Marketing expenses vs Rivals

Throughout this course, you will work in a CLC group on a strategic case analysis project. This project consists of different parts you will complete each week that build on each other.
Go to the Strategy Club website and review the “Sample Strategic Plan for Sanderson Farms” (2020), and “Juniper Networks” (2020) under the student resources section. This sample strategic plan is an example of what your completed strategic case analysis should look like at the end of the course.

Part I: Marketing Expenses Versus Rival Firms
Create a data table to illustrate the marketing expenses vs. rival firms by doing the following:

Step 1: Go to the Investor Relations page on your company’s (Chick-Fil-A) website as well as two of its primary competitor’s websites and download the three form 10Ks for the respective firms.
Step 2: Look in the Table of Contents of each Form 10K to find the pages that reveal the three firms’ marketing or advertising expenditures.
Step 3: Prepare a comparative data table to consolidate this information.
Step 4: Prepare a report (250- 500 words) to suggest implications for your company in terms of marketing or advertising expenditures going forward as needed to implement strategies.

Juniper Networks – A Sample Strategic Planning Analysis

Table of Contents

Introduction	4
Current Vision Statement	4
Proposed Vision Statement	4
Current Mission Statement	4
Proposed Mission Statement	5
Current Status of Industries	5
Overview of the Firm	8
Competitive Profile Matrix (CPM)	9
Financial Statements and Historical Ratios	10
Internal and External Factor Evaluations	14
Proposed Strategies Developed from SWOT Matrix	18
Strategic Position and Action Evaluation (SPACE)	19
Boston Consulting Group Matrix (BCG)	21
Internal-External Matrix	22
Grand Strategy Matrix	24
Quantitative Strategic Planning Matrix	25
Recommendations	28
Explanations for Recommendations	29
Organizational Chart	31
Proposed Organizational Chart	32
Perceptual Map	33
Firm Valuation	34
EPS-EBIT Analysis	35
Projected Financial Statements	39
Projected Financial Ratios	41
Retained Earnings Table	42
Epilogue	42

Introduction

Founded in 1996, Juniper Networks designs, develops, and sells products and services for high-performance networks to enable customers to build scalable, reliable, secure and cost-effective networks for their businesses while achieving agility and improved operating efficiency through automation. Juniper Networks is headquartered in Sunnyvale, California and incorporated in Delaware. Company common stock is traded on the New York Stock Exchange under the abbreviation JNPR. Juniper Networks currently employs over 10,000 employees in 109 offices across 47 countries. Annual revenue as of 2019 was $4.45 billion.

Current Vision Statement

We exist to solve the world’s most difficult problems in networking technology. We bring simplicity to networking with products, solutions, and services that connect the world.

Proposed Vision Statement

We exist to make the technology needed to power communications simply through innovative engineering, meeting the needs of today and the future.

Current Mission Statement

A company of innovators, we believe that creating simplicity through engineering is the highest form of innovation. From our first release, the ground-breaking M40 router, to today’s end-to-end advancements in network security, automation, performance, and scale, our drive to move beyond the constraints of complexity has expanded the reach of networks everywhere. We’ve enabled our customers to connect to everything and empower everyone in ways that have literally changed the world.

In the profusion of new technologies such as IoT, big data, and multi-cloud, complexity is the new hard problem. And complexity is on the wrong side of progress.

With the strength of our resolve, we’ll champion the evolution of the cloud and once again change the world.

Simple is our obsession.

Simple is powerful.

And simple always starts with engineering.

Proposed Mission Statement

Our employees continue to build on a legacy of innovation (9) centered on meeting the ever-changing needs of our customers (1). We seek to provide the flexible, automated, and secure solutions (2) necessary to connect devices of all types to one another (4) with simplicity through innovative engineering (7). We have been the first to deliver needed products and advancements since our founding, and we will continue to ethically deliver products (6) for the future that ensure our continued work (5) of enabling our customers to connect to everything and empower everyone (3) in ways that will continue to literally change the world. (8) [94 words]

(1) Customers

(2) Products or services

(3) Markets

(4) Technology

(5) Survival, growth and profitability

(6) Philosophy

(7) Distinctive competence

(8) Public Image

(9) Employees

Current Status of Industries

Juniper Networks is primarily involved in the Telecommunication Networking Equipment Industry. This industry manufactures wired (voice and data) telecommunications equipment, including telephone switching systems, telephones and answering machines, data bridges, routers, modems and gateways. In addition, over the past 10 years, the industry has increasingly focused on manufacturing internet protocol-based telecommunications and networking equipment. (IBISWorld report 33421). The forecast for this U.S. industry is future decline as other countries continue to build capacity to deliver the same products at a lower price.

The Telecommunication Networking Equipment Industry is found in the “Decline” section of the Indicative Industry Life Cycle indicating shrinking economic importance:

Juniper Networks is also involved in the Software Publishing industry, primarily through their creation, distribution, and service of the Junos Operating System which powers their hardware offerings. Software publishers disseminate licenses to customers for the right to execute software on their own computers. Operators in this industry market and distribute software products and may also design the software, produce support materials and provide support services. Rising private investment in computers and software stimulated demand from businesses, while rising disposable income levels encouraged consumers to spend on software as well. Moreover, new internet-based solutions and the increasing popularity of mobile devices have triggered an explosion of mobile software applications. From 2020 to 2025, industry revenue is estimated to rise at an annualized rate of 6.4% to $293.1 billion. In 2020, the industry is anticipated to endure subdued revenue growth of only 1.9%, as the COVID-19 (coronavirus) outbreak reduces consumer spending and private investment levels.

Software publishers are often highly profitable despite the prevalence of software piracy, ongoing litigation and an expensive workforce. Over the past five years, publishers have focused on strategic acquisitions and product development, with large software publishers regularly acquiring smaller operators with specialties in high-growth, niche markets. Additionally, most operators have switched to the software-as-a-service (SaaS) model to stabilize cash flows. This model makes it more affordable to buy software products, enticing smaller and cash-strapped companies to make purchases while also facilitating easy scalability and frequent software updates.

Projections of the industry from 2020 to 2025 suggest the growing ubiquity of software in daily activities and the rise of predictive analytics and artificial intelligence software will benefit the industry by expanding software publishers’ product offerings and potential markets. For example, connected cars, smart appliances and automated logistics services are all expected to continue integrating with the daily activities of US consumers and businesses. Mobile computing devices are also providing new platforms on which operators can compete, while cloud computing is opening a wider array of software possibilities for mobile phones and tablets that are no longer hampered by low storage capacities. Additionally, demand for security software to protect data is expected to rise, especially after high-profile cybercrimes gripped the nation in recent years. Altogether, revenue is expected to rise at an annualized rate of 2.4% to $329.9 billion over the five years to 2025.

The Software Publishing Industry is firmly in the “Quantity Growth” quadrant of the Indicative Industry Life Cycle indicating smaller growth of economic importance spread across many new companies:

Overview of the Firm

Juniper Networks is at a pivotal point in its history. Many investments that have been years in the making are ready to begin seeing returns such as completing a stock buyback program, paying down debt, all while expanding its portfolio of offerings. However, key metrics such as Net Revenue and Net Income have continued to decline, and Juniper Networks faces competitors with significantly more resources in a difficult and competitive environment. The following pages will detail the position of Juniper Networks and formulate strategies for the future.

Competitive Profile Matrix (CPM)

Below is a Competitive Profile Matrix for Juniper Networks comparing the firm to two of its primary rival firms: Arista Networks and Cisco.

Juniper Networks is not performing poorly in the market overall, but it’s composite 2.07 CPM Matrix compared to Cisco’s 3.82 and Arista Networks’ 3.05 indicates that its rivals are performing better on the variables critical to the telecommunication manufacturing industry. Finding a distinct, competitive advantage that separates it from the companies in the upper echelon of the industry has thus far alluded the firm. With its two primary competitors consistently delivering on critical success factors more successfully, Juniper Networks must evaluate its strategic plan to adjust its current trajectory.

