) THS, 12) MKC, 13) GIS, 14) K, and 15) CPB.

We are not bullish on packaged food as a sector today. The group remains expensive versus the SPX and other consumer staples sectors (Figures 3-4). Though food generally underperforms the SPX when its average dividend yield slips versus Treasury yields, the opposite has been true of late (Figure 10). We do not expect outperformance to continue in a less attractive environment for dividend yields, and overall, we would not be surprised if multiples across traditional packaged food started to slip. We therefore lower our valuation multiples across the group today.

This document is being provided for the exclusive use of VINEET PRASAD at CONCORDIA UNIVERSITY

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Ken Goldman(1-212) [email protected]

We recommend buying food companies that possess a rare asset today: solid sales growth. Before the recession, organic sales in packaged food grew around 5% to 6% per year. Since, the figure has been closer to 3% and has been sequentially dropping of late (Figure 5). We think this trend will continue as lower inflation incents companies to effectively lower prices (unfortunately without a resulting big pop in volumes). The last time pricing approached 0%, in 2010, volumes remained in the low single digit range (Figure 7), and we think this will take place again. As we have opined previously, we do not believe the group will outperform as a whole without sales growth. In this type of environment, we recommend placing extra value on companies with the potential to buck the trend, including WWAV, MDLZ, HAIN, MJN, and HSY –all Overweight-rated. See figure 4.

We recommend buying food stocks less tethered to dividend yields. Food stocks historically have performed relatively poorly when their dividend yields lose steam versus Treasury yields. Right now, however, despite the average food stock’s yield being lower versus Treasuries than any time since May 2011 (Figure 9), the group has outperformed (Figure 10). We do not think this outperformance is likely to continue, as investors can find similar yields in less risky assets. In this climate, we might lean toward stocks that rely less on dividends as a part of their total shareholder return profile, including WWAV, HAIN, MDLZ, MJN, HSH, HSY, BNNY and THS – all Overweight-rated except BNNY and THS (Neutral). See Figure 11.

With Europe and China expected to perform well, we lean toward names exposed to these regions. Per Bloomberg consensus estimates, GDP is expected to increase in Europe to 1.0% in 2014E from -0.4% in 2013E. This is a 1.4% difference, greater than that expected in the US. In addition, while US consumer confidence has risen, in Europe it has done so at a steadier and steeper pace (Figure 12). Partially as a result, interest in stocks with European exposure has risen, as per J.P. Morgan Chief US Equity Strategist Tom Lee (link), as well as our own observations. Regarding China, J.P. Morgan Asian Equity and Emerging Market Strategist Michael Yu recently said the economy is “picking

up momentum” (link), and we are seeing investor interest in China-exposed food companies start to heat up again. We believe these trends should favor MDLZ, MJN, MKC, WWAV (more EU exposure than sometimes perceived), and HSY (growing quickly in China with the ability to leverage a growing sales force). These same trends should disfavor US-centric companies such as CAG, HSH, KRFT, SJM, and THS, all Neutral-rated except HSH (OW).

We expect industry gross margins to rise but then flatten out relatively quickly. And investors care less about margins than volumes. The strongest tailwind for packaged food stocks over the coming months is likely to be from input costs, which should be muted or down for many companies we cover. This should lead to higher gross margins (Figure 13). Based on our analysis of historical trends, however, we do not think margins will rise for an extended period, maybe two or three quarters. More importantly, our analysis suggests food investors do not value margin growth particularly highly, as evidenced by the relatively low correlation over time between margin growth and food stock price performance (Figure 14).

We expect the food companies to promote more heavily but less efficiently.The percentage sales lift from promotions has been dropping lately, which


https://jpmm.com/research/content/GPS-1203490-0


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suggests that lower prices may not be resulting in better overall top lines (Figure 8).

Safer to go back into the water: Short interest still below the norm and now at multi-year lows. Packaged food short interest as a percentage of the float now stands at 3.4% on average, below the 10-year average of 4.1%. This is a multi-year low and is down nearly 6% Y/Y (Figure 15). Stocks with particularly low short interest as of last measure include Neutral-rated CAG, GIS, KRFT, and THS; and Overweight-rated MJN, MDLZ, and SJM (Figure 16). We see low short interest as a relatively bearish indicator, as it suggests there will be less of a positive stock reaction if short covering takes place.

Mead Johnson (MJN): Upgrading to Overweight from Neutral. We believe today, when analyzing MJN, the company’s top line growth should be valued more highly than the pending cost headwinds and the possibility of further Chinese government intervention. With relatively easy comparisons approaching, cash flow set to rise in a year because of less capital spending, the possibility of China easing its one baby policy, slightly better birth rates in the US, and the company perhaps suggesting a more aggressive stock buyback to come, we think the EPS and EBITDA growth opportunity is stronger for MJN than at any time in the last year. We raise 2014E to $3.64 from $3.56 (consensus $3.56) and introduce 2015E at $4.08 (consensus $3.93). We establish a December 2014 price target of $88; our previous December 2013 target was $78.

Kellogg (K): Downgrading to Underweight from Neutral. We recommend investors exhibit a level of caution with Kellogg. Because of our top line concerns, we are lowering 2013E to a Street-low $3.71 from $3.75 (consensus $3.79), and 2014E to $4.00 from $4.02 (consensus $4.09). We observe the particularly difficult comparison approaching in 4Q13E. Our concern derives from slumping trends in Nielsen Co. xAOC-tracked channels, which we think could cause the company to report lower-than-expected earnings. We establish a December 2014 price target of $60; our previous December 2013 target was

$65. We expect some pushback on this call, as K already has fallen 11% in the last month (SPX flat). But the group as a whole has not performed much better (-3% median over the last month) and K’s short interest ratio is well off its summer peak. K may not have enough downside “juice” left to be a strong absolute short, but on a relative basis we might pair it against other names we prefer.

ConAgra (CAG) – Downgrading to Neutral after further review of model.Last week, we maintained our Overweight rating (link) following the company's negative pre-announcement. We then maintained it again after uncovering some Nielsen-related data points we interpreted as less than positive (link). But today we are capitulating, as we are lowering our numbers following a review of our model. We are starting to think consensus estimates contain downside risk:FY14E goes to $2.30 from $2.34 (consensus $2.37) and FY15E to $2.58 from $2.65 (consensus $2.65). And though we continue to see upside to guidance from cost synergies, we now think this is less important than the possibility that CAG’s sales disappoint for more than a quarter or two. As mentioned above, we think investors will favor better top lines for a while, an environment that does not necessarily favor ConAgra today. We also note the large amount of




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uncertainty regarding this company at the moment, including the exact reasons for the 1Q miss, the duration of the challenges, the potential for Ralcorp to recover, the impact of the loss of the potato business, the impact of the divestiture of the milling business, the potential for both top and bottom line synergies from Ralcorp, and the pace of debt paydowns. We establish a December 2014 price target of $33; our previous December 2013 target was $36.


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Table of ContentsExpected Total Shareholder Returns......................................6

Sector Outlook..........................................................................7

Annie's, Inc. ............................................................................17

Campbell Soup Company ......................................................19

ConAgra Foods.......................................................................21

General Mills ...........................................................................23

Hain Celestial Group ..............................................................25

Hershey ...................................................................................27

Hillshire Brands......................................................................29

J.M. Smucker Co.....................................................................31

Kellogg ....................................................................................33

Kraft Foods Group..................................................................37

McCormick & Co., Inc.............................................................39

Mead Johnson Nutrition ........................................................41

Mondelēz International, Inc. ..................................................43

TreeHouse Foods Inc. ............................................................46

WhiteWave Foods...................................................................48


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Expected Total Shareholder Returns

Figure 1: We expect the following shareholder returns between now and December 2014

Source: Company reports, Bloomberg and J.P. Morgan estimates.

JPM

Rating

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Appreciation: Thru End

of CY14 (JPM Est.)

Expected Dividend Yield:

Thru End of CY14 (per

Bloomberg)

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WWAV OW 21.6% 0.0% 21.6%

MDLZ OW 19.3% 2.2% 21.5%

HAIN OW 18.4% 0.0% 18.4%

MJN OW 15.6% 2.4% 18.1%

HSY OW 13.3% 2.8% 16.0%

HSH OW 10.5% 2.9% 15.8%

SJM OW 9.3% 2.7% 12.1%

CAG N 6.0% 4.3% 10.2%

KRFT N 4.0% 5.8% 9.8%

BNNY N 9.8% 0.0% 9.8%

THS N 8.9% 0.0% 8.9%

MKC N 3.3% 3.4% 6.6%

GIS N 0.5% 3.9% 4.5%

K UW -4.9% 3.8% -1.0%

CPB UW -10.4% 4.4% -6.0%


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Sector Outlook

Packaged food as a whole remains expensive versus the SPX and other consumer staples sectors

Figure 2: Packaged food remains very expensive versus the SPX

Source: Bloomberg and J.P. Morgan.

Figure 3: Food remains slightly expensive versus beverages


For this reason, and because we do not think sales will be strong over the next year or so, we are not necessarily positive on the group at this time.

We currently favor packaged food stocks with the following qualities: 1) superior sales growth, 2) exposure to Europe and/or China, and 3) a relatively large percentage of total shareholder return from stock price growth rather than dividend yield.

We recommend buying food companies that possess a rare asset today: solid sales growth

As we have opined previously, we do not believe the group will outperform as a whole without sales and especially volume growth. In today’s low revenue growthenvironment, we recommend placing extra value on companies with the potential to buck the trend, including WWAV, MDLZ, HAIN, MJN and HSY. These are some of the companies we expect to have the highest growth rates over the next 12 months:

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Figure 4: We generally are recommending food stocks we think will exhibit strong organic top line growth over the next four quarters

Source: J.P. Morgan estimates.

Before the recession, organic sales in packaged food grew around 5-6% per year. Since, the figure has been closer to 3% and sequentially dropping lately.

Figure 5: Packaged food sales growth has struggled since the recession began

Source: Company reports and J.P. Morgan. Median organic sales growth (volume + price + mix) among CPB, CAG, GIS, HSY,

HSH, K, KRFT, KFT, MKC, MJN, MDLZ, SJM, THS, and WWAV.

We think this trend will continue as lower inflation incents companies to effectively lower prices. We are confident food companies will lower prices either via list price decreases or, more likely, higher promotions. Over time, the Food PPI has been +79% correlated with the J.P. Morgan Raw Foodstuffs Index, and the Raw Foodstuffs Index is about to head into negative territory, in our opinion (meaning packaged food prices are likely to follow):

NTM Organic Sales Growth JPM Rating Notes

BNNY 19.8% N Neutral on valuation and belief org. growth will temporarily decelerate

MJN 9.3% OW Easing comps approaching

WWAV 8.9% OW Growth could accelerate in '14 if center store products work

HAIN 8.3% OW Acquisitions usually add a significant amount, too

HSY 7.3% OW Higher cocoa prices eventually will boost pricing (not much elasticity)

MDLZ 5.4% OW Should LT guidance be 4-6% instead of 5-7%? Either way, it's strong

MKC 4.3% N We like MKC but valuation is full

KRFT 3.3% N Helped by lapping trade de-load; normal rate is closer to 2.0-2.5%

HSH 2.3% OW OW but not among our top OW picks at the moment

GIS 2.2% N Still held back by Greek yogurt

THS 2.1% N Growth could be at risk if price gaps vs. brands shrink

K 2.1% UW Keebler needs to turn around; was it neglected a bit during Pringles integration?

CPB 0.9% UW Guidance is 2-3%; this seems aggressive to us given tough comps

SJM -1.2% OW Sales impaired by pass-through coffee pricing

CAG -3.7% N We assume 1Q14's struggles continue throughout the fiscal year

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Figure 6: We expect packaged food companies to lower their prices. Raw food prices are falling, and over time they have been highly correlated with Food PPI (packaged food company pricing, largely)

Source: Bloomberg and J.P. Morgan estimates.

Will lower prices spark higher volumes? Perhaps a bit. But the last time pricing approached 0%, in 2010, volumes remained in the low single digit range, and we think this will take place again:

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Figure 7: The last time pricing got to 0% Y/Y in the group, volumes stayed low (and have not been much above 2% in any period since). We have no reason to think this time will be different

Source: Company reports and J.P. Morgan. Note: Median volume and price data among CPB, CAG, GIS, HSY, HSH, K, KRFT,

KFT, MKC, MJN, MDLZ, SJM, THS, and WWAV. Some companies include mix with volume, some with price.

If companies do promote more heavily, we do not expect a meaningful dollar lift from their actions. Sales lifts in dry grocery from promotions have been soft lately:

Figure 8: Higher promotions may not be very effective right now; dollar sales lifts from promotions across dry grocery have been weakening

Source: The Nielsen Co. xAOC and J.P. Morgan.

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We recommend buying food stocks less tethered to dividend yields

Right now, the average food stock’s yield is 0.43% less than the 10-Year Note yield, the lowest figure since May 2011:

Figure 9: The average food stock’s yield is 0.43% less than the 10-Year Note yield, the lowest figure since May 2011


Food stocks generally perform relatively well when their dividend yields are attractive versus Treasuries (+50% correlation over time). Lately, however, they have performed well even as their relative yield has fallen. We do not expect this trend to continue, and if relative yields drop further, food stocks may underperform:

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Figure 10: Food stocks generally perform relatively well when their dividend yields are attractive versus Treasuries, but this has not been true lately. We might expect food stocks to start underperforming if relative yields continue to slip

Source: Bloomberg and J.P. Morgan. Note: As of 9/13/13.

On the one hand, this makes attractive dividend yields scarce, which could favor the highest yielding names such as KRFT. On the other hand, we think portfolio managers seeking steady returns may look at food in general as a less attractive sector than it was a few months ago, which could drive investable assets out of the group as a whole. In this climate, we tend to lean toward stocks that rely less on dividends as a part of their total shareholder return profile, including WWAV, HAIN and MDLZ (see below):

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Figure 11: In a climate where dividend yield may be less important, we lean toward stocks that rely less on dividends as a part of their total shareholder return profile

Source: J.P. Morgan estimates.

With Europe and China expected to perform well, we lean toward the names exposed to these regions

Per Bloomberg consensus estimates, GDP is expected to increase in Europe to 1.0% in 2014E from -0.4% in 2013E. This is a 1.4% difference, greater than the increaseexpected in the US (+1.6% in ‘13E, +2.65% in ‘14E). In addition, while US consumer confidence has risen, in Europe it has done so at a steadier and steeper pace:

Figure 12: European consumer confidence has been on a steady upswing, perhaps favoring food companies that sell relatively large amounts of product into the Continent

Source: Bloomberg.

JPM

Rating

Expected Stock

Appreciation: Thru End

of CY14 (JPM Est.)

