Charlie Munger — brilliant lawyer and sidekick to Warren Buffett — spoke at the annual meeting for Daily Journal Corp. (NASDAQ:DJCO) earlier this month. At the talk, Munger recommended a book entitled The Outsiders: Eight Conventional CEOs and Their Radically Rational Blueprint for Success by William Thorndike.
One of the CEOs mentioned in the book is Bill Stiritz — the current CEO of Post Holdings (NYSE:POST) and former CEO of Ralston Purina, which he took over in 1982 when he was 47. Interestingly, there are enough byproducts of Stiritz’s work to create your own investment portfolio, which we’ll call the “Purina Portfolio.”
Take a look:
|Jack in the Box||JACK||9.4%|
|Apollo Global Management||APO||28.9%|
Burger Binge (JACK)
Ralston Purina, as part of its diversification, acquired Jack in the Box (NASDAQ:JACK) in 1968. Two years later it embarked on a major expansion that saw JACK grow to more than 1,000 restaurants by the end of the decade.
A public company since 1992, it now has 2,200 burger joints across the country, as well as 600 Qdoba Mexican Grill locations in the U.S. and Canada. With a market cap of $1.7 billion, it currently trades at its highest level since May 2007 — in large part because of its revitalization of its burger brand.
The Energizer Bunny (ENR)
As part of its diversification into consumer products, Ralston Purina acquired the Eveready Battery Co. in June 1986 from Union Carbide for $1.4 billion. Fourteen years later, it spun off Energizer Holdings (NYSE:ENR) on a 3-for-1 basis, becoming a completely independent company. Today, Energizer is much more than batteries. It’s also Hawaiian Tropic and Banana Boat suntan lotion, Edge shaving gel, Schick and Wilkinson Sword shavers and Playtex tampons. Since going public, its stock has increased 11.2% on an annualized basis, which compares very favorably to the SPDR S&P 500 (NYSE:SPY, +1.9% annually).
Despite being on a tear the past decade, iENR did very little in both 2011 and 2012. However, with an earnings yield of 6.8% and a financial outlook that calls for adjusted diluted earnings per share of at least $6.75 in 2013, the Energizer bunny looks like it will keep going and going into 2014 and beyond.
The Hostess Effect (ITT, FLO, APO)
In 1984, Ralston Purina paid $475 million to acquire ITT Corp.’s (NYSE:ITT) Continental Baking subsidiary, which produced Wonder Bread and Hostess Twinkies. Fast forward through two bankruptcies to the present day. Flowers Foods (NYSE:FLO) — which already sells the No. 1 loaf of bread in the U.S. (Nature’s Own) — has won a $360 million bid for five of Hostess’ bread brands, including Wonder. This acquisition should increase annual revenues to $4 billion — FLO clearly is on the rise.
The other major bidder for Hostess assets is a joint effort between Apollo Global Management (NYSE:APO) and C. Dean Metropoulos & Co. The two private equity firms have offered $410 million for Hostess’ Twinkies and Dolly Madison brands, financing the entire deal with debt. Apollo’s stock gained 40% in 2012 thanks to a great year that saw it generate net economic income of $1.6 billion compared to an economic net loss of $300.5 million in 2011. If there’s a public private-equity firm to invest in, this is it.
As for ITT: Virtually everything about its Q4 results announced March 1 were solid. Its industrial pumps and valves business (its biggest division) delivered 14.5% year-over-year revenue growth in the quarter with a similar increase in operating income. For 2013, it expects revenue and adjusted earnings per share to grow 10%. Shareholders will be happy to know it also is raising its quarterly dividend 10% to 10 cents a share. Sixteen months removed from its separation into three companies, it’s a much more focused business.
Down the Mountain (MTN)
Between 1974 and 1997, Ralston Purina acquired and operated three ski resorts in Colorado: Keystone, Arapahoe Basin and Breckenridge. In 1997, it merged its ski business with Vail Associates who brought Vail and Beaver Creek to the table. The combined business would be known as Vail Resorts (NYSE:MTN), going public at $22 per share in February 1997.
Forget that Vail lowered its profit forecast for fiscal 2013 in mid-January; simply focus on the fact its total reported EBITDA for fiscal 2013 (July year-end) is expected to be at least $227 million — 20% higher than fiscal 2012. With seven of the best ski resorts in North America, its push to generate increased summer revenues will pay dividends in the years to come. It hasn’t been an easy time for the ski industry in the past decade but no one has done a better job than MTN.
The Finish Line (GIS, NSRGY, CAG, POST)
Ralston Purina’s modern history begins with it spinning off its human-food businesses along with its ski interests into Ralcorp Holdings on March 31, 1994.
In early 1997, General Mills (NYSE:GIS) acquired Ralcorp’s Chex cereal brand for $560 million. General Mills is firing on all cylinders at the moment, having raised its guidance for 2013. Its ready-to-eat cereal brands, which include Chex, are in 91% of homes in America. Since 1983, General Mills has grown its U.S. cereal business in terms of retail dollar sales by 3% annually. That doesn’t seem like a lot, but taken over 30 years, it adds up to $6 billion in growth. There’s not many consumer staples stocks that can match its firepower, especially after taking control of Yoplait in 2011.
The original Ralston Purina — which by 2001 was solely a pet food company — sold itself to Nestle (PINK:NSRGY) for $10.3 billion. Nestle was already the world’s largest human-food producer at that point; it would now control the pet food market as well. There’s not much I can say about Nestle except that it increased its net profit in 2012 by 10% to $11.55 billion on revenue of $100 billion. It’s a behemoth that’s finding ways to grow the top and bottom lines despite difficulties in Europe.
ConAgra (NYSE:CAG) acquired Ralcorp Holdings on Jan. 29 of this year for $6.8 billion after 24 months of stalking the company. The combination creates one of the biggest branded and private-label packaged food companies in America. ConAgra will move quickly to reduce its debt over the next three years. Those with patience will be rewarded by this deal.
Finally, Ralcorp’s branded cereal business, Post Holdings, was spun off on Feb. 3, 2012. Investors got one POST share for every two shares held in Ralcorp. Given Bill Stiritz is CEO of Post, you can be sure his last act before retiring will be to deliver value to Post shareholders. His track record suggests you should count on it.
Bill Stiritz’s 32-year affiliation with Ralston Purina has produced a lot of twists and turns, showing the man clearly knows how to wheel and deal.
Ultimately, though, his big claim to fame would be creating value for shareholders in most of his transactions and leaving many companies the better for dealing with him.
As of this writing, Will Ashworth did not own a position in any of thee aforementioned securities.