Financial Statements and Historical Ratios

What quickly stands out from an analysis of the financial statements is the downturn in revenue and net income. The firm has made recent strategic decisions to expand its product portfolio, reduce debt, and increase its dividend payout in the past three years. This is an ambitious set of goals, but those investments have yet to yield the necessary results to Total Revenue and Net Income. The primary issue facing the firm at this time is a trend of shrinking revenue in its largest division: Product. Juniper Networks needs these recently acquired assets to quickly begin yielding appropriate returns.

On the positive side, the firm enjoys above average standings on debt ratios related to the industry, as well as an operating margin three times above the industry average. They facilitate this by primarily outsourcing the manufacturing of the equipment, allowing them to hold down costs. This strategy is not without its drawbacks, as those manufacturers may shift to other vendors with no long term contracts and are subject to supply chain issues that Juniper can do little to resolve. Tariffs and other foreign policy decisions made by the leaders of the countries in which these manufacturers exist can also cause the price per unit to increase, leading to ambiguity in the margins and harming financial planning.

The next three years will be critical for Juniper Networks. The strategy of deep investment in the product portfolio along with a reputation as a shareholder centric firm necessitate the market respond to their offerings quickly if they are to be successful. Finding capital from other sources is possible, but less desirable as the risk of this firm is currently higher than its primary competitors due to the revenue trends and equity positions of the firms.

Internal Factor Evaluation (IFE) and External Factor Evaluation (EFE) Matrices

The Internal Factor Evaluation (IFE) Strengths for Juniper Networks are as follows:

The Internal Factor Evaluation (IFE) Weaknesses for Juniper Networks are as follows:

The External Factor Evaluation (EFE) Opportunities for Juniper Networks are as follows:

The External Factor Evaluation (EFE) Threats for Juniper Networks are as follows:

Some key points to note: A key weakness of Juniper Networks relates to a 2015 FBI investigation around an international and embarrassing security breach that was never publicly resolved. This weakness is directly related to a key opportunity of consumer expectations of privacy and security combined with a key threat of the increasing annual corporate security breaches.

Long term, the U.S. Telecommunications industry is in decline and Juniper Networks does not have the resources to continue to attempt to do so many things for so many types of customers. A distinctive competence must be identified, pursued, and achieved. The Software Publishing Industry is growing and represents a set of intriguing opportunities that will be discussed in the strategic plans listed below.

Proposed Strategies Developed From SWOT Matrix

Strength-Opportunity (SO) Strategies

Weakness-Opportunity (WO) Strategies

Strength-Threat (ST) Strategies

Weakness-Threat (WT) Strategies

The best strategies for continued growth of Juniper Networks will be discussed in the
Recommendations section below. But one strategy listed above should occur regardless of any other decision that will be made. That strategy is the Weakness-Opportunity Strategy of achieving a 3rd party certification for outstanding security practices and auditing. With security breaches increasing every year and security being the top concern of consumers per industry surveys, Juniper Networks must publicly address the 2015 security breach and subsequent FBI investigation. This certification would position them to positively communicate their proficiencies in this area, with validation from an external, unbiased party. This will address a key weakness, capitalize on an emerging opportunity, and ensure a growing threat is mitigated.

Strategic Position and Action Evaluation (SPACE) Matrix

The SPACE Matrix further illustrates Juniper Network’s need to solidify a sound strategy moving forward. Juniper Networks does have the resources to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses, and avoid external threats. However, Juniper Networks is also very close to the very center of the matrix, indicating that near future events could quickly remove that flexibility and force them into more undesirable choices. That could quickly cause Juniper shift strategies out of necessity rather than careful and measured planning.

BCG Matrix

The BCG Matrix continues the theme of an inflection point for Juniper Networks. The Product division is just below the industry average in sales growth rate, and is toward the bottom of market share. Coupled with an overall declining industry, this is a concerning position.

Both the Product and Service Divisions need to focus on increasing Market Share, but Juniper Networks may lack the resources to do that in both divisions without significant costs due to restructuring or debt. Market share increase will only be seen by achieving a competitive advantage above other firms in the space. The trajectory of the Software Publishing Industry likely makes the Service Division the better choice for future development.

Internal-External (IE) Matrix

Juniper Networks’ two divisions are primarily positioned to suggest the firm’s focus should be on Market Penetration and Product Development. But the placement of these divisions are very close to requiring an alternative strategy, and these underlying stories will be discussed in the following paragraphs.

Product: The placement of this division illustrates the difficult choices facing Juniper Networks in the near future. Current positioning suggests that Juniper Networks must choose between one of two paths. The first would primarily be concerned with increasing market share via market penetration and developing the product to either dominate in cost or differentiation. In considering the results of the SWOT analysis and industry trends, Juniper Networks would be best serviced to focus on product differentiation of connecting all devices through a centralized solution if this strategy is chosen.

The second strategy would suggest the firm refocus this division’s core business and become less diversified. This would cause Juniper Networks to divest from less profitable portions of the product division, such as routing, and focus on the growing industry trend of cloud computing.

Service: The placement of this division illustrates its relative strength in the market. With the proper internal focus, this could be shifted into an intensive growth strategy including a focus on market penetration, market development, or product development. Doing this would mean that even if external forces outside of the firm’s control were to impact the division it would still remain in a favorable position with similar goals for long-term success. This would primarily be done through leveraging the Junos Operating System similarly to a company like Redhat, making the Linux distribution of JunosOS available to other vendors. The strength of the software would be turned to delivering an integrated solution for wearables and connected homes through 5g and cloud compatible software and infrastructure.

Grand Strategy Matrix

The Grand Strategy Matrix shows the divisional positions of the firm relative to two evaluative dimensions: 1) Competitive Position and 2) Market (Industry) Growth. It is helpful to understanding the attractiveness of available strategies available to the firm.

Juniper Networks Product Division represents the primary industry of the firm, and its placement on the Grand Strategy Matrix speaks to a need for bold action. Unfortunately, Juniper Networks does not have the high cash flow levels characteristically present with a strongly positioned firm with a favorable competitive position in a growing market, meaning a new and correct strategy is paramount to their continued success.

In contrast, the Service firm is in a more favorable position of a rapidly growing market, but an evaluation of their present approach to the market is needed to increase Juniper’s competitive position. Juniper Networks must determine why they are ineffective and how they can change to improve competitiveness.

A consistent theme has appeared in all matrices and analyses of Juniper Networks relative to their markets. The Product Division is responsible for the majority of the revenue, but it represents a declining industry and Juniper Networks has thus far been unable to create a clear, distinctive product related advantage to separate itself in the market. The revenue for this division has declined for three years in a row. By contrast, the Service Division has a growing share of the revenue having increased for three years in a row. It is also in a growing industry, less dependent on manufacturers and supply chains that are either outside of the firm’s control or raise the operating costs of production. All of the analyses done have resulted in two distinct strategies for Juniper Networks that will be discussed in the section below.

Quantitative Strategic Planning Matrix (QSPM)

Two proposed strategies stood out as potentially beneficial for the long-term success of Juniper Networks:

1. A shift away from being primarily involved in the Telecommunications Industry into the Software Publishing Industry over the next 5 years.

This would be accomplished by refocusing the core of the product division away from routing and switching technologies. Those resources would be redeployed to:

a. Grow the service division’s offering of the Junos OS, making it available to all vendors instead of a proprietary offering only available on Juniper’s hardware.

b. Focus on the Cloud product line across all customer verticals and divisions.

c. Development and domination of the Product Division’s security technologies to be embedded into all offerings.

2. A focus on Cloud solutions and technologies, divesting from other portions of the portfolio to fund and power this effort.

This strategy would move away from routing technologies in the product division which have shown a steady decline for the firm and focus on growing industrial trends. Those resources would be redeployed to:

a. Focus on the Switching and Cloud product lines across all customer verticals and divisions.

b. Development and domination of the Product Division’s security technologies to be embedded into all offerings.