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Thru End of CY14 (per

Bloomberg)

Expected Total

Shareholder Return: Thru

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BNNY N 9.8% 0.0% 9.8% 100.0% 0.0%

WWAV OW 21.6% 0.0% 21.6% 100.0% 0.0%

HAIN OW 18.4% 0.0% 18.4% 100.0% 0.0%

THS N 8.9% 0.0% 8.9% 100.0% 0.0%

MDLZ OW 19.3% 2.2% 21.5% 89.8% 10.2%

MJN OW 15.6% 2.4% 18.1% 86.5% 13.5%

HSY OW 13.3% 2.8% 16.0% 82.8% 17.2%

HSH OW 10.5% 2.9% 15.8% 67.0% 18.5%

SJM OW 9.3% 2.7% 12.1% 77.3% 22.7%

CAG N 6.0% 4.3% 10.2% 58.2% 41.8%

MKC N 3.3% 3.4% 6.6% 49.2% 50.8%

KRFT N 4.0% 5.8% 9.8% 41.2% 58.8%

GIS N 0.5% 3.9% 4.5% 12.1% 87.9%

K UW -4.9% 3.8% -1.0% N/M N/M

CPB UW -10.4% 4.4% -6.0% N/M N/M


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Partially as a result, interest in stocks with European exposure has risen, as per J.P. Morgan Chief US Equity Strategist Tom Lee (link), as well as our own observations. Regarding China, J.P. Morgan Asian Equity and Emerging Market Strategist Michael Yu recently said the economy is “picking up momentum” (link), and we are seeing investor interest in China-exposed food companies start to heat up again.

These trends should favor MDLZ, MJN, MKC, WWAV (more EU exposure than sometimes perceived), and HSY (growing very quickly in China). They should disfavor US-centric companies such as CAG, HSH, KRFT, SJM, and THS.

We expect industry gross margins to rise but then flatten out relatively quickly. Also, food investors care more about volumes than margins, per our data

The strongest tailwind for packaged food stocks over the coming months is likely to be from input costs, which should be muted or down for many companies we cover.This should lead to higher gross margins:

Figure 13: We expect lower costs to lead to higher gross margins for packaged food stocks in the near future

Source: Bloomberg and J.P. Morgan. Gross margin = Food PPI - J.P. Morgan Raw Foodstuff Index. Data after July 2013 are estimated

by JPM.

Based on our analysis of historical trends, however, we do not think margins will rise for an extended period, maybe three quarters at most. And then, as Figure 13 above illustrates, they likely will fall again before long (perhaps in mid-to-late 2014, if history is a guide).

More importantly, our analysis suggests food investors do not value margin growth particularly highly, as evidenced by the relatively low correlation over time between margins and food stock price performance.

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d In

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/Y

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ross

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gin

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15



Figure 14: Food stocks have been more correlated with sales volumes than pricing or changes in gross margin

correlation with food stock prices, last seven years


Safer to go back into the water: Short interest is still well below the norm, near a 7-year low

Packaged food short interest as a percentage of the float now stands at 3.4% on average, below the 10-year average of 4.1%. This is a multi-year low and down nearly 6% Y/Y.

Figure 15: Short interest as a percentage of the float remains low in food


72%

18%22%

Sales Volume Pricing Gross Margin

1

2

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Avg

. Foo

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as %

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at

SI Avg +1 St Dev -1 StDev


16



We see low short interest as a relatively bearish indicator, as it suggests there will be less of a positive stock reaction if short covering takes place. Stocks with particularly low short interest as of last measure include KRFT, MDLZ and CAG:

Figure 16: Short interest as a percentage of float


0.7% 0.8% 1.3% 1.6% 1.8% 1.9% 2.0% 2.0% 2.5% 2.7%

4.7%

6.5%

12.0%

22.1%23.1%

KR

FT

MD

LZ

CA

G

TH

S

SJM GIS

MJN

HS

H K

HS

Y

MK

C

CP

B

HA

IN

WW

AV

BN

NY


17



Annie's, Inc.

Neutral

Company DataPrice ($) 46.73Date Of Price 13 Sep 1352-week Range ($) 48.85-32.06Market Cap ($ mn) 822.45Fiscal Year End MarShares O/S (mn) 18Price Target ($) 52.00Price Target End Date 31-Dec-14

Annie's, Inc. (BNNY;BNNY US)

FYE Mar 2012A 2013A 2014E 2015EEPS Reported ($)Q1 (Jun) 0.11 0.12 0.13A 0.15Q2 (Sep) 0.22 0.24 0.29A 0.35Q3 (Dec) 0.14 0.15 0.21A 0.25Q4 (Mar) 0.24 0.29 0.36 0.44FY 0.71 0.80 0.99 1.19Bloomberg EPS FY ($) 0.67 0.79 0.98 1.20Source: Company data, Bloomberg, J.P. Morgan estimates.

We start our company-by-company analyses with the exception to our rule about favoring top line stories. Although Annie's is the best top line growth story in our packaged food coverage (which in a normal year might place it in the Overweight bucket), we expect sales growth to decelerate next year because of competition. We want to be prudent about high growth stories with possibly decelerating revenue growth, and thus we have a Neutral rating with a positive longer-term bias on the company itself.

Competition set to heat up. In August, when we downgraded BNNY (link) we spoke with some of its customers about the company’s key categories, namely organic macaroni & cheese and salty snacks. It is our understanding that at least one sizable organic food manufacturer—possibly WWAV with its Horizon Organicbrand—may be planning to launch a series of shelf stable products in these exact categories early next year. We believe these products will be designed to take market share from Annie’s and benefit from strong category growth rates. Unlike conventional brands such as KRFT’s mac and cheese, Horizon has an equity that may be able to travel into other organic categories (assuming it is marketed well).

Our take on Annie’s as a fundamental company remains constructive. We continue to view Annie’s as one of the best fundamental stories in our coverage universe. The growth of organic consumption in its categories, as well as Annie’s ability to garner better shelf placement and introduce successful new products, allows the top line to grow at an unparalleled rate among public food companies. Our Neutral rating does not reflect any alteration in our view of core fundamentals, management strategy (which we still think is wise), or execution.

Stock’s recent outperformance leads to risk/reward in equilibrium. Over the last 30 days, BNNY has risen 15%, the best in our packaged food coverage by a margin of nearly 500 basis points over the next best (median food stock -3% over this time). As a result, the NTM P/E now sits at what we see as a very full 47x (EV/EBITDA is 25x). Identifying the proper multiple for a company with few true peers – most food companies do not grow the top line anywhere near 20% a year, as Annie's has – can be a challenge. But at some point, especially given potentially stronger competition, we might expect multiple expansion to decelerate, even with this type of impressive revenue growth.



18



Investment Thesis, Valuation and Risks

Annie's, Inc. (Neutral; Price Target: $52.00)

Investment Thesis

We are Neutral BNNY. Though we are supportive of the company’s strategy and execution, and we believe over the long run Annie's is well-positioned for outsized growth, we see the near-term upside and downside potential as in balance.

Valuation

We use a 50/50 P/E EV/EBITDA blended methodology. On a P/E basis, we think 40x (average food company P/E roughly 18x) is fair for a company growing earnings ~4x faster than the food group average. For the same reason, we think 20x EV/EBITDA (food group average ~10-11x) also is reasonable. Using these multiples and our CY14E estimates, we come to fair value as of December 2014 of $52. Thus we establish a December 2014 price target of $52; our previous December 2013 price target was $44.

BNNY Valuation and Price Target


Risks to our rating. Upside: 1) Competition may not be as robust as we expect, 2) input costs may fall, 3) new products may perform better than expected. Downside: 1) Competition may be more robust than we expect, 2) input costs may rise, 3) new products may perform less well than expected.

P/E Multiple

Assumed Multiple 40.0x

* CY15E EPS 1.34

= Fair Value Dec-14: P/E Multiple 53.63

EV/EBITDA Multiple


* CY15E EBITDA 41

= CY15E Enterprise Value 816

- CY15E Net Debt (57)

= Fair Equity Value 873

÷ CY15E Shares Outstanding 17

= Fair Value Dec-14: EV/EBITDA Multiple 50.45

Average of P/E and EV/EBITDA Multiples

Fair Value Dec-14 (rounded) 52.00

Current Price 47.37

Potential stock upside between now and Dec-14 9.8%

Dividend Yield thru end of 2014 0.0%

Potential TSR between now and Dec-14 9.8%


19



Campbell Soup Company

Underweight

Company DataPrice ($) 42.28Date Of Price 13 Sep 1352-week Range ($) 48.83-34.30Market Cap ($ mn) 13,402.76Fiscal Year End JulShares O/S (mn) 317Price Target ($) 38.00Price Target End Date 31-Dec-14

Campbell Soup Company (CPB;CPB US)

FYE Jul 2012A 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

EPS (Operating) ($)Q1 (Oct) 0.82 0.88 0.86 0.86 0.90 0.92Q2 (Jan) 0.64 0.70 0.70 0.70 0.72 0.74Q3 (Apr) 0.56 0.62 0.55 0.56 0.58 0.60Q4 (Jul) 0.40 0.43 0.47 0.47 0.45 0.47FY 2.31 2.48 2.58 2.59 2.65 2.72Bloomberg EPS FY ($) 2.40 2.61 - 2.60 - 2.75Source: Company data, Bloomberg, J.P. Morgan estimates.

Despite the stock’s recent underperformance (-6% vs. SPX +4% since strong underperformance began after 8/27), we remain Underweight the CPB shares and we see meaningful downside risk.

Organic sales guidance arguably too aggressive. Management has said to expect 2% to 3% this year; however, the company did 2% last year despite a slew of new products, very favorable weather, and easier comps (organic sales were flat in FY12). We think a lower estimate for FY14E organic sales is reasonable for what we assume will be a more normal weather year with harder comps, and thus we model 1%.

It’s hard to get off the deal needle. We think CPB arguably has become overly dependent on promotions to drive sales: FY13 marked the seventh straight year in which promos were an incremental headwind to net sales growth. In order to build back category strength, we would like to see the company focus more on brand building activities than dealing back price. See below.

Figure 17: Promotional spending has been a headwind to revenue growth for CPB in 21 of the last 24 quarters

Source: Company reports and J.P. Morgan. Note: Campbell is on a July fiscal year end calendar.

-4.0%

-3.0%

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-1.0%

0.0%

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2.0%

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20



Valuation too high. We think CPB’s multiple (16.4x NTM consensus) is a bit bloated for a company that a) grew EBIT last year only 5.4% despite the aforementioned tailwinds and b) is only expected to grow EBIT ~6% this year despite an extra week. We expect multiple contraction to occur as the nature of CPB’s lower growth profile continues to become more accepted around the Street. We credit CPB for taking some share in soup lately; these share gains, however, may not be powerful enough to offset the relative lack of tailwinds this year.


Campbell Soup Company (Underweight; Price Target: $38.00)

Investment Thesis

We remain Underweight the CPB shares. Though Campbell’s top line performed better last year, we attribute some of the rebound to favorable weather (cold temperatures and weekend storms). As investors look ahead to this year’s soup season, they may see rather difficult comparisons ahead with a still-challenged category, in our view. We think the stock is overvalued at today’s level.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 14.0x P/E and 8.5x EV/EBITDA—both below the group averages—reasonably reflect CPB’s slower than average growth profile. Per the chart below, we see fair value as of December 2014 of $38. Thus we establish a December 2014 price target of $38; our previous December 2013 price target was $40.

CPB Valuation and Price Target


Risks to Rating and Price Target

1) The upcoming soup season also may be cold and stormy, 2) new products may start working better than we expect, 3) commodity costs may turn more favorable.

P/E Multiple


* CY15E EPS 2.80

= Fair Value: P/E Multiple (Dec-14) 39.18

EV/EBITDA Multiple


* CY15E EBITDA 1,781

= CY15E Enterprise Value 15,135

- CY15E Net Debt 3,288

= Fair Equity Value 11,847


= Fair Value: EV/EBITDA Multiple (Dec-14) 37.43


Fair Value: Dec-14 (rounded) 38.00

Current Price 42.42

Potential stock upside between now and Dec-14 -10.4%


Potential TSR between now and Dec-14 -6.0%


21



ConAgra Foods

Neutral

Company DataPrice ($) 31.88Date Of Price 13 Sep 1352-week Range ($) 37.28-25.51Market Cap ($ mn) 13,590.44Fiscal Year End MayShares O/S (mn) 426Price Target ($) 34.00Price Target End Date 31-Dec-14

ConAgra Foods (CAG;CAG US)

FYE May 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

2016E

EPS (Operating) ($)Q1 (Aug) 0.44 0.37 0.37 0.47 0.45 0.51Q2 (Nov) 0.57 0.63 0.63 0.70 0.71 0.76Q3 (Feb) 0.55 0.70 0.68 0.77 0.75 0.81Q4 (May) 0.60 0.64 0.62 0.71 0.68 0.75FY 2.15 2.34 2.30 2.65 2.58 2.83Bloomberg EPS FY ($) 2.15 - 2.37 - 2.65 -Source: Company data, Bloomberg, J.P. Morgan estimates.

ConAgra (CAG) – Downgrading to Neutral after further review of model

Last week, we maintained our Overweight rating (link) following the company's negative pre-announcement. We then maintained it again after uncovering some Nielsen-related data points we interpreted as less than positive (link). But today we are capitulating, as we are lowering our numbers following a review of our model. Based on our belief that many of CAG’s SKUs in the frozen aisle are not coming back anytime soon, and given that management lowered fiscal year guidance by a lower degree than the 1Q miss, we are starting to think consensus estimates contain downside risk. With these thoughts in mind, our FY14E goes to $2.30 from $2.34 (consensus $2.37) and FY15E to $2.58 from $2.65 (consensus $2.65). We introduce FY16E at $2.83 (consensus $3.02).

We appreciate that possible upside may come from cost synergies, as well as lower costs. But given our renewed focus on revenues, we now think cost savings and margins are less important than the possibility CAG’s sales disappoint for more than a quarter. Finally, we understand the possible downside cushion given CAG’s lowest-in-class earnings multiple. However, as mentioned above, we think investors will prefer better top lines for a while, an environment that does not necessarily favor ConAgra today.

We also note the large amount of uncertainty regarding this company at the moment, including the exact reasons for the 1Q miss, the duration of the challenges, the potential for Ralcorp to recover, the impact of the loss of the potato business, the impact of the divestiture of the milling business, the potential for both top and bottom line synergies from Ralcorp, and the pace of debt paydowns. We establish a December 2014 price target of $34; our previous December 2013 target was $36.

We emphasize that we would not necessarily short CAG on an absolute basis, as we do not see much downside to the current stock price.


ConAgra Foods (Neutral; Price Target: $34.00)

Investment Thesis

We are Neutral the CAG shares. Though we appreciate that CAG’s valuation metrics are attractive, we are concerned that earnings estimates need to drop further, and CAG does not fit into our current philosophy of buying higher top line growth stocks. We think the shares could be relatively “dead money” for a while.




