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Jonathan Sheets

CPO AT A GLANCE

P/E ► 70.6 VERY HIGH EV/EBITDA ► 14.0 AVG ROA ► 2.1% AVG ROE ► 2% AVG Debt to Equity ► 0.988 AVG Current Ratio ► 1.67 AVG Interest Coverage Ratio ► 3.22 AVG

 

 

 

 

 

 

Business

CPO 2007 Revenues by Product Line^[1]

• Sweetener products include high fructose corn syrup, glucose corn syrup, high maltose corn syrup, dextrose and polyols.^[3] High fructose and glucose corn syrup are used to sweeten soft drinks, baked goods, dairy products, confections and other processed foods.^[3] High maltose corn syrup is mainly used as a fermentable sugar for making beer.^[3] Dextrose is used as a sweetener as well as a sugar in pharmaceutical applications such as intravenous (IV) injections and drips.^[3] Polyols are sugar free reduced calorie sweeteners derived from starch.^[3]

• Starch Products are used as a thickener or binder for processed foods as well as in cooking.^[4] They are also used to help add strength and smoothness to paper as well as give shape and stiffness to clothing and fabrics. ^[4]

• Co-Products and others include products such as corn oil and corn gluten.^[5] Corn oil is used to make cooking oil, margarine and condiments.^[5] Corn Products' sells corn gluten to companies that make animal feed.^[5]

Business Financials

CPO 2007 Revenues by Geographic Area^[2]

Corn Products' Total Revenues, Operating Income and Net Income^[2][6] ($ in millions)

Key Trends and Forces

Rising corn prices increase Corn Products' cost of goods sold

The price of corn can change due to supply factors such as farmer decisions, climate and government policies as well as demand factors such as livestock feeding, world grain shortage and world grain surplus.^[7] When the price of corn rises, Corn Products must spend more money on the corn they use to make their products. This increases the company's cost of goods sold. On the other hand, when the price of corn falls, Corn Products spends less money on corn and their cost of goods sold decreases. Corn Products purchases corn on the Chicago Board of Trade exchange.^[7] During the first half of 2007, the average price of corn in Chicago was $5.55 a bushel, up 46% from $3.80 a bushel during the first half of 2006.^[8] Mainly as a result of increasing corn prices, Corn Products' cost of goods sold increased 27% from $2.21 billion in 2006 to $2.81 billion in 2007.^[9] The increase in cost of goods sold was covered by a 29% increase in total revenues.^[9] However, the almost all of the sales growth was due to increased prices and favorable exchange rates and total revenues grew only 1% due to increased volume.^[9]

^[10]

Weak U.S. dollar boosts Corn Products' international revenue

Because Corn Products earned 70% of its total revenues abroad in 2007, the company is exposed to exchange rate fluctuations. Between June 18, 2007 and June 18, 2008, the dollar value of one euro increased from $1.34 to $1.55.^[10] During the same period of time, the dollar also depreciated in relationship to the Mexican peso.^[11][12] Corn Products' international revenue benefits when the U.S. dollar depreciates relative to foreign currencies. As the value of the dollar falls, each euro or pound it earns abroad converts to a larger number of dollars, boosting Corn Products' USD-reported revenue. As a result of these trends, Corn Products received a $106 million dollar revenue boost in 2007.^[9] On the other hand, sharp appreciations of the USD reduce the value of international sales.

Decreases in demand for food and beverage products that use corn based sweeteners decrease Corn Products' sales volume growth

When the demand for food and beverage products that use corn based sweeteners increases, so does the demand for Corn Products' sweeteners. This results in increased sales volume growth for the company. When the demand for food and beverage products that use corn based sweeteners decreases, so does Corn Products' sales volume growth. In 2007, the number of cases of soft drinks sold in the United States decreased 2.3% in 2007.^[13] Partially as a result of the decrease in soft drink sales volume, Corn Products' sales volume growth increased revenues by only 1% in 2007^[9] down from 5% in 2005.^[14]

Key Competitors

• Archer-Daniels-Midland Company (ADM) processes, stores, transports and markets agricultural products. Its main products include seed oils, corn oils, corn based sweeteners, and peanuts. The company's corn products compete with those produced by Corn Products.^[15]
• Bunge (BG) offers agricultural products and services. The company's products fertilizer and food products including vegetable oils, corn oils, wheat flours and processed corn products. The company's services include storage and transport of grains. The company's corn oils and products compete with those manufactured by Corn Products.^[16]
• Cargill, Incorporated provides agricultural, food processing, industrial, trading and financial products and services. The company provides farmers with farm management services and products. The company also manufactures processed grain products such as corn oil and starch as well as steel, salt and fertilizer products. The company's corn based products compete with those provided by Corn Products.^[17][18]

Corn Products and Key Competitors 2007 ($ in millions)

Note: Archer-Daniels-Midland Company (ADM) ends its fiscal year in June and Cargill, Incorporated ends its fiscal year in May.

References

1. ↑ CPO 2007 10-K Item 1: Products, pgs 3-4
2. ↑ ^{2.0 2.1 2.2} CPO 2007 10-K Item 8: Segment Information, pg 76
3. ↑ ^{3.0 3.1 3.2 3.3 3.4} CPO 2007 10-K Item 1: Sweetener Products, pgs 3-4
4. ↑ ^{4.0 4.1} CPO 2007 10-K Item 1: Starch Products, pg 4
5. ↑ ^{5.0 5.1 5.2} CPO 10-K Item 1: Co-Products and others
6. ↑ CPO 2007 10-K Item 6: Selected Financial Data, pg 21
7. ↑ ^{7.0 7.1} CPO 2007 10-K Item 1: Raw Materials, pg 4
8. ↑ USDA Economic Research Service: Feed Grains Database, Year Book Tables
9. ↑ ^{9.0 9.1 9.2 9.3 9.4} CPO 2007 10-K Item 7: 2007 Compared to 2006, pg 23
10. ↑ ^{10.0 10.1} EUR to USD Exchange Rates
11. ↑ Monthly Average Graph (American Dollar, Mexican Peso) 2007
12. ↑ Monthly Average Graph (American Dollar, Mexican Peso) 2008
13. ↑ Reuters: U.S. soft drink sales volume falls more in '07
14. ↑ CPO 2007 10-K Item 7: 2006 Compared to 2005, pg 25
15. ↑ Google Finance: ADM
16. ↑ Google Finance: BG
17. ↑ Google Finance: Cargill
18. ↑ Cargill reports fourth-quarter and fiscal 2007 earnings