Long-term success is best found in the decision to shift Juniper Networks primarily into the Software Publishing Industry with a composite score of 4.25. The shift to Software Publishing, with a focus on licensing and servicing the Junos OS on other platforms with a focus on Cloud and 5g technologies, wearables, and connected homes would place the firm in a strategic position to capitalize on long-term industry trends and growth while removing it from long-term risks and declines. An alternative strategy would involve a narrowed focus on specific products and services, particularly Cloud solutions, with a composite score of 2.80.

Juniper Networks is in a desirable position to perform this transition by properly employing a series of strategic initiatives that will be discussed in detail in the
Recommendations section to follow.

Recommendations

Explanations for Recommendations

1. Estimation for an initial certification provided from FedRAMP (Federal Risk and Authorization Management Program) certification costs. For Juniper Networks, this is the desired accreditation to pursue. Verification costs range between $250,000 and $750,000 depending on the compliance deficiencies encountered. An allocated $750,000 is used to yield a conservative cost structure. Subsequent allotments gathered from the cost of similar 3rd party verification programs such as PCI-1 or SOC-2 Compliance.

2. Revenue for routing related products decreased 25.5%, or $566.3 million from 2017 to 2019. With the U.S. telecommunications industry in decline, divesting from this product line to reinvest in the more profitable sections. Routing products represent 36% of total revenue, or $1,623.2 million in 2019. Corporate revenue totaled $4,445.4 million overall. Following the pattern of a former divestiture of the firm from a product in 2014, a planned three year transaction will be pursued with $500 million due in the years 1 and 2, with the remainder $800 million due for year 3.

3. Rebranding a company is projected to cost 10-20% of a company’s marketing budget, on average. As this would be a shift to a new industry, a 20% cost, or $435 million of total operating expenses (totaling $2,174.6 million in 2019) will be allocated for this purpose assuming that all departments will require resources to make this change. The majority of this will be allocated for the first year with residual money budgeted for the two years following.

4. Service Provider revenue suffered a 12% decline from 2018 to 2019 for the firm. Industry projections include a downturn in demand from Service Providers for the next 5 years. This customer vertical currently comprises 41.1% of net revenues, or $1,827.8 million in 2019. This means that it cannot be simply abandoned but must be strategically transitioned and focused to meet specific needs in the Service Provider Market. Operating expenses dedicated to this vertical are estimated at the amount of revenue applied to the Total Operating Expenses, or $891.5 million in 2019. Expenses dedicated to this vertical would be redirected to fund Cloud development efforts over time. Expected transition of Service Provider related Operating Expenses result in 10%, 15%, and 20% for the next three years, respectively. Those resources are expected to yield growth of the Cloud vertical of 10%, 20%, and 25% in the next three years, respectively.

For Service Providers that need more than Juniper Networks offerings will provide, Finding a strategic partner who can deliver quality products for this vertical and receiving a referral fee would result in offsetting revenue to the decline.

5. Sales and Marketing Operating Expenses totaled $939.3 million in 2019. Using estimates of marketing rebranding, 20% of the total marketing budget should be allocated to launch such a campaign, totaling $187.9 million.

6. A CSO, or Chief Strategy Officer, would be an additional member of the executive leadership team, and would serve two primary purposes. The first is to strategically facilitate the transition from a primary telecommunications firm to a primary software publishing firm. The second would be to ensure an overall strategic approach to success the firm is lacking today. Cost is based on the estimated salary of this position in California.

7. Public Relations Firms can cost up to $20,000 per month through retainer fees. This budget would assume that the firm would contract the best PR firm available on retainer for three years. (12 months x 20,000, per year)

8. Payment of Dividends for 2019 totaled $260.1 million. Estimates for this recommendation were reached by increasing that amount and subsequent years by 2% annually.

9. Average salary for software engineers in California is $123,000 annually. This is an assumed team of 20 people, with a 25% assumption per person of benefits. ((123,000 x 20) x 1.025)

10. By extending the time to bill to the industry average, Juniper Networks would make its product more desirable to Enterprise clients who may be facing a downturn in revenue due to COVID-19 impacts. Juniper Networks had a Days of Receivables that was one-third of the industry average. Extending this would let the billing cycle for Juniper Networks match the industry average and avoid a competitive disadvantage.

Organizational Chart

Below is the current organizational chart for Juniper Networks:

The individuals in the organizational chart are as follows:

1) Rami Rahim – Chief Executive Officer and Director

2) Anand Atherya – Executive Vice President and Chief Development Officer

3) Manoj Leelanivas – Executive Vice President and Chief Product Officer

4) Brian Martin – Senior Vice President, General Counsel and Secretary

5) Kenneth Miller – Executive Vice President and Chief Financial Officer

6) Thomas Austin – Vice President, Corporate Controller and Chief Accounting Officer

It is helpful to recall that one of the weaknesses for Juniper Networks was the internal rating of its leadership team. This stems in part from a structure that promotes ambiguity in separating product strategy, under the control of the Chief Product Officer (CPO) from engineering strategy, under the control of the Chief Development Officer (CDO). Juniper Networks lacks a Chief Operating Officer to centralize these strategies in an integrative approach.

This organizational chart suffers from dual, and in some cases, triple titles for executives. Juniper Networks should seek to clarify the roles associated with the executives by having clear titles that convey the scope of that executive’s responsibility.

Yet another critique of this group would also recognize a lack of gender diversity with none of the chief officers being female. In considering a reorganization of the leadership team, this should be addressed.

Proposed Organizational Chart

The following chart is proposed to facilitate the transitions listed in the recommendations as well as continued success.

The transition from a primary focus on the Telecommunications Manufacturing Industry into a primary focus on the Software Publishing Industry will take a concerted approach among all product teams. To facilitate this, the heads of the Engineering and Product Teams have been moved underneath a Chief Operating Officer. The titles Chief Product Officer and Chief Development Officer have also been retitled as Presidents of the two clarified divisions of the company. An excellent candidate for the COO role is Anna Johnston, a Principal Engineer for Juniper Networks and Adjunct Professor of Cryptography at Johns Hopkins University. This will ensure that both divisional presidents report to a well credentialed, security minded individual, while also bringing gender diversity to the executive leadership team.

Furthermore, there should be a continued effort of strategic alignment between all branches of the company based on strategic planning and market understanding. The Chief Strategy Officer will fulfill that role, presenting pertinent information to the Executive Leadership Team and ensuring each part of the company is delivering on the chosen strategy. It is highly recommended that highly qualified female candidates be considered for this role as well, further introducing gender diversity into Juniper Network’s Leadership Team.

In addition to the above changes, the General Counsel and Secretary has been serving as an interim CHRO (Chief Human Resources Officer) for more than two years. Given his job description as listed in the financial statements, this is a fitting title and interim positions should not last for several years. Other positions were clarified and dual titles removed. The proposed C-level executives are as follows:

Chief Executive Officer (CEO)

Chief Financial Officer (CFO)
Chief Human Resources Officer (CHRO)

Chief Operating Officer (COO)

Chief Accounting Officer (CAO)

Chief Strategy Officer (CSO)

Perceptual Map

The following perceptual map is based on an analysis of a firm’s flexibility to respond to industry changes and product revenue growth.

The ability to respond to technological changes is a critical component of the Telecommunications Manufacturing Industry. At this time, Juniper simply does not have the resources to respond to these changes in a timely manner compared to other firms in the market. Furthermore, when reviewing product revenue growth, Juniper Networks has one of the lowest positions in the competitive market for the last three years. This perceptual map continues to illustrate that Juniper Networks’ next strategic plan is critical to its long-term success. It cannot continue to remain in this competitive position with positive expectations.

A second perceptual map illustrates the same companies in the industry on a different set of axes. Each company has cast a vision in the public marketplace that it wishes to achieve. Independent firms that judge and rate such companies have stated where these companies fall on the completion of that vision, and how likely they are to execute that vision given the strengths and weaknesses of the companies themselves. A company with fewer resources and poor management would be less likely to execute on the stated vision of the company. Juniper Networks remains firmly entrenched as a question mark in the minds of the industry as can be seen by the positioning in the middle of the matrix. While it is possible Juniper Networks can accomplish its stated goals, it is just as likely that they could fail to achieve those goals.