22



Valuation

We establish a December 2014 price target of $34; our previous December 2013 target was $36. We use a 50/50 P/E EV/EBITDA methodology. We believe 13.5x P/E and 8.5x EV/EBITDA—both below the group means—are reasonable given the company’s current challenges:

CAG Valuation and Price Target



Upside: 1) 1Q's problems may not last, 2) The Ralcorp synergies may be greater than we expect, 3) Lower input costs may raise earnings larger than we expect. Downside: 1) Ralcorp may not turn around as we expect, 2) Execution problems with the RAH acquisition may take place, 3) Further SKU rationalization may occur.

P/E Multiple


* CY15E EPS 2.72


EV/EBITDA Multiple









Fair Value as of Dec-14 (rounded) 34.00

Current Price 32.09





23



General Mills

Neutral

Company DataPrice ($) 49.25Date Of Price 13 Sep 1352-week Range ($) 53.07-38.79Market Cap ($ mn) 32,761.10Fiscal Year End MayShares O/S (mn) 665Price Target ($) 50.00Price Target End Date 31-Dec-14

General Mills (GIS;GIS US)

FYE May 2012A 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

EPS Operating ($)Q1 (Aug) 0.64 0.66 0.69 0.70 0.74 0.75Q2 (Nov) 0.76 0.86 0.89 0.90 0.94 0.96Q3 (Feb) 0.55 0.64 0.66 0.67 0.71 0.73Q4 (May) 0.60 0.53 0.64 0.63 0.68 0.69FY 2.56 2.69 2.88 2.90 3.08 3.12Bloomberg EPS FY ($) 2.54 2.70 - 2.91 - 3.14Source: Company data, Bloomberg, J.P. Morgan estimates.

We are Neutral GIS. Though we see less risk to Mills than its cereal peer Kellogg, and we think the company has a potential catalyst if it ever starts growing Greek yogurt at a faster rate, we think a Neutral rating is appropriate for this relatively lower top line growth name.

We are raising our estimate for 1Q14 by a penny and taking FY14E and FY15E up slightly, too, to account for more favorable input costs than we expected. Mills is scheduled to report 1Q14E tomorrow morning:

Figure 18: GIS 1Q14E JPM vs. Bloomberg Consensus

$ in millions

Source: Bloomberg, company reports, and J.P. Morgan.

In our view, Mills will be a solid and consistent ~7%-8% EPS grower, plus it throws off a ~3% annual dividend yield. 10%-11% total shareholder return is not bad; we

JPM Est. Consensus

Net Sales 4,271 4,293

Gross Profit 1,622 1,624

Operating Income 738 741

EPS 0.70 0.70

EBITDA 893 895

Margins and Growth

Sales Growth Y/Y 5.4% 6.0%

Gross Margin 38.0% 37.8%

SG&A Margin 20.7% 20.6%

EBIT Margin 17.3% 17.3%

Tax Rate 32.2%

Segments

US Retail

Sales Growth 2.0%

Margin 23.4%

International

Sales Growth 14.8%

Margin 11.9%

Bakeries & Foodservice

Sales Growth 2.0%

Margin 14.7%


24



merely see slightly better options in other stocks we cover at the moment and we favor stocks with better top line potential in the near term.


General Mills (Neutral; Price Target: $50.00)

Investment Thesis

We rate the shares of GIS Neutral. With the RTE cereal category still a bit sluggish and Mills’ yogurt yet to fully rebound, we think it is prudent to remain on the sideline. Mills remains a healthy option for longer-term, more risk-averse investors, in our view, who are looking for dividend yields, but we think it could lag some better top line growers over the next 6-12 months.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 15.5x P/E and 9.5x EV/EBITDA – a bit below the group averages – reasonably reflect GIS’s relatively stable growth profile. This leads us to think $50 is fair value as of December 2014. We therefore establish a December 2014 price target of $50; our previous December 2013 target was $52 (we are lowering our multiples for many stocks today).

GIS Valuation and Price Target

Source: Bloomberg and J.P. Morgan estimates. Note: EBITDA factors JV income and income from non-controlling interests.


Upside: 1) Commodity costs may fall, 2) GIS innovation may prove successful, 3) accretive M&A may take place. Downside: 1) Commodity costs may rise, 2) competitors may lower Greek yogurt prices, 3) competitors may get more aggressive with cereal.

P/E Multiple


* CY15E EPS 3.29


EV/EBITDA Multiple










Current Price 49.73





25



Hain Celestial Group

Overweight

Company DataPrice ($) 79.40Date Of Price 13 Sep 1352-week Range ($) 85.48-51.51Market Cap ($ mn) 3,854.31Fiscal Year End JunShares O/S (mn) 49Price Target ($) 94.00Price Target End Date 31-Dec-14

Hain Celestial Group (HAIN;HAIN US)

FYE Jun 2012A 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

EPS (Operating) ($)Q1 (Sep) 0.30 0.40 0.57 0.57 0.68 0.68Q2 (Dec) 0.41 0.72 0.84 0.84 0.97 0.98Q3 (Mar) 0.54 0.72 0.88 0.88 1.01 1.02Q4 (Jun) 0.47 0.65 0.73 0.72 0.84 0.85FY 1.86 2.53 3.02 3.02 3.50 3.52Bloomberg EPS FY ($) 1.80 2.46 - 3.02 - 3.45Source: Company data, Bloomberg, J.P. Morgan estimates.

We continue to see upside in Hain and establish a December 2014 price target of $94; our previous December 2013 price target was $86. Pursuant to our current philosophy of investing in higher revenue-growing companies, Hain remains near the top of our list of preferred stocks. We also see upside to our estimates should the company, as is its goal, continue to make accretive acquisitions.

Some investors with whom we spoke last week wonder why, despite a strong natural/organic category, Hain’s EQ units have been merely flat the last two months. Though we would prefer to see EQ unit growth higher than flat, we also might point out some mitigating factors, including a positive mix effect.

Mix is becoming a bigger driver of sales growth. As high price products such as baby food in pouches sell faster than some lower-priced products in the portfolio, Hain's product mix is increasingly important as a top line driver. Indeed, in the last two years, the percentage of Hain's sales from products priced above the total company average price/EQ unit has risen to 41% from 32%. In the last 12 weeks, HAIN sales from products priced above the company mean grew 28% versus -2% for those below the mean. Thus, when Nielsen reports HAIN price/EQ unit up 11% Y/Y, much of this figure is driven by mix, not true pricing, we believe. We see this as a positive because mix (often consumer driven) can be more sustainable as a sales driver than pricing (often manufacturer driven) in the longer run, we believe.

EQ units look much better on a two-year stacked basis than a one-year basis. Though EQ units were 0% last month, they were +8% on a two-year basis, in line with recent trends.

In recent periods, actual units have started to rise faster than equivalent units. As mentioned, we would like to see EQ units (units that are normalized for weight) rise faster than the 0% of the last two months in measured channels. But we are encouraged to see actual units start to rise faster (+4% last month, e.g.). Hain's units do not always rise faster than EQ units, so we do not want to say this is a long-term trend; however, we think the recent relationship should be considered when looking at Hain’s data. Based on our conversations with management recently, we believe Hain has been making numerous adjustments to pack sizes in a variety of categories, which could temporarily be skewing the EQ unit data. But we cannot necessarily confirm this ourselves via the data at this time.


26



Keep in mind that Nielsen Co. xAOC data measures only around 40% of Hain’s total sales.


Hain Celestial Group (Overweight; Price Target: $94.00)

Investment Thesis

We are Overweight the HAIN shares. With healthy eating trends growing quickly and the company benefitting from accelerated distribution expansion, we see room for continued high single digit organic growth in the US. We also see further growth in the UK business on both the top and bottom lines.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 24.5x P/E and 14.0x EV/EBITDA – a bit below the current NTM consensus figures, which we think are slightly bloated at the moment – reasonably reflect HAIN’s fast growth profile. These multiples atop our CY15 estimates lead us to $94 fair value as of Dec-14.

HAIN Valuation and Price Target



1) An economic slowdown could impair consumers’ desire to buy higher priced food, 2) input costs may rise, 3) supply of organic foodstuffs may be difficult to obtain.

P/E Multiple


* CY15E EPS 3.73


EV/EBITDA Multiple


* CY15E EBITDA 350


- CY15E Net Debt 201






Current Price 80.19


Dividend Yield 0.0%



27



Hershey

Overweight

Company DataPrice ($) 91.58Date Of Price 13 Sep 1352-week Range ($) 98.00-68.09Market Cap ($ mn) 20,774.01Fiscal Year End DecShares O/S (mn) 227Price Target ($) 105.00Price Target End Date 31-Dec-14

Hershey (HSY;HSY US)

FYE Dec 2012A 2013E(Prev)

2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E

EPS (Operating) ($)Q1 (Mar) 0.96 1.09A 1.09A 1.19 1.18 1.29Q2 (Jun) 0.66 0.72A 0.72A 0.79 0.79 0.84Q3 (Sep) 0.87 1.00 0.99 1.11 1.10 1.22Q4 (Dec) 0.74 0.90 0.90 1.00 1.00 1.12FY 3.23 3.71 3.71 4.09 4.06 4.47Bloomberg EPS FY ($) 3.25 - 3.71 - 4.10 4.48Source: Company data, Bloomberg, J.P. Morgan estimates.

We continue to recommend HSY. Hershey fits squarely into our “buy the top line” thesis at this point. We see nothing in Nielsen Co. data or our channel checks to suggest Hershey’s top line is slowing by any meaningful amount.

Cocoa a margin headwind, top line tailwind. We believe recently higher cocoa prices eventually will impair margin growth, but given the length of HSY’s hedges we expect no impact until late 2014 or early 2015. The positive side of higher cocoa prices, of course, is that Hershey likely will pass them on to customers in the form of higher prices, and chocolate candy historically has been a relatively inelastic category. So investors focused on margins may not like Hershey as much as they once did; but investors focused on revenues – as we are at the moment – may see an opportunity for sales growth acceleration later in 2014 or in 2015.

Estimates. We reduce 2014E to $4.06 from $4.09 (consensus $4.10) to account for the possibility of a late-year margin squeeze. We introduce 2015E of $4.47 (consensus $4.48).


Hershey (Overweight; Price Target: $105.00)

Investment Thesis

We are Overweight Hershey. HSY has been and, in our opinion, should continue to be, one of the steadiest top line stories in packaged food. The opportunity in China is underappreciated, we believe, with the chocolate category there growing double digits. For investors able to stomach the high valuation, we think HSY remains a smart long-term choice.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 23x P/E and 13.5x EV/EBITDA—above the group means—reasonably reflect HSY’s better than average growth profile, opportunities to grow in China and via Brookside, and strong category attributes. We establish a December 2014 price target of $105; our previous December 2013 price target was $100. See below:


28



HSY Valuation and Price Target


Risks to rating and price target. 1) The China opportunity may not be as robust as we believe, 2) Brookside may disappoint, 3) Mars and/or other competitors may become more aggressive.

P/E Multiple


* 2015E EPS 4.47


EV/EBITDA Multiple


* 2015E EBITDA 1,822

= 2015E Enterprise Value 24,592

- 2015E Net Debt 1,102


÷ 2015E Shares Outstanding 219




Current Price 92.71





29



Hillshire Brands

Overweight

Company DataPrice ($) 31.66Date Of Price 13 Sep 1352-week Range ($) 37.28-24.96Market Cap ($ mn) 3,957.50Fiscal Year End JunShares O/S (mn) 125Price Target ($) 35.00Price Target End Date 31-Dec-14

Hillshire Brands (HSH;HSH US)

FYE Jun 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

EPS (Operating) ($)Q1 (Sep) 0.49 0.36 0.33 0.42 0.39Q2 (Dec) 0.62 0.55 0.54 0.65 0.61Q3 (Mar) 0.35 0.43 0.44 0.50 0.48Q4 (Jun) 0.26 0.38 0.41 0.45 0.43FY 1.72 1.73 1.72 2.01 1.91Bloomberg EPS FY ($) 1.71 - 1.68 - 1.92Source: Company data, Bloomberg, J.P. Morgan estimates.

We are Overweight HSH because we think the company's opportunity to improve its brand equities and margins is strong, and we also think (per management's guidance) that the company is committed to making strong, accretive acquisitions.

We also note that the most important input for HSH – pork trimmings – are down significantly since the company gave guidance for the fiscal year:

Figure 19: Pork trimmings, HSH's most important meat input, are down significantly since last guidance was issued ($/cwt)

Source: USDA and J.P. Morgan.

So it is possible that there is upside to consensus estimates, and we remain comfortable with our Overweight rating.

That said, there are some reasons HSH is not among our very top picks at this time. First, we think 1Q14 could be very challenging and we are lowering our estimate to $0.33 from $0.36 (consensus $0.36) to reflect the possibility of sluggish margins. We also are taking down 2014E to $1.72 from $1.73 and 2015E to $1.91 from $2.01 (consensus $1.92) because of the possibility the packaged meats category could remain highly competitive for longer than we anticipate.

64 62

54 51

58

83

95

77

63

54 55 57 56

62

66

69 67

64

59

56 54

Jan-

13

Feb

-13

Mar

-13

Apr

-13

May

-13

Jun-

13

Jul-1

3

Aug

-13

Sep

-13

Oct

-13

Nov

-13

Dec

-13

2013 Normal Seasonal Trend

Trimmings were $99 when HSH issued FY14E guidance in early Aug.


30



Second, we would not include HSH in our list of high revenue growth names. So while we like it and would own it versus many other names we cover – the upside to our price target is large – it is not our top pick at the moment.


Hillshire Brands (Overweight; Price Target: $35.00)

Investment Thesis

We are Overweight HSH. Most of our long-term confidence builds on our theory that CEO Sean Connolly and team are investing smartly in R&D and marketing in a way that will drive sales volumes higher than the Street anticipates. We continue to model low single digit growth over the next couple of years; however, we see upside to our figures should the company’s innovation efforts pan out as we think they may. We also see the opportunity for HSH to add to EBITDA by buying other assets (per management).

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 16.0x P/E and 9.5x EV/EBITDA – both below the group mean – reasonably reflect HSH’s status ascompany with relatively high margin volatility and lower top line growth. These metrics atop our CY15 estimates get us to fair value as of December 2014 of $35. Thus we establish a December 2014 target price of $35; our previous December 2013 target price was $37 (we are lowering multiples almost across the board in our space).

HSH Valuation and Price Target



1) Meat costs may rise, 2) innovation may not be successful, 3) M&A opportunities may not materialize.

P/E Multiple


* CY15E EPS 2.00


EV/EBITDA Multiple


* CY15E EBITDA 549








Current Price 31.88


Dividend Yield (approx, now thru end of 2014) 2.8%



31



J.M. Smucker Co.

