CONSUMER SECTOR UPDATE

Spring 2014

VF Corporation (VFC): Bought: $41.53, Target: $62.31, Last: $62.30 VFC has continued exceeding our expectations thank to its continued strengthening of core brands, which are market leaders in trends as well as margins and profitability. Outlook: The Growth of the Outdoor and Action Sports Brands: The ever-growing outdoor and action sports market as fitness continues to be a huge consumer favorite. Some estimates see this as a $20B growth opportunity across the world, in a market that is already close to $25B in global sales across all outdoor and action sports companies. The segment is still expected to see significant organic growth, eventually becoming 61% of its total revenues from its current standing of 54% of total revenues. The Acquisition Market: While VF has not had any specific talks about its next acquisition target, it is expected that this acquisition will come in the Outdoor and Action Sports Segment because of its fast-growing nature. VFC has historically been known has a company that grows through acquisitions, but this doesnt seem to be the case going forward. Management has said that there will only be about $1.5B in acquisition spending through the end of 2017. This allows the company to focus more on its organic growth. It also allows VF to wait for the right time and right target for an acquisition instead of having its growth dependent on new acquisitions. Continued Growth of the International Segment: VFC has continued to also see more growth outside the US, as VF has seen significant brand saturation across the US. Saturation in Europe and across the rest of the world has not been nearly as high. This presents more of an opportunity throughout the rest of the world, as major cities like Paris and Berlin have only a 35-40% brand recognition. VFCs strong supply chain and connection with suppliers and retailers will continue to allow it to grow internationally as the company sees fit. Valuation: VFC has historically traded at a 15% discount to its competitors in the specialty apparel space. Over the last year, it has continued to close the valuation gap on its competitors thanks to better operational efficiencies, brand portfolio diversification, and growth opportunities. Moving forward, this multiple expansion will continue for VFC and the gap between VF and its competitors will close, leaving VFC trading at the same level. Because this process also hinders on the profitability and success of its competitors, we are looking to just adjust the current target price to reflect F2014 earnings, not the multiple expansion. We will continue monitoring this closing gap and reflect back on it as the apparel sector goes through its next earnings. F2014 Target Price: Aforementioned, the 2014 Target Price reflects the current multiple of 23.15x and consensus NTM EPS of $3.13. This gives us a final target price of $71.07. With the 1.69% dividend, there is a 15.77% return.

William C. Dunkelberg

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CONSUMER SECTOR UPDATE

Spring 2014

Mead Johnson (MJN): Bought: $77.30, Target: $89.08, Last: $82.09 Overview MJN has appreciated about 6% since the early February purchase, leaving us 8.52% short of our target price. To this point, there have been a few things that have helped MJNs price grow: Management announced that the company would be increasing its dividend 10% to 1.83%, effective April 1st. After its last earnings call, there was some concern over price fixing and the relationships that some of the members of the sales teams were having with doctors in China. However, after an internal investigation, along with investigations by the SEC and Chinese government, it was found that these claims were false. This lead to a 3% swing over two days. Finally, MJN also gained on the release of an updated Citi Analyst report in which the target price was raised from $95 to $104. The analysts cited a great meeting with management and MJNs growing China market share as rationale for the raised TP.

Outlook MJN next earnings call is April 21st. We will be looking for further commentary from management about growth in China, U.S, Emerging markets and an update on dairy prices. However, in the mean time we still recognize all catalysts in place; easing of the Chinese one child rule, opening of the new spray plant in Singapore, further market share gain from Danone recall and U.S. growth rebound.

William C. Dunkelberg

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