Firm Valuation

The closest competitor to Juniper Networks is Arista Networks. Many other competitors are much larger corporations with varied business units, but Arista’s portfolio closely resembles that of Juniper Networks and the two firms have also been listed as leaders in the industry by independent rating companies.

The true difference in the evaluations begins to take place with the metrics involving the share price. Juniper Networks stock price of $22.61 per share is less than one-tenth of Arista Networks $283.16 per share. Juniper Networks needs to take a strategic approach to raising its share price. Recommendations 5 and 8 listed above directly deal with this need to raise the valuation of the firm.

EPS-EBIT Analysis

The strategy for Juniper Networks relies on reducing the firm’s product diversification. This includes divesting the routing products and using those funds to grow the Software and Services division. No additional capital will be needed, given current projections, resulting in no difference between the choices of equity and debt financing.

Furthermore, the strategy of the firm also includes increasing the price of the stock through an aggressive marketing campaign. Equity Financing would align with that goal much better than Debt Financing. Juniper Networks is in a place where it could use debt leverage to grow, but the preference with the current strategy would be to grow equity through releasing treasury stock into the market at a premium from the purchase price. This makes Equity Financing the best choice for funding the future endeavors of the firm.

As noted previously, the recommendations include divesting from the routing products to fund the transition from Telecommunications Manufacturing to Software Publishing and Service. Should the board not approve the divestment yet desire to pursue the industry change and implement the other recommendations the cost of all other recommendations would be $1.45 billion. As it is possible that an alternative strategy could be requested, that figure was used with the EPS/EBIT analysis with the following results:

Equity Financing remains the preferable option under this scenario as well, with improved Earnings Per Share for years one and two. Debt financing would become as preferable as Equity in year three, given no other changes. This would suggest that the firm is at an appropriate level of debt leverage and would be better suited to explore Equity Financing through Common Stock. As this strategically aligns with other goals and projected outcomes, Equity Financing is the clear choice for Juniper Networks at this time.

Projected Financial Statements

Should the firm follow the given recommendations it will be divesting itself of a product associated with a shrinking industry to more fully invest in products related to a growing industry. This will also capitalize on the strengths of the firm while minimizing the weaknesses. The below tables represent the projected results of these recommendations:

Treasury Stock will continue to decline as the shares are released to sell at premium. The Retained Earnings (Accumulated Deficit) balance will continue to improve due to the increased revenue stream.

Projected Financial Ratios

Among the weaknesses listed for Juniper Networks was the ROA and ROE % ratios. These were well below the industry average for the firm in the historical ratios, and had trended to severe declines in recent years. These have now risen to match the industry leaders for these ratios. As planned, the Average Collection Period did rise as the firm promotes a longer pay cycle for Enterprise clients as a strategic advantage.

Retained Earnings Table

A significant weakness of Juniper Networks is the size of its Accumulated Deficit (Negative Retained Earnings). The recommendations given, as planned, have increased dividend payouts while simultaneously reducing the accumulated deficit. These figures are exactly what the firm needs to see to experience long-term growth and success. The increased dividends, plus a stronger financial position of the firm, should cause the stock price to rise and the valuation of the firm to approach that of its closest competitors.

Epilogue

The recommendations given in this report can be broken down into a two-pronged strategy for Juniper Networks:

1. Simplify organizational structure and product offerings

Juniper Networks needs to simplify its organizational structure and product offerings. While Juniper Networks is known for making quality products it struggles to capture market share necessary to achieve sustainable growth. It has a diverse portfolio of options, but this diversification has not yielded the expected return. Juniper Networks’ product portfolio currently reflects a reality of doing many things well, but nothing they produce is considered the best in class.

2. Transition primary industries

The U.S. Telecommunication Manufacturing Industry continues to decline as international firms with lower operating costs enter the market. This industry is ever-changing and fast paced. New technologies and advancements can appear quickly, and many firms have significant cash reserves on hand to either be a “fast-follower” or simply purchase new companies or patents and incorporate their technological advancements into the firm’s portfolio. The ability to adjust quickly is critical to success in this space, and Juniper Networks lacks this ability compared to its principle competitors.

Juniper Networks also produces and distributes the JUNOS Operating System, a distribution of Linux that they only provide on equipment they also manufacture. The Software Publishing Industry is growing, and numerous opportunities on the horizon for the market play to Juniper’s strengths as a service organization. The Service Division of Juniper outperforms the Service Division of many of its principal rivals relative to growth and total percentage of company revenue. There is no reason that Juniper could not offer this software distribution to any manufacturer, and build it with the engineering and skill necessary to connect devices of all kinds to one another simply through innovation as the company states it wishes to do.

These plans are complementary, and the firm has what it needs to accommodate these plans and successfully change itself into a company with promising growth. It need not completely abandon hardware production to achieve this, and in fact it cannot hope to do that and continue funding its business. A transition to another primary industry takes time and expertise, and they must begin that journey as quickly as possible to ensure success. Juniper Networks reveals itself to be a question mark through multiple analyses, squarely stuck between potential growth and potential failure with too many uncertainties for investors to trust. As long as this remains true, Juniper Networks continue to underperform in relation to investor related metrics compared to the others in this industry. These recommendations align the growth of the marketplace with Juniper’s strengths to give the best opportunities for success. With its solid foundation to build on, Juniper Networks can become the leader of software solutions that power the future.

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Proposed Strategic Plan
Capstone Strategic Management Course

At Francis Marion University
Fall 2020 Semester

Table of Contents
Introduction ………………………………………………………………………………………………………………………………………….. 3

Current Vision Statement ………………………………………………………………………………………………………………………… 3

Proposed Vision Statement ……………………………………………………………………………………………………………………… 3

Current Mission Statement ……………………………………………………………………………………………………………………… 3

Proposed Mission Statement …………………………………………………………………………………………………………………… 3

Competitive Profile Matrix (CPM) …………………………………………………………………………………………………………….. 4

Financial Statements ………………………………………………………………………………………………………………………………. 4

Ratio Analysis ………………………………………………………………………………………………………………………………………… 6

Internal Factor Evaluation (IFE) Matrix ……………………………………………………………………………………………………… 7

External Factor Evaluation (EFE) Matrix …………………………………………………………………………………………………….. 8

Proposed Strategies Developed from SWOT Matrix ……………………………………………………………………………………. 9

Strategic Position and Action Evaluation (SPACE) Matrix …………………………………………………………………………… 10

Boston Consulting Group (BCG) Matrix ……………………………………………………………………………………………………. 12

Internal-External (IE) Matrix …………………………………………………………………………………………………………………… 13

Quantitative Strategic Planning Matrix (QSPM) ………………………………………………………………………………………… 14

Recommendations ……………………………………………………………………………………………………………………………….. 18

Explanations for Recommendations: ………………………………………………………………………………………………………. 18

Organizational Chart …………………………………………………………………………………………………………………………….. 20

Perceptual Map ……………………………………………………………………………………………………………………………………. 21

Firm Valuation ……………………………………………………………………………………………………………………………………… 22

EPS-EBIT Analysis …………………………………………………………………………………………………………………………………. 22

Projected Financial Statements ……………………………………………………………………………………………………………… 24

Projected Financial Ratios ……………………………………………………………………………………………………………………… 26

Retained Earnings Table ………………………………………………………………………………………………………………………… 26

Executive Summary ………………………………………………………………………………………………………………………………. 27

Introduction
Sanderson Farms, Inc. was founded in 1947, and is a fully, vertically-integrated poultry
processing company engaged in the production, processing, marketing and distribution of fresh
and frozen chicken. Headquartered in Laurel, Mississippi, Sanderson Farms is a Fortune 1000
company. Employing more than 15,000 employees in operations spanning five states and 17
different cities, Sanderson Farms is the third largest poultry producer in the United States.
Incorporated in 1955 with the initial public offering presented in 1987, common shares of
Sanderson Farms, Inc. are traded on the NASDAQ stock exchange under the symbol SAFM.
Sanderson Farms, Inc. maximizes stockholder value by being a successful producer and marketer
of high quality food products and providing superior service to the food industry.