Overweight

Company DataPrice ($) 107.87Date Of Price 13 Sep 1352-week Range ($) 114.72-81.60Market Cap ($ mn) 11,431.48Fiscal Year End AprShares O/S (mn) 106Price Target ($) 118.00Price Target End Date 31-Dec-14

J.M. Smucker Co. (SJM;SJM US)

FYE Apr 2013A 2014E(Prev)

2014E(Curr)

2015E(Prev)

2015E(Curr)

2016E

EPS Reported ($)Q1 (Jul) 1.17 1.24A 1.24A 1.35 1.41 1.48Q2 (Oct) 1.45 1.60A 1.60A 1.75 1.78 1.87Q3 (Jan) 1.47 1.61A 1.62A 1.65 1.72 1.82Q4 (Apr) 1.29 1.36 1.37 1.50 1.41 1.50FY 5.38 5.82 5.82 6.26 6.31 6.68Bloomberg EPS FY ($) 5.24 - 5.83 - 6.31 -Source: Company data, Bloomberg, J.P. Morgan estimates.

Like HSH, SJM is not at the top of our list at the moment because it has less organic growth than some other names we cover. Nevertheless, we think guidance may be conservative and we continue to admire the operational strength of this company.

We see further earnings beats to come. We continue to see upside in the stock and point out that SJM historically has been conservative with guidance. Thus, when after only one quarter of the fiscal year, management says it is cautiously optimistic in the high end of guidance – as it did last month – we see this as positive indicator of further earnings beats ahead.

We think bean costs will stay muted. Smucker’s EBITDA generally is more sensitive to the cost of the underlying Arabica or Robusta coffee bean than changes in, for example, K-Cup sales growth. Though we are not commodity analysts, our research suggests bean costs will stay relatively attractive over the next 12 months thanks to a strong crop in Brazil. This should lead to continued margin strength for SJM. There is nothing more important for SJM’s EBITDA than bean costs, in our experience.

Adjusting estimates. FY15E goes to $6.31 from $6.26 (consensus $6.31) as our confidence in a strong Arabica crop from Brazil has increased recently. We introduce FY16E at $6.68 though we admit visibility this far out is limited.


J.M. Smucker Co. (Overweight; Price Target: $118.00)

Investment Thesis

We are Overweight SJM. Over time, we believe the at-home coffee category will continue to be one of the faster growing ones in consumer staples. Though SJM may continue to lose share in K-Cups to competitors, we see these losses as largely offset by the fast pace of single-serve growth as a category. SJM historically has been a well-run business with a solid marketing strategy.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 18.0x P/E and 10.0x EV/EBITDA – slightly below the group mean – reasonably reflect SJM’s mostly-US business (meaning: potentially a bit less growth than some peers over time). We establish a December 2014 target price of $118; our previous December 2013 target price was $115 (we are lowering multiples across most of our coverage today):


32



SJM Valuation and Price Target



1) Green coffee costs could rise, 2) SJM may lose more share in K-Cups than we expect, 3) At home coffee consumption trends may slow.

P/E Multiple


* CY14E EPS 6.55


EV/EBITDA Multiple










Current Price 107.92





33



Kellogg

Underweight


Kellogg (K;K US)

FYE Dec 2011A 2012A 2013E(Prev)

2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E

EPS (Operating) ($)Q1 (Mar) 1.07 1.08 0.99A 0.99A 1.05 1.06 1.12Q2 (Jun) 1.00 0.90 1.00A 1.00A 1.10 1.09 1.15Q3 (Sep) 0.85 0.89 0.89 0.87 0.95 0.94 0.99Q4 (Dec) 0.65 0.65 0.87 0.85 0.92 0.91 0.96FY 3.57 3.52 3.75 3.71 4.02 3.99 4.22Bloomberg EPS FY ($) 3.37 3.38 - 3.79 - 4.09 4.43Source: Company data, Bloomberg, J.P. Morgan estimates.

Downgrading Kellogg (K) to Underweight from Neutral. We recommend investors exhibit a level of caution with Kellogg. Because of our top line concerns, we are lowering 2013E to a Street-low $3.71 from $3.75 (consensus $3.79), and 2014E to $3.99 from $4.02 (consensus $4.10).

We observe the particularly difficult top line comparison approaching in 4Q13E, with 4Q12's organic growth having risen 5.3% (versus 2.5% for the whole year).

Our concern derives largely from slumping trends in Nielsen Co. xAOC-tracked channels, which we think could cause the company to report lower-than-expected sales and earnings. See below:

Figure 20: Kellogg’s sales trends have been slipping lately in measured channels…


Figure 21: … Primarily because of eroding velocities ($ sales per distribution point)


$ Sales Y/Y 4-Wk 12-Wk 52-Wk

ANNIE'S INC 22.2% 21.8% 16.5%

HAIN CELESTIAL GROUP 11.4% 8.5% 8.7%

HERSHEY CHOCOLATE CANDY-NON-SEASONAL 4.9% 8.4% 7.6%

MONDELEZ INTERNATIONAL INC 3.4% 4.6% 3.9%

CAMPBELL SOUP CO 2.8% 3.7% 4.2%

HILLSHIRE BRANDS CO 2.2% 1.4% 1.8%

TOTAL FOOD (INCL. PERIMETER) 1.8% 1.9% 2.2%

KRAFT FOODS INC. 1.0% 0.2% -0.5%

PRIVATE LABEL (DRY GROCERY) 0.7% 1.2% 2.2%

KELLOGG COMPANY -0.7% -0.6% 0.3%

GENERAL MILLS INC -2.4% -0.8% -1.3%

J. M. SMUCKER COMPANY -3.4% -3.3% -0.3%

CONAGRA INC -5.3% -3.5% -1.3%

Velocity Y/Y 4-Wk 12-Wk 52-Wk

ANNIE'S INC 10.5% 11.3% 7.4%

HAIN CELESTIAL GROUP 9.4% 5.7% 2.9%

TOTAL FOOD (INCL. PERIMETER) 1.5% -0.3% -1.2%

KRAFT FOODS INC. 1.2% -0.7% -3.1%

HERSHEY CHOCOLATE CANDY-NON-SEASONAL 1.2% 4.0% 4.3%

MONDELEZ INTERNATIONAL INC -2.0% 0.3% 1.0%

PRIVATE LABEL (DRY GROCERY) -3.2% -2.8% -2.6%

HILLSHIRE BRANDS CO -3.4% -3.1% 1.2%

CAMPBELL SOUP CO -5.2% -5.2% -6.0%

GENERAL MILLS INC -6.7% -4.4% -4.1%

KELLOGG COMPANY -7.8% -7.7% -6.1%

CONAGRA INC -8.4% -6.5% -3.3%

J. M. SMUCKER COMPANY -10.2% -10.0% -6.4%


34



Figure 22: Kellogg's sales declines are not caused by difficult comparisons; in fact, on a two-year stacked basis trends arguably appear even softer

$ sales Y/Y, 2-year stacked


Kellogg’s ROIC well off 2010 peak, lagging the group. Since peaking in early 2010, Kellogg’s ROIC has dropped consistently. In fact, on a cumulative basis since, the company’s LTM ROIC has declined by a greater rate than any traditional, branded packaged food company we cover (excluding KRFT and MDLZ, for which we do not have enough historical data).

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

08/0

4/12

09/0

1/12

09/2

9/12

10/2

7/12

11/2

4/12

12/2

2/12

01/1

9/13

02/1

6/13

03/1

6/13

04/1

3/13

05/1

1/13

06/0

8/13

07/0

6/13

08/0

3/13

08/3

1/13

Total US Dry Grocery 2-Yr Kellogg 2-Year


35



Figure 23: Kellogg's ROIC has fallen by a greater degree since peaking in early 2010 than any other branded, traditional packaged food stock we covercumulative change in LTM ROIC; 100 = ROIC 14 periods ago

Source: Company reports and J.P. Morgan estimates. Note: Excludes non-recurring gains and losses. ROIC = NOPAT/Average Book

Value of Capital. Excludes MJN, which we see as non-traditional food (MJN would appear worse than K, for the record). As of 8/1/13.

We remain concerned about trends in US biscuits. US Snacks organic sales growth was a disappointing -3.3% last quarter. Though the company pointed to potentially better days ahead, and we model improvement in 2014E, we are not confident that a quick turnaround is afoot. We would understand if Snacks personnel had focused their attention over the last 12 months more on Pringles than on legacy brands; it might be reasonable to expect now that the acquisition is fully integrated, trends will improve, but this is not certain.

Much time on last quarter’s call was spent on cereal investments. Some analysts lobbied for greater investment, some for less. We see the debate as symptomatic of a category that arguably has been struggling for years, with various efforts to turn it around having had mixed results. We continue to believe RTE cereal will be a low growth category in the US unless breakthrough innovation arrives (either in the form of health/wellness or packaging). Barring such a change, we do not necessarily recommend that Kellogg or any of its cereal manufacturing peers toss extramarketing money at the category just yet.

Latin American volumes and margins continue to lag. Many food companies have experienced strong volumes in LatAm recently (notably MJN, e.g.) but K is notnecessarily one of them. Partly because of price increases as a result of devaluation issues, et al, volumes potentially could decline for the third year out of four. Kellogg’s operating margin in the region is on pace to lose ~300 basis points over the past three years.

70

80

90

100

110

120

130

-14 -13 -12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0

Period

K CPB GIS CAG MKC SJM HSY


36



We establish a December 2014 target price of $58; our previous December 2013 target was $65. We expect some pushback on this call, as K already has fallen 8% in the last month (SPX -4%). But we see further potential downside in the shares, the group as a whole has not performed much better (-3% median over the last month) than K, and the short interest ratio has fallen well off its summer peak. K may not have enough downside “juice” left to be a strong absolute short, but on a relative basis we might pair it against other names we prefer.


Kellogg (Underweight; Price Target: $58.00)

Investment Thesis

We are Underweight the K stock. On the one hand, cheaper input costs likely will lead to margin improvement, and the stock already is well off its peak. On the other hand, we do not see much room for multiple expansion, and recent distribution gains can be fleeting. We think the company’s recent sales softness versus packaged food as a whole will continue and we are concerned about ROIC declines. We do not see K as an absolute short but as a relative underperformer.

Valuation

We believe 14.5x P/E and 9.0x EV/EBITDA – both below the group averages –reasonably reflect K’s historically lower-than average growth profile, as well as the risk of further product recalls and/or operational setbacks. Applying these multiples to our 2015 estimates and averaging the results, we come to $58 fair value as of December 2014. Thus we establish a December 2014 price target of $58; our previous December 2013 price target was $65:

K Valuation and Price Target



1) Margins may rise higher than we model, 2) cereal distribution may continue to grow faster than we expect, 3) further cereal innovation may impress.

P/E Multiple


* 2015E EPS 4.22


EV/EBITDA Multiple


* 2015E EBITDA 2,864


- 2015E Net Debt 5,406






Current Price 60.98

Potential stock upside between now and Dec-14 -4.9%


Potential TSR between now and Dec-14 -1.0%


37



Kraft Foods Group

Neutral


Kraft Foods Group, Inc. (KRFT;KRFT US)


2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E

EPS Reported ($)Q1 (Mar) 0.82 0.76A 0.76A 0.79 0.84 0.91Q2 (Jun) 1.00 0.76 0.76 0.84 0.91 0.97Q3 (Sep) 0.79 0.72 0.73 0.86 0.83 0.91Q4 (Dec) 0.17 0.58 0.59 0.72 0.68 0.76FY 2.75 2.83 2.85 3.21 3.26 3.54Bloomberg EPS FY ($) 2.88 - 2.88 - 3.22 3.42Source: Company data, Bloomberg, J.P. Morgan estimates.

Kraft is our favorite Neutral-rated stock. We have a theory about food investing, that given a forced choice, we would rather own great brands and categories with less skilled managers than the opposite, but Kraft is putting this theory to the test. We are not enamored of the company’s categories (cheese, e.g., can be irrational from time to time and is heavily weighted toward store brands). But we continue to support CEO Tony Vernon’s vision for the future of his company, and we see more earnings beats ahead based on his plan to drive cost cutting and turn savings into top line growth over the long run.

We still have a few too many hesitations, however, to get more aggressive at this time. Without better top line growth (Kraft is one of the lower growth companies we cover right now, though this could improve) and absent a valuation case (which we do not have right now), it is hard for us to upgrade at this time. We also note that Street estimates are 10c above consensus with only two quarters left in the year, so the chance for further, meaningful earnings beats is somewhat limited. Should the stock pull in to a lower level, we may become more comfortable with the valuation.

Adjusting estimates. We raise 2013E to $2.85 (consensus $2.88, guidance $2.78); we raise 2014E to $3.26 from $3.21 (consensus $3.22) to reflect the possibility that KRFT applies some of its cash balance toward share buybacks or debt paydown; we introduce 2015E at $3.54 (consensus $3.42).


Kraft Foods Group (Neutral; Price Target: $57.00)

Investment Thesis

We are Neutral KRFT. We think CEO Tony Vernon and team have the proper strategy in place to turn the business around (cut costs and reinvest the savings inprice/mix to build volume); however, we are concerned in the near term about what seem to be disappointing sales trends, at least as measured by the Nielsen Co. We also observe that cheese costs have risen. With the stock over 18x P/E and the dividend payout ratio set to drop in 2014, we remain on the sideline. But of all the Neutral-rated stocks we cover, KRFT remains one of our favorites. We might look for a slightly better entry point if valuation metrics come in and/or fundamentals improve.


38



Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 17.5x P/E and 9.5x EV/EBITDA – both a bit below the group mean – reasonably reflect what should be a slightly-below industry average growth profile over the long term (thanks to a North America-only business). These multiples atop our 2015 estimates lead us to a $57 fair value as of December 2014. Thus we establish a December 2014 price target of $57; our previous December 2013 price target was $59, but we are lowering multiples across most of our stocks today (especially for ones that rely by a greater degree on dividends for TSR, such as KRFT):

KRFT Valuation and Price Target



Upside: 1) Cost savings and higher margins may arrive quicker than we expect, 2) the company may start applying its cash balance to the P/L, 3) commodity costs may fall. Downside: 1) cost savings may take longer to materialize than anticipated, 2) top line struggles may continue, 3) commodity costs may rise.

P/E Multiple


* 2015E EPS 3.55


EV/EBITDA Multiple


* 2015E EBITDA 4,131


- 2015E Net Debt 8,359






Current Price 54.79





39



McCormick & Co., Inc.