Current Vision Statement
“It is not our intent to simply be larger. Our vision is to be special, successful, and at the very top of our
industry.” ~Joe Frank Sanderson, Jr.
Source: https://sandersonfarms.com/our-story/#6th; 08/19/2020, 8:32 pm

Proposed Vision Statement
We strive to produce the highest quality, conveniently packaged chicken products that our customers
can gladly serve to their friends and family, today and tomorrow.

Current Mission Statement
As a company, Sanderson Farms is committed to adopting a fresh approach in everything that we
do. Not only where products are concerned, but companywide as well. Though the company has
grown in size, it still adheres to the same hometown values of honesty, integrity and innovation
that were established when the Sanderson family founded the company back in 1947.
Source: https://sandersonfarms.com/press-releases/sanderson-farms-cultivates-culture-community-
charity-chicken/; 08/20/2020, 2:15 pm

Proposed Mission Statement
Sanderson Farms’ mission is to provide a variety of high-quality, affordable (7) chicken products (2) to
our customers in North America and around the world (3). We believe customer satisfaction, both in
households and in the food industry (1), is paramount to our continued success. Our singularity of focus
on poultry allows us to be industry leaders through perfecting the production of chicken, from birth to
death (5). Our utilization of state-of-the-art animal husbandry and production technology (4) is critical
to achieving our goal of operational efficiency. Our philosophy of social and environmental
responsibility (8) guides our operations, by prioritizing caring for our employees (9), our animals, and
the environment (6). (102 words)

(1) Customers (6) Philosophy
(2) Products or services (7) Distinctive competence
(3) Markets (8) Public Image
(4) Technology (9) Employees

(5) Survival, growth and profitability

Competitive Profile Matrix (CPM)
Below is a matrix detailing information about the Competitive Profile Matrix. This compares Sanderson
Farms with two major competitors—Tyson and Pilgrim’s Pride.

There are a few items to note from the CPM above. Sanderson Farms’ weighted score on the different
metrics is 2.91. This means that Sanderson Farms is a stronger competitor in the market than Pilgrim’s
Pride, with a score of 2.31. Tyson, however, is doing better competitively with an overall score of 3.14.

Financial Statements
Below are the income statement and balance sheet for Sanderson Farms for fiscal years 2018 and 2019.

Critical Success Factors Weight Rating Score Rating Score Rating Score
International Market
Penetration 0.14 2 0.28 4 0.56 1 0.14

Domestic Market Penetration 0.12 2 0.24 4 0.48 3 0.36
Market Share 0.10 2 0.20 4 0.40 3 0.30
Product Quality 0.10 4 0.40 2 0.20 3 0.30
Price Competitiveness 0.10 4 0.40 2 0.20 3 0.30
Customer Loyalty 0.09 2 0.18 4 0.36 3 0.27
Financial Profit 0.08 3 0.24 2 0.16 1 0.08
Advertising 0.07 3 0.21 4 0.28 2 0.14
Customer Service 0.06 4 0.24 3 0.18 2 0.12
Employee Dedication 0.06 4 0.24 1 0.06 2 0.12
Top Management 0.06 4 0.24 3 0.18 2 0.12
Product Variety 0.02 2 0.04 4 0.08 3 0.06
Totals 1.00 2.91 3.14 2.31

Tyson Pilgrim’s PrideSanderson Farms

10/31/2018 10/31/2019 Percent Change
$3,236,004,000 $3,440,258,000 6%
2,974,739,000 3,158,323,000 6%
261,265,000 281,935,000 8%
231,565,000 213,941,000 -8%
29,700,000 67,994,000 129%
(857,000) 4,147,000 -584%

30,557,000 63,847,000 109%
(30,874,000) 10,553,000 -134%

0 0 NA NA
61,431,000 53,294,000 -13%

EBIT

Income Statement

Interest Expense
EBT
Tax

Revenues
Cost of Goods Sold
Gross Profit
Operating Expenses

Non-Recurring Events
Net Income

10/31/2018 10/31/2019 Percent Change

$121,193,000 $95,417,000 -21%
121,932,000 131,778,000 8%
240,056,000 289,928,000 21%
83,308,000 63,988,000 -23%
566,489,000 581,111,000 3%

1,087,588,000 1,185,860,000 9%
0 0 NA NA
0 0 NA NA

5,363,000 7,163,000 34%
1,659,440,000 1,774,134,000 7%

128,936,000 132,741,000 3%
69,953,000 82,940,000 19%
198,889,000 215,681,000 8%

0 55,000,000 NA NA
72,658,000 85,778,000 18%
271,547,000 356,459,000 31%

22,100,000 22,204,000 0%
1,284,524,000 1,309,461,000 2%

0 0 NA NA
81,269,000 86,010,000 6%

1,387,893,000 1,417,675,000 2%

1,659,440,000 1,774,134,000 7%Total Liabilities and Equity

Long-Term Debt
Other Long-Term Liabilities
Total Liabilities

Equity
Common Stock
Retained Earnings
Treasury Stock
Paid in Capital & Other
Total Equity

Accounts Receivable

Total Current Liabilities

Other Current Assets
Total Current Assets
Property Plant & Equipment
Goodwill
Intangibles
Other Long-Term Assets
Total Assets

Liabilities
Accounts Payable
Other Current Liabilities

Inventory

Balance Sheet
Assets
Cash and Short Term Investments

Ratio Analysis
Below are the financial ratios for Sanderson Farms for 2019 and 2018.

There are a few important things to note. The poultry industry, like other agricultural industries, is
fundamentally characterized by earnings volatility stemming from its dependence on weather,
fluctuating commodity prices, and other uncontrollable factors. It does, however, enjoy fairly consistent
demand and the chicken industry has been growing steadily since the 1980s (see EFE matrix).
Sanderson Farms’ relatively high inventory turnover rate speaks to the nature of their industry and the
perishability of its products.

10/31/2018 10/31/2019
Current Ratio 2.85 2.69
Quick Ratio 1.64 1.35
Total Debt-to-Total-Assets Ratio 0.16 0.20
Total Debt-to-Equity Ratio 0.20 0.25
Times-Interest-Earned Ratio -35 16
Inventory Turnover 12.39 10.89
Fixed Assets Turnover 2.98 2.90
Total Assets Turnover 1.95 1.94
Accounts Receivable Turnover 26.53941541 26
Average Collection Period 13.75 13.98
Gross Profit Margin % 8% 8%
Operating Profit Margin % 1% 2%
ROA % 4% 3%
ROE % 4% 4%

Historical Ratios

Internal Factor Evaluation (IFE) Matrix
Below is a matrix detailing the Internal Factor Evaluation Matrix (IFE Matrix). This lists Sanderson
Farms’ greatest strengths and weaknesses as a company.

Strengths Weight Rating Weighted Score
1 Sanderson Farms pounds poultry sold increased by nearly 3% from

2018 to 2019. 0.08 4 0.32

2 Sanderson Farms had international export gains of $112 million
from 2018 to 2019. 0.07 3 0.21

3 New, state-of-the-art processing plant in Tyler, TX brought 100%
online by second quarter of 2020. 0.06 4 0.24

4 Pounds poultry processed increased by 405 million pounds in 2019
from previous year. 0.05 3 0.15

5 Sanderson Farms discontinued antibiotic use in its poultry in 2018
in response to consumer demand for antibiotic-free meats. 0.04 1 0.04

6 In 2019, reduced OSHA injury rates by 10% from previous year. 0.03 3 0.09
7 Third-party animal welfare audit score at 99% in 2019. 0.03 3 0.09
8 Average contract farmer retained for greater than 20 years,

compared to Tyson Foods at 15 years. 0.03 3 0.09

9 Sanderson Farms named one of America’s Best Employers by
Forbes magazine in 2019. 0.01 4 0.04

10 88% of 2019 new hires were minorities and women. Sanderson
Farms has 32% greater diversity of employees and board members
in relation to Tyson Foods.