Neutral

Company DataPrice ($) 67.79Date Of Price 13 Sep 1352-week Range ($) 75.26-60.06Market Cap ($ mn) 9,056.74Fiscal Year End NovShares O/S (mn) 134Price Target ($) 70.00Price Target End Date 31-Dec-14

McCormick & Co., Inc. (MKC;MKC US)

FYE Nov 2011A 2012A 2013E(Prev)

2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E

EPS (Operating) ($)Q1 (Feb) 0.57 0.55 0.57A 0.57A 0.61 0.60 0.66Q2 (May) 0.55 0.60 0.59A 0.59A 0.67 0.65 0.71Q3 (Aug) 0.69 0.78 0.79 0.78 0.88 0.86 0.93Q4 (Nov) 0.98 1.11 1.21 1.21 1.33 1.30 1.40FY 2.79 3.04 3.15 3.14 3.47 3.41 3.69Bloomberg EPS FY ($) 2.78 3.08 - 3.16 - 3.49 3.84Source: Company data, Bloomberg, J.P. Morgan estimates.

We are Neutral the MKC stock. We believe over time, the company’s strong market share in a growing category (flavor) will allow it to grow faster than most food stocks. We think that currently, however, Street estimates and valuations are a bit ahead of themselves.

Trimming estimates. We reduce FY13E to $3.14 from $3.15 (consensus $3.16) and FY14E to $3.41 from $3.47 (consensus $3.49). We introduce FY15E at $3.69 (consensus $3.84). Our numbers are coming down partly to reflect continued risks in China. Though we like exposure to China in general, MKC is exposed to some restaurants that may be a bit sluggish at the moment.


McCormick & Co., Inc. (Neutral; Price Target: $70.00)

Investment Thesis

We are Neutral the MKC stock. We look favorably upon the company’s Consumer segment and think it will continue to perform well. As for Industrial, it is a solid business but struggling a bit at the moment. We expect a turnaround in Industrial eventually, but with the stock’s multiple above the group mean, total shareholder return may be limited in the near term.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 19x P/E and 12x EV/EBITDA – both above the group mean – reasonably reflect MKC’s strong fundamental positioning in a healthy category. We establish a December 2014 price target of $70 based on our valuation figure below; our previous December 2013 target was $69.


40



MKC Valuation and Price Target

Source: Bloomberg and J.P. Morgan estimates. Note: Our EBITDA estimate includes income

from unconsolidated operations.


Upside: 1) US at-home eating trends could improve further, 2) consumers may trade up more, 3) the company could do an accretive acquisition (part of its stated model is growing via M&A). Downside: 1) QSR trends may worsen, 2) input costs may rise, 3) M&A may not take place.

P/E Multiple


* CY15E EPS 3.72


EV/EBITDA Multiple


* CY15E EBITDA 827








Current Price 68.68





41



Mead Johnson Nutrition

Overweight


Mead Johnson Nutrition (MJN;MJN US)


2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E

EPS ($)Q1 (Mar) 0.80 0.79A 0.79A 0.96 0.95 1.10Q2 (Jun) 0.85 0.75A 0.75A 0.92 0.94 1.06Q3 (Sep) 0.71 0.80 0.80 0.84 0.86 0.96Q4 (Dec) 0.74 0.77 0.78 0.85 0.88 0.96FY 3.09 3.26 3.26 3.56 3.64 4.08Bloomberg EPS FY ($) 3.04 - 3.26 - 3.56 3.93Source: Company data, Bloomberg, J.P. Morgan estimates.

Upgrading Mead Johnson (MJN) to Overweight from Neutral

We believe today, when analyzing MJN, the company’s top line growth should be valued more highly than the pending cost headwinds and the possibility of further Chinese government intervention.

We also see the following tailwinds:

Relatively easy comparisons approaching. In 2H12, MJN faced a number of issues – including a pricing problem in China – that led to unusually low sales growth in the Asia/Pacific region (+1% 3Q, +10% 4Q). The company is about to lap these periods, and we are starting to think Street estimates for 2H13's revenue growth may not be high enough.

Cash flow set to rise in a year. MJN is currently building a large spray dryer in Singapore. This facility is costing the company a great deal of cash in the form of capital spending, a cost that goes away at some point next year when the dryer opens. We model free cash flow increases of $90MM in 2014E and $180MM in 2015E.

China may ease its one baby policy. Various reports (including here) have suggested China could loosen its one baby policy by the end of this year. We have no particular insight into the veracity of this outlook, and we expect any change to be very slow, but any actual news about more babies in China likely would be constructive for the MJN stock, we believe.

Fertility rates improving slightly in the US. According to the National Center for Health Statistics (link to article), US fertility rates are leveling off for the first time since the recession. If true, this should be a positive for MJN.

The company may get more aggressive in buying back stock. Because of better cash flow in future years, we think MJN will have more firepower to return cash to shareholders via buybacks. The company's new $500MM authorization calls allows for “opportunistic stock repurchase,” a phrase that differs from the prior “primarily intended [to] offset [the] dilutive effect of stock-based compensation.”

For these reasons, we raise 2014E to $3.64 from $3.56 (consensus $3.56) and introduce 2015E at $4.08 (consensus $3.93). We establish a December 2014 price target of $88; our previous December 2013 target was $78.


http://articles.washingtonpost.com/2013-09-06/local/41811965_1_fertility-rate-hispanic-women-birthrate

http://www.cnbc.com/id/100938297

42




Mead Johnson Nutrition (Overweight; Price Target: $88.00)

Investment Thesis

We are Overweight MJN. We appreciate that ROIC has been slipping and cost headwinds are afoot. But given our belief that food companies with higher top line growth rates should be valued highly today, and considering the possibility of better cash flow and EPS growth via buybacks, we think an Overweight rating is appropriate.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 23x P/E and 14x EV/EBITDA – about 3x above the group mean – reasonably reflect MJN’s better than average growth profile. At these multiples and using our new 2015 estimates, we come to fair value of $88 as of December 2014. Thus we establish a December 2014 price target of $88; our previous December 2013 price target was $78.

MJN Valuation and Price Target


Risks to rating and price target. 1) Cash flow may not be as strong as we expect, 2) China may further foster growth of domestic players, 3) powdered milk costs may rise further.

P/E Multiple


* 2015E EPS 4.08


EV/EBITDA Multiple


* 2015E EBITDA 1,195


- 2015E Net Debt 618






Current Price 76.11

Potential upside between now and Dec-14 15.6%




43



Mondelēz International, Inc.

Overweight

Company DataPrice ($) 31.55Date Of Price 13 Sep 1352-week Range ($) 32.91-24.50Market Cap ($ mn) 56,884.65Fiscal Year End DecShares O/S (mn) 1,803Price Target ($) 38.00Price Target End Date 31-Dec-14

Mondelēz International, Inc. (MDLZ;MDLZ US)

FYE Dec 2011A 2012A 2013E(Prev)

2013E(Curr)

2014E(Prev)

2014E(Curr)

2015E

Analyst Adjusted Diluted EPS ($)Q1 (Mar) - 0.30 0.34A 0.34A 0.29 0.30 0.35Q2 (Jun) - 0.36 0.37A 0.37A 0.39 0.40 0.45Q3 (Sep) 0.33 0.38 0.42 0.40 0.45 0.45 0.51Q4 (Dec) 0.36 0.37 0.39 0.41 0.56 0.57 0.65FY 1.39 1.47 1.52 1.52 1.69 1.72 1.96Bloomberg EPS FY ($) 2.29 1.43 - 1.55 - 1.72 1.91Source: Company data, Bloomberg, J.P. Morgan estimates.

We remain Overweight Mondelēz. We believe activist-style investor Nelson Peltz likely will get a couple of seats on the MDLZ board, and we continue to see significant margin upside over time. MDLZ fits squarely into our profile of companies we like right now: 1) relatively high sales growth, 2) Europe exposure, and 3) less reliance on a dividend yield for TSR.

Our rating is for the longer term, as (once again) we have concerns about the current quarter. We are lowering 3Q13 to $0.40 from $0.42 to reflect our belief that margins could be light once again this period. We maintain our 2013E estimate to reflect our belief the 4Q13 tax rate could be lighter than we previously modeled.

Debt paydown is an underappreciated part of the MDLZ story. Earlier this year, we wrote a note entitled, “Maybe Don’t Love Me Tender,” (link) in which we discussed our belief MDLZ should not tender much of its outstanding debt early. And to date, MDLZ has done just that—not tender for its debt. But this leaves the opportunity ahead of us, because much of the company’s debt (roughly 22%) matures over the next 18 months. As the company does this, it likely will replace much of the retiring debt with new, lower coupon debt, in our opinion, which will reduce interest expense and raise EPS.

Updating our thoughts on the MDLZ/Peltz situation. We recently wrote a note entitled “Peltz White Paper Preview – Driving Shareholder Value Via Margin Enhancement” (link), in which we laid out the case for margin enhancement at the company. We have an update to our thoughts since this note was published: We no longer are confident that Mr. Peltz’s Trian Funds will publish a white paper on MDLZ. Historically, Mr. Peltz has saved his white paper “ammo” for proxy battles when he wants to get a board seat but feels resistance from the company. Our sense from speaking with MDLZ representatives, however, is that a proxy fight is not assured; therefore, we infer that it is possible Mr. Peltz and Trian’s representatives may get board seats without much of a struggle. We of course do not know for sure what will occur: We merely want to raise the possibility of a less confrontational relationship between Trian and MDLZ than perhaps is expected by some observers.

On the one hand, the absence of a white paper would take away a potentially positive catalyst from shorter-horizon investors; on the other hand, the presence of strong board members with Mr. Peltz's ear could be taken as a longer-term positive by the Street, we believe.




44



To be conservative, we now model less than 5% top line growth this year(4.9%). At a recent competitor conference, CFO Dave Brearton said coffee was “even a bigger wildcard” than the company expected a month prior. We are not sure how to interpret this comment, but one way is to see it as a warning not to expect as strong 2H13 sales as expected. We thus now model 4.9% to be conservative. Keep in mind that lower coffee probably provides an EBITDA benefit.

Adjusting estimates. We maintain 2013E at $1.52 (consensus $1.55) to account for currency headwinds, though we shift 2c of EPS into 4Q from 3Q. We raise 2014E to $1.71 from $1.69 (consensus $1.72) to account for the possibility of higher cocoa costs being passed on (and assuming little elasticity). We introduce 2015E at $1.94 (consensus $1.91).


Mondelēz International, Inc. (Overweight; Price Target: $38.00)

Investment Thesis

We are Overweight MDLZ. We believe over time, the company’s presence in strong categories (snacking, mostly) and emerging markets growth will lead to outsizedEBITDA and share price growth. We also see an opportunity to possibly improve SG&A margins more than management has stated.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 21.0x P/E and 12.0x EV/EBITDA – above the group mean – reasonably reflect MDLZ’s better than average growth profile and margin opportunities. At these multiples and using our 2015 estimates, we come to fair value as of December 2014 of $38. Thus we establish a December 2014 price target of $38; our previous 2013 target was $35.

MDLZ Valuation and Price Target


P/E Multiple


* 2015E EPS 1.96


EV/EBITDA Multiple


* 2015E EBITDA 6,359


- 2015E Net Debt 15,627


÷ 2015E Shares Outstanding 1,710




Current Price 31.86





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1) Gum category trends may worsen, 2) activist-style investors currently in the stock (e.g., Nelson Peltz) may sell their positions, 3) further execution missteps may occur.


46



TreeHouse Foods Inc.

Neutral


TreeHouse Foods Inc. (THS;THS US)

FYE Dec 2011A 2012A 2013E 2014E(Prev)

2014E(Curr)

2015E

EPS (Operating) ($)Q1 (Mar) 0.59 0.63 0.74A 0.91 0.94 1.02Q2 (Jun) 0.43 0.60 0.65A 0.88 0.87 0.93Q3 (Sep) 0.85 0.70 0.77 0.85 0.85 0.92Q4 (Dec) 0.85 0.86 0.99 0.97 0.97 1.04FY 2.72 2.79 3.15 3.62 3.63 3.92Bloomberg EPS FY ($) 2.75 2.78 3.12 - 3.56 3.97Source: Company data, Bloomberg, J.P. Morgan estimates.

THS is a well-run business in a growing category (private label). On one hand, it is possible that our estimates are too light, given the potential for greater accretion from recent deals. On the other hand (and this is why we stay Neutral), THS has a relatively low organic revenue growth profile than most companies we cover. There also is a possibility that branded players will promote more heavily this winter, thus pressuring price gaps versus private label.

Adjusting estimates. We maintain 2013E at $3.15 (consensus $3.12). We lift 2014E to $3.63 by a penny from $3.62 (consensus $3.56) .We introduce 2015E at $3.92(consensus $3.97).


TreeHouse Foods Inc. (Neutral; Price Target: $76.00)

Investment Thesis

We are Neutral THS. We are favorable to the story in general and think single serve coffee will continue to work well. But with the stock trading well over 20x NTM EPS, we think the valuation is full.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 16.5x P/E and 9.5x EV/EBITDA – a bit below the group averages – reasonably reflect THS’s slimmer than average sales growth and margin profile. Based on our valuation methodology in the figure below, we establish a December 2014 price target of $76; our previous December 2013 estimate was $74 (note that we are lowering multiples across food today):


47



THS Valuation and Price Target


Risks to Rating and Price TargetUpside: 1) Commodity costs may fall, 2) single serve coffee may do better than we expect, 3) acquisition accretion guidance may be conservative. Downside: 1) commodity costs may rise, 2) private label food price gaps may narrow again, 3) acquisition

execution issues could arise.

P/E Multiple


* CY15E EPS 3.92


EV/EBITDA Multiple


* CY15E EBITDA 401





= Fair Value: EV/EBITDA Multiple (Dec 14) 87.55



Current Price 69.82


Dividend Yield 0.0%



48



WhiteWave Foods

Overweight


WhiteWave Foods Company (WWAV;WWAV US)

FYE Dec 2011A 2012A 2013E 2014E(Prev)

2014E(Curr)

2015E

EPS Reported ($)Q1 (Mar) 0.10 0.13 0.16A 0.20 0.20 0.23Q2 (Jun) 0.10 0.13 0.16A 0.18 0.18 0.21Q3 (Sep) 0.13 0.16 0.18 0.22 0.22 0.25Q4 (Dec) 0.13 0.18 0.20 0.24 0.24 0.28FY 0.46 0.60 0.71 0.84 0.83 0.98Bloomberg EPS FY ($) 0.53 0.59 0.71 - 0.83 0.98Source: Company data, Bloomberg, J.P. Morgan estimates.

WhiteWave remains one of our favorite stories in our packaged food coverage.We are establishing a December 2014 price target of $24, which implies 22% upside between now and the end of next year. We do not think our valuation multiples (23x P/E, 13x EV/EBITDA) are unreasonable for a company growing the top line nearly 10% a year and the bottom line over 15%.

WhiteWave continues to post a very strong top line (few food/beverage companies can boast ~10% each quarter), and we believe this figure has a chance to accelerate next year when the company perhaps may launch a series of center store products (mac & cheese, e.g.) with the Horizon Organic brand. We believe this launch has a good chance to be successful (see our downgrade of BNNY which partially took place as a result of our concern over competition).

Margin growth to accelerate. Somewhat buried in management’s recent comments is confidence that the operating margin, which should grow ~50 bps on a run rate basis each year, likely will grow closer to 70-80 bps/year on average over the next two years. A 10% top line plus a margin growth acceleration story spells Overweight for us. We appreciate that the stock is not cheap; however, we see earnings beats as more than possible especially given WWAV’s underappreciated exposure to Europe, and we do not think valuation is out of line given growth.

We introduce 2015E EPS of $0.98. Our other estimates are largely unchanged.


WhiteWave Foods (Overweight; Price Target: $24.00)

Investment Thesis

We are Overweight the WWAV shares. We see continued strong growth in creamers thanks to in-home coffee trends, continued health in the organic milk category (with minimal cost inflation for now), and further upside to the plant-based beverage category. We also believe, per management’s comments, that WWAV is actively seeking acquisitions in the refrigerated aisle with which to grow EBITDA. Lastly, we note that margin growth is set to accelerate over the next two years.

Valuation

We use a 50/50 P/E EV/EBITDA methodology. We believe 23x P/E and 13x EV/EBITDA – a bit below HAIN because of a slightly lower distribution opportunity – reasonably reflect WWAV’s better than average growth profile. Using our 2015



49



estimates, we come to $24 fair value as of December 2014. Thus we establish a December 2014 price target of $24; our previous December 2013 target was $22.

WWAV Valuation and Price Target



1) Commodity costs may rise, 2) new innovation may not be as strong as prior efforts, 3) an economic slowdown could impair growth of some of WWAV's higher-priced items (e.g., organic milk).

P/E Multiple


* CY15E EPS 0.98


EV/EBITDA Multiple


* CY15E EBITDA 385







Fair Value: Dec-14 (rounded) 24.00

Current Price 19.39


Dividend Yield 0.0%



50



Annie's, Inc.: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14A 2Q14E 3Q14E 4Q14E

Revenues 171 204 236 Revenues 39A 57 46 62

Cost of revenue (103) (124) (143) Cost of revenue (24)A (36) (27) (37)

Gross Profit 68 80 93 Gross Profit 15A 21 19 25

Other Operating Expenses - - - Other Operating Expenses - - - -Operating Income 24 29 35 Operating Income 4A 9 6 11

EBITDA 25 31 36 EBITDA 4A 9 7 11

Interest, net (0) (0) (0) Interest, net 0A (0) (0) (0)

Pretax Income 23 29 35 Pretax Income 4A 8 6 11

Taxes (9) (12) (14) Taxes (1)A (3) (2) (4)Tax Rate 39.6% 40.4% 40.5% Tax Rate 39.8%A 40.5% 40.5% 40.5%

Net income - operating 14 17 21 Net income - operating 2A 5 4 6

Diluted Shares Outstanding 18 18 17 Diluted Shares Outstanding 18A 18 18 18

Operating EPS 0.80 0.99 1.19 Operating EPS 0.13A 0.29 0.21 0.36

Balance Sheet and Cash Flow Data FY13A FY14E FY15E Ratio Analysis and Valuation FY13A FY14E FY15E

Cash and Equivalents 5 19 37 Gross margin 39.5% 39.2% 39.4%

Accounts receivable 20 13 15 SGA/sales 25.7% 24.8% 24.6%

Inventories 15 22 26 EBIT margin 13.8% 14.4% 14.8%Current assets 48 61 84 EBITDA Margin 14.4% 15.0% 15.4%

PP&E 6 6 7 EBITDA growth 22.5% 24.5% 18.9%

Goodwill 31 32 32 EBIT Growth 22.4% 24.9% 19.2%

Intangibles - - - Net income growth - operating 22.4% 22.3% 19.5%

Total assets 90 102 125 EPS growth - operating 13.1% 23.4% 20.8%Short-term Debt 0 0 0 Working capital as % of sales 0.2 0.3 0.3

Current Liabilities 16 9 10 Net debt 2 (19) (37)

Long-term Debt 7 0 0 Net debt/EBITDA 8.4% (62.9%) (100.2%)

Total Liabilities 23 10 11 Net debt/Capital 3.1% (26.6%) (46.8%)Shareholders' Equity 66 92 115

Net Income (including charges) 12 17 21

D&A 1 1 1

Other adjustments - - -

Changes in Working Capital 2 1 (5)Cash flow from Operations 9 22 20

Capex (3) (1) (3)

Free Cash Flow 6 21 17

Free Cash Flow/Share 0.34 1.18 1.00Cash flow from Investing (3) (1) (3)

Cash flow from Financing (2) (6) 0

Share buybacks (19) 0 0

Dividends 0 0 0

Source: Company reports and J.P. Morgan estimates.Note: $ in millions (except per-share data).Fiscal year ends Mar


51



Campbell Soup Company: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14E 2Q14E 3Q14E 4Q14E

Revenues 8,052 8,512 8,517 Revenues 2,302 2,270 2,011 1,928

Cost of goods sold (5,049) (5,357) (5,359) Cost of revenue (1,429) (1,434) (1,274) (1,220)

Gross Profit 3,003 3,155 3,157 Gross Profit 873 836 738 708

SG&A (1,752) (1,852) (1,838) Other Operating Expenses (445) (486) (455) (465)

LFL Operating Income 1,232 1,303 1,319 Operating Income 428 349 283 243LFL EBITDA 1,649 1,723 1,759 EBITDA 533 454 388 348

Interest, net (125) (118) (101) Interest, net (33) (30) (28) (27)

Pretax Income 1,107 1,185 1,218 Pretax Income 395 319 254 216

Equity income - - - Equity income - - - -Income taxes (332) (373) (384) Income taxes (125) (101) (80) (68)

Tax Rate 30.0% 31.5% 31.5% Tax Rate 31.5% 31.5% 31.5% 31.5%

Net income - operating 784 821 842 Net income - operating 273 222 176 150

Non-operating income / (expense) - - - Non-operating income / (expense) - - - -

Net income - reported (GAAP) 784 821 842 Net income - reported (GAAP) 273 222 176 150Diluted shares outstanding 317 317 310 Diluted shares outstanding 317 317 317 317

EPS (LFL) 2.48 2.59 2.72 EPS (LFL) 0.86 0.70 0.56 0.47

EPS - reported (GAAP) 2.48 2.59 2.72 EPS - reported (GAAP) 0.86 0.70 0.56 0.47

EPS - consensus (I/B/E/S) 2.61 2.60 2.75 EPS - consensus (I/B/E/S) 0.87 0.69 0.57 0.46


Cash and Equivalents 333 1,225 874 Reported sales growth 12.2% 5.7% 0.1%

Accounts receivable 603 675 639 organic growth - - -

Inventories 861 964 913 volume change - - -

Current assets 1,959 3,025 2,588 price / mix change - - -FX - - -

PP&E 2,260 2,913 2,825 Other - - -

Goodwill 3,318 3,318 3,318

Intangibles - - - Gross margin 37.3% 37.1% 37.1%Total assets 7,668 9,387 8,862 SGA / sales 21.8% 21.8% 21.6%

EBIT margin 15.3% 15.3% 15.5%

Short-term Debt 1,909 1,909 1,909 EBITDA Margin 20.5% 20.2% 20.7%

Current Liabilities 3,282 3,309 3,273 Return on equity (ROE) 74.4% 46.8% 35.1%

Long-term Debt 2,544 2,041 1,341Total Liabilities 7,569 7,093 6,357 EBITDA growth 15.2% 4.5% 2.1%

EBIT Growth 5.4% 5.8% 1.2%

Shareholders' Equity 1,210 2,294 2,505 Net income growth - operating 6.5% 4.7% 2.6%

EPS growth - operating 7.4% 4.6% 5.0%Net Income (including charges) 745 821 842

D&A 417 420 440

Other adjustments 170 169 169 Working capital as % of sales NM NM NM

Changes in Working Capital (44) (100) 50Cash flow from Operations 1,288 1,309 1,501 Net debt 4,120 2,725 2,376

Net debt / EBITDA 249.8% 158.2% 135.1%

Capex (336) (352) (352) Net debt / Capital 77.3% 54.3% 48.7%

Free Cash Flow 1,044 1,038 1,218

Free Cash Flow/Share 3.30 3.28 3.94 P/E 17.1 16.3 15.5Cash flow from Investing (2,155) (331) (352) Enterprise value / EBITDA 10.6 9.4 9.0

Cash flow from Financing 1,281 (500) (1,500) Enterprise value / revenues 2.2 1.9 1.9

Share buybacks (139) 0 (800) FCF yield 7.8% 7.8% 9.3%

Dividends - - - Dividend yield - - -

Source: Company reports and J.P. Morgan estimates.Note: $ in millions (except per-share data).Fiscal year ends Jul


52



ConAgra Foods: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14E 2Q14E 3Q14E 4Q14E


Cost of revenue (11,944) (12,889) (12,466) Cost of revenue (3,376) (3,295) (3,114) (3,105)

Gross Profit 3,547 3,860 3,872 Gross Profit 879 1,039 1,037 905

Other Operating Expenses - - - Other Operating Expenses - - - -

Operating Income 1,578 1,725 1,791 Operating Income 326 476 482 441EBITDA 2,023 2,309 2,375 EBITDA 472 622 628 587



Taxes (440) (449) (481) Taxes (77) (128) (129) (116)Tax Rate 33.8% 34.0% 34.0% Tax Rate 34.0% 34.0% 34.0% 34.0%

Net income - operating 892 982 1,101 Net income - operating 159 268 291 265

Diluted Shares Outstanding 415 426 426 Diluted Shares Outstanding 426 426 426 426

Operating EPS 2.15 2.30 2.58 Operating EPS 0.37 0.63 0.68 0.62

Balance Sheet and Cash Flow Data FY13A FY14E FY15E Ratio Analysis and Valuation FY13A FY14E FY15ECash and Equivalents 184 819 420 Gross margin 22.9% 23.0% 23.7%

Accounts receivable 1,286 1,123 1,136 SGA/sales 12.7% 12.7% 12.7%

Inventories 2,394 2,068 2,080 EBIT margin 10.2% 10.3% 11.0%

Current assets 4,380 4,525 4,152 EBITDA Margin 13.1% 13.8% 14.5%PP&E 3,859 3,925 3,941 EBITDA growth 19.0% 14.1% 2.9%

Goodwill 8,451 8,451 8,451 EBIT Growth 18.9% 9.3% 3.9%

Intangibles 3,422 3,422 3,422 Net income growth - operating 16.0% 10.1% 12.1%

Total assets 20,405 20,617 20,259 EPS growth - operating 16.6% 7.2% 12.1%

Short-term Debt 703 703 703 Working capital as % of sales 0.1 0.1 0.1Current Liabilities 3,401 3,197 3,204 Net debt 9,406 8,071 7,320

Long-term Debt 8,887 8,187 7,037 Net debt/EBITDA 464.9% 349.6% 308.2%

Total Liabilities 14,042 13,138 11,995 Net debt/Capital 65.6% 51.9% 47.0%

Shareholders' Equity 4,932 7,479 8,264Net Income (including charges) 786 982 1,101

D&A 445 584 584

Other adjustments 83 100 100

Changes in Working Capital 98 285 (18)

Cash flow from Operations 1,412 1,951 1,767Capex (458) (650) (600)

Free Cash Flow 1,154 1,567 1,416

Free Cash Flow/Share 2.78 3.68 3.32

Cash flow from Investing (5,466) (200) (600)Cash flow from Financing 3,920 (1,116) (1,566)

Share buybacks (245) 0 0

Dividends (401) (416) (416)

Source: Company reports and J.P. Morgan estimates.

Note: $ in millions (except per-share data).Fiscal year ends May


53



General Mills: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14E 2Q14E 3Q14E 4Q14E


Cost of revenue (11,359) (11,514) (11,713) Cost of revenue (2,648) (3,104) (2,882) (2,879)

Gross Profit 6,415 6,634 6,844 Gross Profit 1,622 1,835 1,585 1,591

Other Operating Expenses (1) 0 0 Other Operating Expenses 0 0 0 0

Operating Income 2,873 3,024 3,199 Operating Income 738 914 706 666EBITDA 3,461 3,647 3,879 EBITDA 894 1,069 862 822




Net income - operating 1,789 1,903 2,025 Net income - operating 461 590 439 412










Short-term Debt 2,043 2,043 2,043 Working capital as % of sales NM NM NMCurrent Liabilities 5,294 5,294 5,322 Net debt 7,228 7,240 6,938



Shareholders' Equity 7,640 7,724 8,008Net Income (including charges) 1,893 1,903 2,025

D&A 588 623 680

Other adjustments (26) 26 28

Changes in Working Capital 471 (20) (41)

Cash flow from Operations 2,926 2,532 2,692Capex (614) (700) (620)

Free Cash Flow 2,550 2,051 2,297


Cash flow from Investing (1,515) (700) (620)Cash flow from Financing (1,140) (2,495) (1,638)

Share buybacks (1,045) (800) (600)

Dividends (868) (1,045) (1,169)


Note: $ in millions (except per-share data).Fiscal year ends May


54



Hain Celestial Group: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14E 2Q14E 3Q14E 4Q14E

Revenues 1,735 2,011 2,153 Revenues 474 522 510 505

Cost of revenue (1,255) (1,446) (1,542) Cost of revenue (346) (370) (364) (366)

Gross Profit 479 565 610 Gross Profit 128 153 146 139


Operating Income 195 243 278 Operating Income 48 67 70 58EBITDA 235 296 334 EBITDA 61 81 83 72


Pretax Income 175 219 256 Pretax Income 42 61 64 53







Inventories 250 271 289 EBIT margin 11.3% 12.1% 12.9%

Current assets 575 688 722 EBITDA Margin 13.5% 14.7% 15.5%PP&E 236 203 167 EBITDA growth 33.9% 26.3% 12.6%




Short-term Debt 12 12 12 Working capital as % of sales 0.2 0.2 0.2Current Liabilities 274 295 314 Net debt 625 516 319

Long-term Debt 653 616 416 Net debt/EBITDA 266.2% 174.0% 95.4%

Total Liabilities 1,077 1,061 880 Net debt/Capital 34.2% 28.4% 17.8%

Shareholders' Equity 1,202 1,298 1,476Net Income (including charges) 115 146 171

D&A 40 53 56


Changes in Working Capital (47) (20) (18)

Cash flow from Operations 121 187 217Capex (72) (20) (20)



Cash flow from Investing (406) (20) (20)Cash flow from Financing 296 (100) (200)