0.01 3 0.03

Weaknesses Weight Rating Weighted Score
1 Sanderson Farms’ earnings fell 38.6% from 2019 to 2020. 0.10 2 0.20
2 Sanderson Farms’ EPS down $.93 in 2020 from previous year. 0.08 2 0.16
3 Sanderson Farms share prices down 34% from 2019 to 2020. 0.08 2 0.16
4 Entirely dependent on demand for a single protein source, chicken. 0.07 1 0.07

5 Total liabilities increased from $271,547,000 to $356,459,000
from 2018 to 2019. 0.05 2 0.10

6 Sanderson Farms produced 4.7% fewer pounds of packaged poultry
in the first half of 2020 as a result of weak demand from restaurants
and the food service industry due to the COVID-19 pandemic. 0.05 3 0.15

7 Tyson Foods organic chicken division sales up 7% from 2019 to
2020. Sanderson Farms has no organic offerings. 0.05 1 0.05

8 Perdue Farms achieved its goal to provide outdoor access in 25% of
its chicken houses by January 2020. Sanderson Farms’ chickens
have no outdoor access.

0.05 1 0.05

9 Sales to Sanderson Farms’ top ten customers represented
approximately 54% of their net sales during fiscal year 2019. 0.04 2 0.08

10 Sanderson Farms faces multiple pending lawsuits in 2020, from
price fixing charges to environmental protection violations. 0.02 3 0.06

Total IFE Score 1.00 2.38

External Factor Evaluation (EFE) Matrix
Below is the EFE Matrix for Sanderson Farms and the poultry industry. Listed first are the key
opportunities followed by the major threats.

Opportunities Weight Rating Weighted Score
1 Over the next five years, poultry consumption is expected rise an

annualized 0.1% to 109.4 pounds per person in the US. 0.10 4 0.4

2 The price of poultry meat in the United States is expected to
increase at an annualized rate of 0.8% over the next five years. 0.08 4 0.32

3 Broiler meat exports increased 4.2 % in first half of 2020, with
shipments to China offsetting weaknesses in other major markets. 0.04 3 0.12

4 Profit margins in the poultry industry have remained steady over
the past 5 years, increasing by .4% in 2020 from 2019. 0.04 2 0.08

5 Poultry industry has reduced amount of grain necessary to produce
a salable pound of poultry by 50% in the United States in the last
40 years.

0.04 2 0.08

6 Longer term 15 year contracts with farmers have improved farmer
retention by 24% from 2000 to 2020. 0.03 4 0.12

7 Automation in slaughterhouses have reduced OSHA violations by
86% from 1973 to 2020. 0.02 1 0.02

8 In the US, poultry production has been getting steadily more
mechanized for decades—going from 3,000 chickens processed
per hour in 1970 to 8,000 in 1980 and 15,000 today.

0.02 1 0.02

9 Feed grain prices decreased by 2.7% from 2019 to 2020. 0.02 3 0.06
10 Diesel fuel prices have dropped by $.62/gallon from 2019 to 2020 as a result of lower liquid fuel demand following the coronavirus pandemic.0.01 2 0.02

Proposed Strategies Developed from SWOT Matrix
Below are strategies developed that Sanderson Farms could pursue to stay competitive and grow the
company.

Strength-Opportunity (SO) Strategies

Weakness-Opportunity (WO) Strategies

Threats Weight Rating Weighted Score
1 From March to August 2020, at least 40,517 meatpacking workers

have tested positive for COVID-19, and at least 189 have died of
COVID-19.

0.12 1 0.12

2 The North American Meat Institute estimates that most plants are at
70% production because of COVID-19 shutdowns and COVID
related employee absences.

0.10 1 0.10

3 The Meat, Beef & Poultry Processing industry is expected to see a
43% decline in demand in 2020 from 2019 levels due to the mass
closure of food service establishments.

0.09 3 0.27

4 As many as 85% of independent restaurants may permanently close
because of the pandemic by the end of 2020. 0.09 3 0.27

5 Real gross domestic product (GDP) decreased at an annual rate of
32.9 percent in the second quarter of 2020. 0.06 3 0.18

6 The net increase of immigrants in the American population dropped
by more than 70% from 2018. Immigrants account for the
majority of meatpacking employees.

0.06 4 0.24

7 19% increase in demand for free-range or organic poultry expected
over next five years. Sanderson Farms does not offer free range or
organic poultry.

0.03 1 0.03

8 11.9% of U.S. households currently purchase plant-based meat, up
from 10.5% a year ago. 0.03 1 0.03

9 Low revenue growth in the industry predicted at 0.3% from 2020 to
2025. 0.01 3 0.03

10 The chicken companies, including Pilgrim’s, Claxton, Tyson Foods,
Sanderson Farms and Perdue Farms Inc., have all been indicted on
price-fixing charges in 2020.

0.01 1 0.01

Total EFE Score 1.00 2.52

1
2
3
4

SO Strategies
Use production gains to increase exports to China by 25% in one year. [S2,S3,S4,O3,O8]
Develop 4 new ads to increase customer awareness of “no antibiotics” policy [S5,S7,O1]
Increase exports to Mexico by 50% over next 3 years [S3,S4,O3]
Offer $500 sign on bonus to new domestic employee recruits [S9,S10,S6,O7]

1
2
3
4

Create pamphlet for distribution to shareholders about firm’s resilience through COVID crisis[W1,W2,O4]
Hire new director of marketing with focus to increase Sanderson Farms brand awareness [W4,O1,O2]
Shift 5% fresh pack production to frozen pack [W6,O3]

Diversify customer base by seeking 40% more new contracts with school districts [W9,O1,O2]
WO Strategies

Strength-Threat (ST) Strategies

Weakness-Threat (WT) Strategies

Strategic Position and Action Evaluation (SPACE) Matrix
Below is a Strategic Position and Action Evaluation Matrix (SPACE Matrix) for Sanderson Farms and
its two closest competitors, Tyson and Pilgrim’s Pride.

1
2
3
4

ST Strategies
Shift 50% production for food service customers to export markets. [S2,S3,S4,T3,T4]
Transition one-third of contract farmers to free range production model over next 3 years.[S8,T7]
Develop all new packaging with animal welfare certification label for 2021 [S7,T7]
Hold restaurant competition and offer free chicken for a year for the winner[S4,T3,T4]

1
2
3
4

Develop PR campaign in 2021 to improve image [W10,T10]
Recruit 250 more farmer/producers already using free range production model [W8,T7]

WT Strategies
Offer incentives for farmers to transition to 10% organic production [W7,T7]
Acquire Beyond Meat, Inc. a plant-based meat substitute company [W4,T8]

Sanderson Farms

Tyson

Pilgrim’s Pride

-7.0

-5.0

-3.0

-1.0

1.0

3.0

5.0

7.0

-7.0 -5.0 -3.0 -1.0 1.0 3.0 5.0 7.0

CP IP

Defensive

Conservative Aggressive

Competitive

Sanderson Farms Tyson Pilgrim’s Pride
X Axis 0.4 2.0 1.0
Y Axis 0.4 -2.0 -3.0

The SPACE matrix puts Sanderson Farms in the Aggressive quadrant. It has a stronger than industry
average financial position (FP) due to a low debt to equity ratio, high current ratio, and high inventory
turnover. The stability position (SP) is a reflection of extreme competitive pressure and high barriers to
entry. The poultry industry requires a huge amount of up-front capital in an already well-established
market. Like other food industries, it does benefit from a low price elasticity of demand, which
improves its stability position.