Share buybacks - - -

Dividends - - -


Note: $ in millions (except per-share data).Fiscal year ends Jun


55



Hershey: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E

Revenues 6,644 7,106 7,550 Revenues 1,827A 1,509A 1,888 1,882

Cost of revenue (3,735) (3,841) (4,020) Cost of revenue (976)A (789)A (1,036) (1,040)

Gross Profit 2,909 3,265 3,530 Gross Profit 851A 720A 851 843


Operating Income 1,229 1,382 1,479 Operating Income 402A 276A 369 335EBITDA 1,439 1,588 1,707 EBITDA 457A 326A 419 386

Interest, net (96) (93) (92) Interest, net (24)A (21)A (24) (24)

Pretax Income 1,133 1,290 1,388 Pretax Income 379A 254A 345 311

Taxes (395) (451) (482) Taxes (130)A (91)A (121) (109)Tax Rate 34.8% 34.9% 34.8% Tax Rate 34.3%A 35.7%A 35.0% 35.0%

Net income - operating 738 839 905 Net income - operating 249A 164A 224 202

Diluted Shares Outstanding 228 226 223 Diluted Shares Outstanding 228A 227A 226 225

Operating EPS 3.23 3.71 4.06 Operating EPS 1.09A 0.72A 0.99 0.90








Short-term Debt 376 102 102 Working capital as % of sales 0.1 0.1 0.1Current Liabilities 1,471 1,219 1,243 Net debt 1,179 1,154 1,121

Long-term Debt 1,531 1,788 1,788 Net debt/EBITDA 0.8 0.7 0.7


Shareholders' Equity 1,048 1,271 1,448Net Income (including charges) 661 828 905

D&A 210 199 228



Cash flow from Operations 1,095 966 1,101Capex (278) (288) (328)



Cash flow from Investing (473) (273) (328)Cash flow from Financing (587) (695) (741)

Share buybacks (508) (509) (500)

Dividends (341) (402) (455)


Note: $ in millions (except per-share data).Fiscal year ends Dec


56



Hillshire Brands: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14E 2Q14E 3Q14E 4Q14E

Revenues 3,920 4,001 4,071 Revenues 952 1,052 961 1,035

Cost of revenue (2,747) (2,794) (2,835) Cost of revenue (679) (719) (662) (733)

Gross Profit 1,173 1,206 1,235 Gross Profit - - - -


Operating Income 363 358 380 Operating Income 72 111 91 83EBITDA 511 510 536 EBITDA 110 149 129 121


Pretax Income 322 317 340 Pretax Income 62 101 81 73








Current assets 1,106 1,022 931 EBITDA Margin 13.0% 12.7% 13.2%PP&E 818 802 794 EBITDA growth 10.7% (0.3%) 5.2%

Goodwill 348 348 348 EBIT Growth 12.6% (1.5%) 6.2%

Intangibles 121 121 121 Net income growth - operating 16.0% (2.9%) 7.0%


Short-term Debt 19 0 0 Working capital as % of sales 0.1 0.1 0.1Current Liabilities 671 669 671 Net debt 551 670 764

Long-term Debt 932 951 951 Net debt/EBITDA 107.8% 131.5% 142.5%


Shareholders' Equity 484 366 266Net Income (including charges) 252 206 221

D&A 166 152 156

Other adjustments (55) (40) (40)





Cash flow from Investing (41) (136) (148)Cash flow from Financing (45) (284) (281)

Share buybacks 0 (200) (200)

Dividends (46) (84) (81)


Note: $ in millions (except per-share data).Fiscal year ends Jun


57



J.M. Smucker Co.: Summary of FinancialsIncome Statement - Annual FY13A FY14E FY15E Income Statement - Quarterly 1Q14A 2Q14E 3Q14E 4Q14E

Revenues 5,898 5,850 5,991 Revenues 1,351A 1,615 1,537 1,347

Cost of Goods Sold (3,859) (3,713) (3,773) Cost of Goods Sold (855)A (1,043) (974) (840)

Gross Profit 2,039 2,137 2,218 Gross Profit 496A 572 563 507


Operating income 971 1,024 1,078 Operating income 221A 281 282 240Interest, Net (94) (91) (86) Interest, Net (24)A (23) (22) (22)

Pretax Income 879 934 994 Pretax Income 197A 259 260 218

Taxes (294) (323) (343) Taxes (65)A (91) (91) (76)

Tax Rate 33.4% 34.6% 34.5% Tax Rate 33.2%A 35.0% 35.0% 35.0%Net income 585 611 651 Net income 132A 168 169 142

Diluted Shares Outstanding 109 105 103 Diluted Shares Outstanding 106A 105 105 104

EPS - Operating 5.38 5.82 6.31 EPS - Operating 1.24A 1.60 1.62 1.37

EPS - Consensus 5.24 5.83 6.31 EPS - Consensus 1.20A 1.59 1.61 1.38

EBITDA 1,212 1,268 1,326 EBITDA 282A 342 343 301Per Share - - - Per Share - - - -


Cash and Equivalents 256 349 353 Sales growth

Accounts Receivable 314 315 326 Organic - - -Inventories 946 928 968 Volume - - -

Current Assets 1,595 1,648 1,703 Price and Mix - - -

Currency - - -

PP&E 1,143 1,196 1,168 Acquisitions - - -

Goodwill and Intangibles 6,142 6,115 6,115Gross Margin 34.6% 36.5% 37.0%

Total Assets 9,032 9,109 9,136 SG&A Margin 18.2% 19.0% 19.0%

EBIT Margin 16.5% 17.5% 18.0%

Short-term Debt 50 0 0 EBITDA Margin 20.5% 21.7% 22.1%Current Liabilities 597 555 566

ROCE 9.0% 9.3% 9.7%

Long-term Debt 1,968 2,102 2,002 ROA 6.5% 6.7% 7.1%

Total Liabilities 3,883 3,946 3,857 ROE 11.4% 11.8% 12.5%

Shareholders' Equity 5,149 5,163 5,279 EBIT Growth 8.7% 5.4% 5.3%EBITDA Growth 10.1% 4.6% 4.5%

Net Income (GAAP) 585 611 651 Net Income Growth 9.3% 4.4% 6.6%

D&A 251 245 248 EPS Growth 13.7% 8.3% 8.4%

Changes in Working Capital 35 48 (40) Total Debt 2,018 2,102 2,002Cash from Operations 856 923 883 Debt to-EBITDA 1.7 1.7 1.5

Capital Expenditures (207) (276) (220) P/E 20.1 18.5 17.1

Enterprise Value to EBITDA 1.5 1.4 1.2

Free Cash Yield 6.1% 6.2% 6.5%Cash from Investing (186) (282) (220) Dividend Yield - - -

Cash from Financing (641) (545) (659)

Dividends Paid (223) (240) (259)


Per Share 6.54 6.73 6.97


Note: $ in millions (except per-share data).Fiscal year ends Apr


58



Kellogg: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E


Cost of revenue (8,554) (9,076) (9,197) Cost of revenue (2,414)A (2,228)A (2,250) (2,184)

Gross Profit 5,643 5,738 5,888 Gross Profit 1,447A 1,486A 1,408 1,397


Operating Income 2,013 2,171 2,285 Operating Income 577A 592A 506 497EBITDA 2,461 2,623 2,745 EBITDA 690A 705A 619 610




Net income - operating 1,264 1,362 1,463 Net income - operating 364A 367A 318 313







Goodwill 7,412 7,366 7,366 EBIT Growth (2.9%) 7.9% 5.2%

Intangibles - - - Net income growth - operating (2.7%) 7.7% 7.5%

Total assets 15,243 15,289 15,334 EPS growth - operating (1.3%) 5.5% 7.4%

Short-term Debt 1,820 1,429 1,429 Working capital as % of sales NM NM NMCurrent Liabilities 4,530 4,021 4,047 Net debt 7,621 6,751 6,105



Shareholders' Equity 2,419 3,359 3,978Net Income (including charges) 961 1,294 1,463

D&A 448 452 460

Other adjustments 188 25 (172)


Cash flow from Operations 1,758 1,560 1,718Capex (3,201) (510) (400)

Free Cash Flow (1,257) 1,217 1,477

Free Cash Flow/Share (3.50) 3.32 4.02

Cash flow from Investing (3,245) (511) (400)Cash flow from Financing 1,317 (950) (1,272)

Share buybacks (63) (544) 0

Dividends (622) (640) (672)




59



Kraft Foods Group: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13E 3Q13E 4Q13E

Revenues 18,339 18,660 19,136 Revenues 4,546A 4,735 4,603 4,776

Cost of goods sold (12,499) (12,457) (12,821) Cost of revenue (3,043)A (3,130) (3,084) (3,200)

Gross Profit 5,840 6,203 6,315 Gross Profit 1,503A 1,605 1,519 1,576

SG&A (3,029) (3,023) (2,838) Other Operating Expenses (632)A (789) (704) (898)

LFL Operating Income 2,670 3,096 3,476 Operating Income 809A 794 815 678LFL EBITDA 3,098 3,504 3,896 EBITDA 911A 896 917 780

Interest, net (258) (514) (521) Interest, net (123)A (130) (130) (130)

Pretax Income 2,453 2,583 2,955 Pretax Income 686A 664 684 548

Equity income 41 0 0 Equity income 0A 0 0 0Income taxes (812) (880) (1,020) Income taxes (230)A (206) (246) (197)

Tax Rate 33.1% 34.1% 34.5% Tax Rate 33.5%A 31.0% 36.0% 36.0%

Net income - operating 1,641 1,703 1,936 Net income - operating 456A 458 438 351


Net income - reported (GAAP) 1,641 1,703 1,936 Net income - reported (GAAP) 456A 458 438 351Diluted shares outstanding 596 599 594 Diluted shares outstanding 597A 599 599 599

EPS (LFL) 2.75 2.85 3.26 EPS (LFL) 0.76A 0.76 0.73 0.59

EPS - reported (GAAP) 2.75 2.85 3.26 EPS - reported (GAAP) 0.76A 0.76 0.73 0.59

EPS - consensus (I/B/E/S) 2.88 2.88 3.22 EPS - consensus (I/B/E/S) 0.64A 0.67 0.70 0.60


Cash and Equivalents 1,255 1,258 1,265 Reported sales growth (1.7%) 1.7% 2.5%

Accounts receivable 1,089 1,073 1,100 organic growth 0.0% 2.2% 2.4%

Inventories 1,928 1,744 1,795 volume change (2.8%) 1.9% 1.5%

Current assets 4,823 4,609 4,694 price / mix change 2.8% 0.3% 0.9%FX - - -

PP&E 4,204 4,212 4,312 Other - - -

Goodwill 13,977 13,906 13,906

Intangibles 325 311 311 Gross margin 31.8% 33.2% 33.0%Total assets 23,329 23,038 23,223 SGA / sales 16.5% 16.2% 14.8%

EBIT margin 14.6% 16.6% 18.2%

Short-term Debt 5 0 0 EBITDA Margin 16.9% 18.8% 20.4%


Long-term Debt 9,966 9,969 9,969Total Liabilities 19,757 18,833 19,012 EBITDA growth (2.9%) 13.1% 11.2%

EBIT Growth (5.6%) 16.0% 12.3%

Shareholders' Equity 3,572 4,205 4,210 Net income growth - operating (7.5%) 3.8% 13.7%

EPS growth - operating (8.4%) 3.3% 14.5%Net Income (including charges) 1,642 1,703 1,936

D&A 428 408 420

Other adjustments 187 (467) (224) Working capital as % of sales 0.1 0.1 0.1

Changes in Working Capital 144 17 11Cash flow from Operations 3,035 1,689 2,224 Net debt 8,716 8,711 8,704

Net debt / EBITDA 281.3% 248.6% 223.4%


Free Cash Flow 2,768 1,427 2,045

Free Cash Flow/Share 4.64 2.39 3.44 P/E 19.7 19.1 16.6Cash flow from Investing (422) (600) (520) Enterprise value / EBITDA 13.3 11.7 10.5

Cash flow from Financing (1,358) (1,195) (1,588) Enterprise value / revenues 2.2 2.2 2.1

Share buybacks - - - FCF yield 8.6% 4.4% 6.3%


Source: Company reports and J.P. Morgan estimates.Note: $ in millions (except per-share data).Fiscal year ends Dec


60



McCormick & Co., Inc.: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E

Revenues 4,014 4,218 4,418 Revenues 934A 1,003A 1,042 1,240

Cost of Goods Sold (2,396) (2,513) (2,624) Cost of Goods Sold (573)A (608)A (626) (706)



Operating income 578 611 649 Operating income 112A 116A 153 230Interest, Net (55) (57) (56) Interest, Net (14)A (14)A (16) (14)

Pretax Income 526 556 593 Pretax Income 99A 103A 137 216

Taxes (140) (161) (172) Taxes (28)A (31)A (40) (63)

Tax Rate 26.6% 29.0% 29.0% Tax Rate 28.5%A 29.6%A 29.0% 29.0%Net income 408 420 449 Net income 76A 79A 105 161


EPS - Operating 3.04 3.14 3.41 EPS - Operating 0.57A 0.59A 0.78 1.21

EPS - Consensus 3.08 3.16 3.49 EPS - Consensus 0.56A 0.61A 0.79 1.22

EBITDA 681 714 753 EBITDA 138A 142A 178 256Per Share - - - Per Share - - - -



Accounts Receivable 466 504 522 Organic - - -Inventories 615 635 654 Volume - - -

Current Assets 1,285 1,413 1,514 Price and Mix - - -

Currency - - -

PP&E 547 563 549 Acquisitions - - -

Goodwill and Intangibles 2,019 2,108 2,108Gross Margin 40.3% 40.4% 40.6%


EBIT Margin 14.4% 14.5% 14.7%

Short-term Debt 393 552 552 EBITDA Margin 17.0% 16.9% 17.0%Current Liabilities 1,188 1,285 1,296

ROCE 14.8% 14.3% 14.2%

Long-term Debt 779 777 777 ROA 9.9% 9.8% 10.1%


Shareholders' Equity 1,700 1,877 1,953 EBIT Growth 7.0% 5.7% 6.2%EBITDA Growth 6.6% 4.8% 5.5%


D&A 103 103 104 EPS Growth 9.0% 3.5% 8.4%

Changes in Working Capital (70) (146) (25) Total Debt 1,172 1,328 1,328Cash from Operations 455 359 489 Debt to-EBITDA 1.7 1.9 1.8




Cash from Financing (324) (93) (325)

Dividends Paid (165) (178) (175)


Per Share 2.87 2.28 3.25


Note: $ in millions (except per-share data).Fiscal year ends Nov


61



Mead Johnson Nutrition: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E


Cost of revenue (1,485) (1,565) (1,679) Cost of revenue (391)A (384)A (388) (401)


Other Operating Expenses - 0 0 Other Operating Expenses (12)A (18)A 0 0

Operating Income 907 939 1,009 Operating Income 237A 221A 229 222EBITDA 984 1,027 1,105 EBITDA 257A 243A 252 245







Balance Sheet and Cash Flow Data FY12A FY13E FY14E Ratio Analysis and Valuation FY12A FY13E FY14ECash and Equivalents 1,042 979 451 Gross margin 61.9% 62.1% 61.7%



Current assets 2,015 2,004 1,566 EBITDA Margin 25.2% 24.9% 25.2%PP&E 690 834 918 EBITDA growth 6.6% 4.3% 7.6%


Intangibles 130 115 115 Net income growth - operating 14.0% 4.9% 10.0%


Short-term Debt 187 0 0 Working capital as % of sales 0.2 0.2 0.1Current Liabilities 1,370 1,187 1,218 Net debt 857 775 803

Long-term Debt 1,523 1,569 1,069 Net debt/EBITDA 0.9 0.8 0.7


Shareholders' Equity 29 216 331Net Income (including charges) 612 657 727

D&A 77 88 96






Cash flow from Investing (229) (257) (180)Cash flow from Financing (268) (543) (1,112)

Share buybacks (155) (156) (320)

Dividends (237) (267) (292)




62



WhiteWave Foods: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E

Revenues 2,306 2,523 2,758 Revenues 608A 616A 637 661

Cost of goods sold (1,478) (1,611) (1,745) Cost of revenue (390)A (392)A (404) (425)

Gross Profit 828 912 1,012 Gross Profit 219A 224A 233 236

SG&A (655) (708) (769) Other Operating Expenses (171)A (178)A (181) (178)

LFL Operating Income 173 204 243 Operating Income 47A 46A 52 59LFL EBITDA 266 284 331 EBITDA 68A 66A 72 78



Equity income - - - Equity income - - - -Income taxes (46) (63) (75) Income taxes (15)A (13)A (16) (18)

Tax Rate 30.6% 33.8% 34.0% Tax Rate 35.8%A 31.1%A 34.0% 34.0%


Non-operating income / (expense) 0 0 0 Non-operating income / (expense) 0A 0A 0 0

Net income - reported (GAAP) 104 123 147 Net income - reported (GAAP) 28A 28A 31 36Diluted shares outstanding 173 174 176 Diluted shares outstanding 173A 173A 176 176

EPS (LFL) 0.60 0.71 0.83 EPS (LFL) 0.16A 0.16A 0.18 0.20

EPS - reported (GAAP) 0.60 0.71 0.83 EPS - reported (GAAP) 0.16A 0.16A 0.18 0.20

EPS - consensus (I/B/E/S) 0.59 0.71 0.83 EPS - consensus (I/B/E/S) 0.15A 0.16A 0.18 0.21


Cash and Equivalents 69 57 30 Reported sales growth 12.8% 9.4% 9.3%

Accounts receivable 124 165 180 organic growth - 0.0% 9.2%

Inventories 147 170 184 volume change - 0.0% 8.2%

Current assets 383 392 394 price / mix change - 0.0% 1.0%FX - - -

PP&E 625 694 766 Other - - -

Goodwill 766 763 763

Intangibles 395 392 392 Gross margin 35.9% 36.2% 36.7%Total assets 2,168 2,241 2,315 SGA / sales 28.4% 28.1% 27.9%

EBIT margin 7.5% 8.1% 8.8%

Short-term Debt - - - EBITDA Margin 11.5% 11.2% 12.0%

Current Liabilities 323 340 367 Return on equity (ROE) 10.8% 14.5% 14.8%

Long-term Debt 766 722 622Total Liabilities 1,383 1,324 1,250 EBITDA growth 25.8% 6.8% 16.5%

EBIT Growth 21.8% 18.1% 18.7%

Shareholders' Equity 785 917 1,065 Net income growth - operating 30.0% 18.4% 19.1%

EPS growth - operating 30.0% 17.5% 18.3%Net Income (including charges) 115 122 147

D&A 74 79 88

Other adjustments - - - Working capital as % of sales 0.0 0.0 0.0

Changes in Working Capital 30 (48) (1)Cash flow from Operations 237 125 233 Net debt 696 665 592

Net debt / EBITDA 262.1% 234.4% 179.1%



Free Cash Flow/Share 0.88 0.27 0.49 P/E 32.9 28.0 23.6Cash flow from Investing (92) (91) (160) Enterprise value / EBITDA 15.5 14.4 12.1

Cash flow from Financing (172) (44) (100) Enterprise value / revenues 1.8 1.6 1.5

Share buybacks - - - FCF yield 4.4% 1.4% 2.5%




63



Mondelēz International, Inc.: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E


Cost of goods sold (21,703) (22,204) (23,172) Cost of revenue (5,502)A (5,364)A (5,370) (5,968)

Gross Profit 13,225 13,399 13,988 Gross Profit 3,242A 3,231A 3,222 3,705

SG&A (8,843) (9,211) (9,211) Other Operating Expenses (2,347)A (2,249)A (2,168) (2,447)

LFL Operating Income 4,383 4,188 4,777 Operating Income 895A 982A 1,054 1,257LFL EBITDA 5,728 5,252 5,897 EBITDA 1,161A 1,248A 1,320 1,523

Interest, net (1,093) (1,046) (989) Interest, net (274)A (235)A (274) (263)


Equity income - - - Equity income - - - -Income taxes (636) (395) (758) Income taxes (2)A (77)A (62) (253)

Tax Rate 19.3% 12.6% 20.0% Tax Rate 0.3%A 10.3%A 8.0% 25.5%

Net income - operating 2,627 2,733 3,014 Net income - operating 613A 669A 714 737


Net income - reported (GAAP) 2,627 2,733 3,014 Net income - reported (GAAP) 613A 669A 714 737Diluted shares outstanding 1,789 1,794 1,754 Diluted shares outstanding 1,798A 1,803A 1,792 1,781

EPS (LFL) 1.47 1.52 1.72 EPS (LFL) 0.34A 0.37A 0.40 0.41

EPS - reported (GAAP) 1.47 1.52 1.72 EPS - reported (GAAP) 0.34A 0.37A 0.40 0.41

EPS - consensus (I/B/E/S) 1.43 1.55 1.72 EPS - consensus (I/B/E/S) 0.33A 0.34A 0.41 0.43


Cash and Equivalents 4,475 709 1,480 Reported sales growth (1.6%) 1.9% 4.4%

Accounts receivable 6,129 6,740 7,122 organic growth 4.3% 4.9% 5.3%

Inventories 3,741 4,380 4,629 volume change 1.1% 3.4% 4.6%

Current assets 15,622 13,166 14,567 price / mix change 3.2% 1.5% 0.7%FX - - -

PP&E 10,010 9,971 10,451 Other - - -

Goodwill 48,353 47,050 47,050

Intangibles 1,493 1,332 1,332 Gross margin 37.9% 37.6% 37.6%Total assets 75,478 71,519 73,400 SGA / sales 25.3% 25.9% 24.8%

EBIT margin 12.5% 11.8% 12.9%

Short-term Debt 3,851 3,075 3,075 EBITDA Margin 16.4% 14.8% 15.9%


Long-term Debt 15,574 13,226 14,246Total Liabilities 43,123 39,000 40,292 EBITDA growth 10.0% (8.3%) 12.3%

EBIT Growth 6.7% (4.4%) 14.0%

Shareholders' Equity 32,355 32,519 33,108 Net income growth - operating 6.8% 4.0% 10.3%

EPS growth - operating 5.7% 3.8% 12.8%Net Income (including charges) 3,055 2,641 3,014

D&A 1,345 1,064 1,120

Other adjustments - - - Working capital as % of sales 0.0 NM 0.0

Changes in Working Capital (1,116) (1,993) (358)Cash flow from Operations 3,923 1,712 3,776 Net debt 14,950 15,591 15,840

Net debt / EBITDA 261.0% 296.8% 268.6%

Capex (1,610) (1,368) (1,600) Net debt / Capital 31.6% 32.4% 32.4%

Free Cash Flow 3,118 1,259 2,967

Free Cash Flow/Share 1.74 0.70 1.69 P/E 21.5 20.7 18.4Cash flow from Investing (1,687) (1,368) (1,600) Enterprise value / EBITDA 12.5 13.8 12.3

Cash flow from Financing 204 (4,110) (1,405) Enterprise value / revenues 2.1 2.0 2.0

Share buybacks 0 (792) (1,400) FCF yield 5.5% 2.2% 5.4%

Dividends - 0.54 0.58 Dividend yield - 1.7% 1.9%



64



TreeHouse Foods Inc.: Summary of FinancialsIncome Statement - Annual FY12A FY13E FY14E Income Statement - Quarterly 1Q13A 2Q13A 3Q13E 4Q13E

Revenues 2,182 2,324 2,542 Revenues 540A 526A 590 667

Cost of Goods Sold (1,719) (1,789) (1,955) Cost of Goods Sold (420)A (409)A (452) (508)

Gross Profit 463 535 587 Gross Profit 120A 117A 138 159


Operating income 196 221 245 Operating income 51A 49A 55 66Interest, Net (49) (49) (47) Interest, Net (12)A (12)A (13) (12)


Taxes (42) (54) (62) Taxes (12)A (12)A (13) (17)

Tax Rate 28.8% 31.5% 31.5% Tax Rate 31.1%A 33.3%A 31.0% 31.0%Net income 104 118 136 Net income 27A 24A 29 37


EPS - Operating 2.79 3.15 3.63 EPS - Operating 0.74A 0.65A 0.77 0.99

EPS - Consensus 2.78 3.12 3.56 EPS - Consensus 0.70A 0.63A 0.77 0.95

EBITDA 294 336 377 EBITDA 78A 78A 84 97Per Share - - - Per Share - - - -



Accounts Receivable 125 140 144 Organic 3.4% (0.2%) 2.3%Inventories 347 380 391 Volume 0.2% (0.2%) 2.3%

Current Assets 588 607 643 Price and Mix 3.4% 0.4% 0.1%

Currency (0.2%) (0.5%) (0.2%)

PP&E 425 404 372 Acquisitions 3.0% 6.7% 7.1%

Goodwill and Intangibles - - -Gross Margin 21.2% 23.0% 23.1%


EBIT Margin 9.0% 9.5% 9.6%

Short-term Debt 2 2 2 EBITDA Margin 13.5% 14.5% 14.8%Current Liabilities 187 204 210

ROCE 6.9% 7.0% 7.4%

Long-term Debt 898 973 813 ROA 4.2% 4.5% 5.0%


Shareholders' Equity 1,179 1,277 1,435 EBIT Growth (0.9%) 13.1% 10.6%EBITDA Growth 4.8% 14.5% 12.0%


D&A 98 115 132 EPS Growth 2.6% 12.7% 15.3%

Changes in Working Capital (4) (42) (9) Total Debt 900 975 815Cash from Operations 205 199 281 Debt to-EBITDA 3.1 2.9 2.2




Cash from Financing (6) 75 (160)

Dividends Paid - - -


Per Share 4.57 4.14 5.70




65



Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

Market Maker: JPMS makes a market in the stock of Annie's, Inc., Hain Celestial Group, Kraft Foods Group.

Lead or Co-manager: J.P. Morgan acted as lead or co-manager in a public offering of equity and/or debt securities for Annie's, Inc., ConAgra Foods, General Mills, Hershey, Kellogg, McCormick & Co., Inc., WhiteWave Foods within the past 12 months.

Client: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients: Annie's, Inc., Campbell Soup Company, ConAgra Foods, General Mills, Hain Celestial Group, Hershey, Hillshire Brands, J.M. Smucker Co., Kellogg, Kraft Foods Group, McCormick & Co., Inc., Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc., TreeHouse Foods Inc..

Client/Investment Banking: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as investment banking clients: Annie's, Inc., Campbell Soup Company, ConAgra Foods, General Mills, Hershey, Hillshire Brands, Kellogg, Kraft Foods Group, McCormick & Co., Inc., Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc..

Client/Non-Investment Banking, Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-investment-banking, securities-related: Campbell Soup Company, ConAgra Foods, General Mills, Hain Celestial Group, Hershey, Hillshire Brands, J.M. Smucker Co., Kellogg, Kraft Foods Group, Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc., TreeHouse Foods Inc..

Client/Non-Securities-Related: J.P. Morgan currently has, or had within the past 12 months, the following company(ies) as clients, and the services provided were non-securities-related: Campbell Soup Company, ConAgra Foods, General Mills, Hain Celestial Group, Hershey, Hillshire Brands, J.M. Smucker Co., Kellogg, Kraft Foods Group, McCormick & Co., Inc., Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc., TreeHouse Foods Inc..

Investment Banking (past 12 months): J.P. Morgan received in the past 12 months compensation from investment banking Annie's, Inc., Campbell Soup Company, ConAgra Foods, General Mills, Hershey, Hillshire Brands, Kellogg, Kraft Foods Group, McCormick &Co., Inc., Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc..

Investment Banking (next 3 months): J.P. Morgan expects to receive, or intends to seek, compensation for investment banking services in the next three months from Annie's, Inc., Campbell Soup Company, ConAgra Foods, General Mills, Hershey, Hillshire Brands, Kellogg, Kraft Foods Group, McCormick & Co., Inc., Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc..

Non-Investment Banking Compensation: J.P. Morgan has received compensation in the past 12 months for products or services other than investment banking from Campbell Soup Company, ConAgra Foods, General Mills, Hain Celestial Group, Hershey, Hillshire Brands, J.M. Smucker Co., Kellogg, Kraft Foods Group, Mead Johnson Nutrition, WhiteWave Foods, Mondelēz International, Inc., TreeHouse Foods Inc..

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Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.


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66



Coverage Universe: Goldman, Ken: Annie's, Inc. (BNNY), Campbell Soup Company (CPB), ConAgra Foods (CAG), Dean Foods (DF), General Mills (GIS), Hain Celestial Group (HAIN), Hershey (HSY), Hillshire Brands (HSH), J.M. Smucker Co. (SJM), Kellogg (K), Kraft Foods Group (KRFT), Kroger (KR), McCormick & Co., Inc. (MKC), Mead Johnson Nutrition (MJN), Mondelēz International, Inc. (MDLZ), Roundy's (RNDY), Safeway (SWY), Sanderson Farms, Inc. (SAFM), Smithfield Foods, Inc. (SFD), The Fresh Market (TFM), TreeHouse Foods Inc. (THS), Tyson Foods (TSN), WhiteWave Foods (WWAV), Whole Foods Market (WFM)

J.P. Morgan Equity Research Ratings Distribution, as of June 28, 2013

Overweight(buy)

Neutral(hold)

Underweight(sell)

J.P. Morgan Global Equity Research Coverage 44% 44% 12%IB clients* 56% 50% 40%

JPMS Equity Research Coverage 42% 50% 8%IB clients* 76% 66% 55%

*Percentage of investment banking clients in each rating category.For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.

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"Other Disclosures" last revised May 4, 2013.

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