Sanderson Farms’ position on the horizontal axis is affected by the competitive position and industry
position. Its industry position (IP) is lower than both Tyson and Pilgrim’s Pride, but Sanderson Farms is
poised to take advantage of growth opportunities presented by further penetration of export markets
(especially China and Mexico). The financial stability score of 1 is an indicator of the volatility and low
profit margin nature of the poultry industry in general. However, it is even lower than its competitors
because of Sanderson Farms’ reliance on a single protein source and its riskier vertically-integrated
structure. The competitive position (CP) is worsened by low variety of products offered and low market
share.

In addition to Sanderson Farms falling within the aggressive quadrant, there are several factors which
recommend a market development strategy. First, unsaturated markets exist in China and Mexico for
poultry products. A decrease in domestic demand, due to the mass closure of food service
establishments caused by COVID-19, means Sanderson Farms possesses the capacity to supply these
markets. Further, the distribution channels to both countries are inexpensive and reliable. Lastly, poultry
products are not subject to either Mexican or Chinese tariffs.

Internal Analysis: External Analysis:
Financial Position (FP) Stability Position (SP)

5 -4
7 -2
1 -1
2 -7
6 -5

Financial Position (FP) Average 4.2 Stability Position (SP) Average -3.8

Internal Analysis: External Analysis:
Competitive Position (CP) Industry Position (IP)
Market Share -3 Growth Potential 4
Product Quality -1 Financial Stability 1
Customer Loyalty -3 Ease of Entry into Market 3
Variety of Products Offered -6 Resource Utilization 6
Control over Suppliers and Distributors -1 Profit Potential 2

Competitive Position (CP) Average -2.8 Industry Position (IP) Average 3.2

Current Ratio
Debt to Equity
Net Income
Revenue
Inventory Turnover

Rate of Inflation
Technological Changes
Price Elasticity of Demand
Competitive Pressure
Barriers to Entry into Market

Boston Consulting Group (BCG) Matrix
Below is a Boston Consulting Group (BCG) Matrix for Sanderson Farms’ operating segments by region.
Revenues listed in the table are in millions.

Sanderson Farms’ regional segments, United States and Central Asia, lie mostly within the question
mark quadrant, due to their relative market share position trailing far behind that of the industry leader,
Tyson. Sanderson Farms’ sales into Mexico, however, are far and away the star among the divisions,
where competitive pressures are less. Efforts to further market penetration into Mexico are a possible
strategy indicated by its position. The position of Other Exports in the dog quadrant indicates that
efforts in these markets may be better served by increasing exports to Central Asia and Mexico.

High 1.0

High 0.20

Low -0.20

Low 0.0

In
du
st
ry
S
al
es
G
ro
w
th
R
at
e

Relative Market Share Position

Central Asia

Other Exports

United States

-0.35

-0.25

-0.15

-0.05

0.05

0.15

0.25

0.35

-0.200.000.200.400.600.801.001.20

Question MarksStars

Cash Cows Dogs

Your Firm’s
Division

Revenues

Top Firm in
Industry
Division

Revenues

Industry
Sales

Growth
Rate

Relative
Market
Share

Position

$3,161 $12,610 0.05 0.25
$157 $76 0.02 2.06
$44 $352 0.13 0.12
$78 $262 -0.02 0.30

Division

United States
Mexico
Central Asia
Other Exports

Internal-External (IE) Matrix

From the IE Matrix above, we see that Sanderson Farms’ strongest segments are fresh vacuum-sealed
and fresh chill-packed chicken. They both have a strong internal and external positioning, as well as
accounting for most of Sanderson Farms’ revenue. They are weakest in the other three products, fresh
bulk-packed, minimally-prepared chicken, and frozen chicken. A major contributing factor to these
lower revenues is that the customers for these products are institutions and the food service industry who
demand a lower price.

Strong Weak
4.0 1.0

High
4.0

Low
1.0

THE IFE TOTAL WEIGHTED SCORES

TH
E
EF
E
W
EI
GH

TE
D
SC
O
RE

Sanderson Farms

Fresh vaccuum-
sealed

Fresh chill-
packed Fresh bulk-

packed

Minimally-
prepared chicken

Frozen

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

4.50

0.501.001.502.002.503.003.504.004.50

Percent
of Firm’s
Division

Revenues

Estimated
IFE

Score

Estimated
EFE

Score

$1,318 3.4 2.9
$1,132 3.0 2.7
$495 2.3 2.5
$213 2.0 1.8
$282 2.2 2.1

Minimally-prepared chicken
Frozen

Division

Fresh vaccuum-sealed
Fresh chill-packed
Fresh bulk-packed

Quantitative Strategic Planning Matrix (QSPM)
There were several strategies from the SWOT analysis that could be pursued. The two that were
determined to be the most attractive recommendations to pursue over the next three years are:

1. Use production gains to increase exports to China by 25% in one year.
2. Transition one-third of contract farmers to free range production model over next 3 years.

China is a market with a growing middle class that Sanderson Farms is just beginning to penetrate.
There exists a lot of growth potential here coupled with steady demand that would help offset the recent
loss of demand from the domestic food service industry. Sanderson Farms has had success in the past
year increasing their revenue from international exports and with their new state-of-the-art processing
facility in Tyler, TX should have no trouble meeting supply needs.

Broadly speaking, consumers in the US are demanding more ethically and humanely produced meats.
In the past, Sanderson Farms has scored very high with third party auditors as a humane producer of
chicken in the traditional mass production model. However, their competition is scooping up market
share by offering meats raised in a free range and/or organic production model. It is recommended that
Sanderson Farms transitions one-third (approximately 250) of their contract farmers to a free range
model over the next three years. Contract farmers who have the space and willingness must be
compensated appropriately for the increased investment required to modify their chicken houses and
facilities.

Below is a Quantitative Strategic Planning Matrix (QSPM) for Sanderson Farms that analyzes the two
recommendations:

Strengths Weight AS TAS AS TAS
1 Sanderson Farms pounds poultry sold increased by nearly 3%

from 2018 to 2019. 0.08 4 0.32 3 0.24

2 Sanderson Farms had international export gains of $112 million
from 2018 to 2019. 0.07 4 0.28 3 0.21

3 New, state-of-the-art processing plant in Tyler, TX brought 100%
online by second quarter of 2020. 0.06 3 0.18 1 0.06

4 Pounds poultry processed increased by 405 million pounds in
2019 from previous year. 0.05 3 0.15 1 0.05

5 Sanderson Farms discontinued antibiotic use in its poultry in
2018 in response to consumer demand for antibiotic-free meats. 0.04 0 0.00 0 0.00

6 In 2019, reduced OSHA injury rates by 10% from previous year. 0.03 0 0.00 0 0.00
7 Third-party animal welfare audit score at 99% in 2019. 0.03 1 0.03 4 0.12
8 Average contract farmer retained for greater than 20 years,

compared to Tyson Foods at 15 years. 0.03 1 0.03 4 0.12

9 Sanderson Farms named one of America’s Best Employers by
Forbes magazine in 2019. 0.01 0 0.00 0 0.00

10 88% of 2019 new hires were minorities and women. Sanderson
Farms has 32% greater diversity of employees and board
members in relation to Tyson Foods.

0.01 0 0.00 0 0.00

Use production gains
to increase exports to
China by 25% in one

year.

Transition one-third
of contract farmers to
free range production

model over next 3
years.

Weaknesses Weight AS TAS AS TAS
1 Sanderson Farms’ earnings fell 38.6% from 2019 to 2020. 0.10 0 0.00 0 0.00
2 Sanderson Farms’ EPS down $.93 in 2020 from previous year. 0.08 0 0.00 0 0.00
3 Sanderson Farms share prices down 34% from 2019 to 2020. 0.08 0 0.00 0 0.00
4 Entirely dependent on demand for a single protein source,

chicken. 0.07 0 0.00 0 0.00

5 Total liabilities increased from $271,547,000 to $356,459,000
from 2018 to 2019. 0.05 0 0.00 0 0.00

6 Sanderson Farms produced 4.7% fewer pounds of packaged
poultry in the first half of 2020 as a result of weak demand from
restaurants and the food service industry due to the COVID-19
pandemic.

0.05 3 0.15 1 0.05

7 Tyson Foods organic chicken division sales up 7% from 2019 to
2020. Sanderson Farms has no organic offerings. 0.05 1 0.05 4 0.20

8 Perdue Farms achieved its goal to provide outdoor access in 25%
of its chicken houses by January 2020. Sanderson Farms’
chickens have no outdoor access.

0.05 1 0.05 4 0.20

9 Sales to Sanderson Farms’ top ten customers represented
approximately 54% of their net sales during fiscal year 2019. 0.04 4 0.16 1 0.04

10 Sanderson Farms faces multiple pending lawsuits in 2020, from
price fixing charges to environmental protection violations. 0.02 0 0.00 0 0.00

Transition one-third
of contract farmers to
free range production

model over next 3
years.

Use production gains
to increase exports to
China by 25% in one

year.

Opportunities Weight AS TAS AS TAS
1 Over the next five years, poultry consumption is expected rise an

annualized 0.1% to 109.4 pounds per person in the US. 0.10 1 0.10 3 0.30

2 The price of poultry meat in the United States is expected to
increase at an annualized rate of 0.8% over the next five years. 0.08 1 0.08 3 0.24

3 Broiler meat exports increased 4.2 % in first half of 2020, with
shipments to China offsetting weaknesses in other major markets. 0.04 4 0.16 2 0.08

4 Profit margins in the poultry industry have remained steady over
the past 5 years, increasing by .4% in 2020 from 2019. 0.04 4 0.16 3 0.12

5 Poultry industry has reduced amount of grain necessary to
produce a salable pound of poultry by 50% in the United States in
the last 40 years.

0.04 2 0.08 3 0.12

6 Longer term 15 year contracts with farmers have improved
farmer retention by 24% from 2000 to 2020. 0.03 1 0.03 4 0.12

7 Automation in slaughterhouses have reduced OSHA violations by
86% from 1973 to 2020. 0.02 0 0.00 0 0.00

8 In the US, poultry production has been getting steadily more
mechanized for decades—going from 3,000 chickens processed
per hour in 1970 to 8,000 in 1980 and 15,000 today.

0.02 2 0.04 1 0.02

9 Feed grain prices decreased by 2.7% from 2019 to 2020. 0.02 2 0.04 3 0.06
10 Diesel fuel prices have dropped by $.62/gallon from 2019 to

2020 as a result of lower liquid fuel demand following the
coronavirus pandemic.

0.01 2 0.02 3 0.03

Transition one-third
of contract farmers to
free range production

model over next 3
years.

Use production gains
to increase exports to
China by 25% in one

year.

According to the QSPM analysis, it is determined that increasing exports to China by 25% is the more
attractive recommendation, with a rating of 3.13 over 2.01 for transitioning one-third of contract farmers
to a free range production model. In addition, the cost to shift production gains to China will be a
minimal investment in comparison to the high cost associated with modifying existing chicken houses to
allow for outdoor access.

Threats Weight AS TAS AS TAS
1 From March to August 2020, at least 40,517 meatpacking

workers have tested positive for COVID-19, and at least 189 have
died of COVID-19.

0.12 0 0.00 0 0.00

2 The North American Meat Institute estimates that most plants are
at 70% production because of COVID-19 shutdowns and COVID
related employee absences.

0.10 0 0.00 0 0.00

3 The Meat, Beef & Poultry Processing industry is expected to see
a 43% decline in demand in 2020 from 2019 levels due to the
mass closure of food service establishments.

0.09 4 0.36 1 0.09

4 As many as 85% of independent restaurants may permanently
close because of the pandemic by the end of 2020. 0.09 4 0.36 1 0.09

5 Real gross domestic product (GDP) decreased at an annual rate
of 32.9 percent in the second quarter of 2020. 0.06 3 0.18 1 0.06

6 The net increase of immigrants in the American population
dropped by more than 70% from 2018. Immigrants account for
the majority of meatpacking employees.

0.06 0 0.00 0 0.00

7 19% increase in demand for free-range or organic poultry
expected over next five years. Sanderson Farms does not offer
free range or organic poultry.

0.03 1 0.03 4 0.12

8 11.9% of U.S. households currently purchase plant-based meat,
up from 10.5% a year ago. 0.03 3 0.09 1 0.03

9 Low revenue growth in the industry predicted at 0.3% from 2020
to 2025. 0.01 0 0.00 0 0.00

10 The chicken companies, including Pilgrim’s, Claxton, Tyson
Foods, Sanderson Farms and Perdue Farms Inc., have all been
indicted on price-fixing charges in 2020.

0.01 0 0.00 0 0.00

TOTALS 3.13 2.01

Transition one-third
of contract farmers to
free range production

model over next 3
years.

Use production gains
to increase exports to
China by 25% in one

year.

Recommendations
Below is a list of recommendations that Sanderson Farms should implement over the next three years
and their associated cost.

Explanations for Recommendations:
1. Beijing removed an almost five-year ban on U.S. poultry imports in November 2019. The spread

of African Swine Fever has devastated Chinese hog herds, cut pork production, and resulted in a
gap in protein supplies in China. In light of these circumstances, US chicken exporters have an
opportunity to fill part of the protein gap in China in a significant way for the first time in over a
decade. In addition, Beijing recently made U.S. poultry shipments eligible for exemptions from
extra tariffs. A 20’ shipping container has a max payload of approximately 22 tons (44,000 lbs)
and the cost to ship it from Texas to Shanghai is about $1000. Sanderson Farms can expect to
receive $1/lb for chicken feet (part in highest demand) exporting to China. A 25% increase in
exports to China translates to an $11 million dollar increase in sales. Therefore, Sanderson
Farms would have to send an additional 250 containers in one year for a total cost of $250,000.
In their 2019 10-K, it was reported that they have the capacity to produce 87 million pounds of
chicken feet annually, so they should have no problem meeting the goal of 11 million more
pounds to export to China.

2. An estimate of $50,000 for new packaging is based on an average figure for new packaging
design in food industry for a corporation.

3. In 2018, Sanderson Farms embarked on an ad campaign to educate the public about their
judicious use of antibiotics in their chickens. There was no such targeted ad campaign in 2019,
and the reported advertising costs were $20 million less in FY 2019. Therefore, it is assumed
that a reasonable estimate for an ad campaign about their new antibiotic-free policy may run
approximately $20 million.

4. Mexico is already the destination for the majority of Sanderson Farms’ exports and demand there
is steadily increasing at an annual rate of 3.3%. Additionally, Mexico experienced a chicken
shortage last year due to the devastating effects of avian influenza on their domestic supply,
which prompted the Mexican government to eliminate tariffs on chicken imports. Logistically,
many of Sanderson Farms’ processing plants (especially Palestine, TX) are in close proximity to
the Mexican border. Mexican customers favor legs and thighs as opposed to the American
preference for chicken breast. These factors make exporting to Mexico particularly attractive.
With US restaurants floundering due to COVID-19, the processing capacity of Sanderson Farms’

# Recommendations Year 1 Year 2 Year 3 Total Cost
1 Use production gains to increase exports to China by 25% in one year. $250,000 $250,000 $250,000 $750,000
2 Develop all new packaging with animal welfare certification label for 2021. $50,000 $0 $0 $50,000
3 Develop 4 new ads to increase customer awareness of “no antibiotics” policy. $20,000,000 $0 $0 $20,000,000
4 Increase exports to Mexico by 50% over next 3 years. $283,969 $283,969 $283,969 $851,906
5 Offer $500 sign on bonus to new domestic employee recruits. $4,875,000 $0 $0 $4,875,000

6
Transition one-third of contract farmers to free range production model over
next 3 years. $20,720,000 $20,720,000 $20,720,000 $62,160,000

7 Hold restaurant competition and offer free chicken for a year for the winner. $65,700 $0 $0 $65,700

8
Create pamphlet for distribution to shareholders about firm’s resilience
through COVID crisis. $2,497,000 $0 $0 $2,497,000

9
Hire new director of marketing with focus to increase Sanderson Farms brand
awareness. $145,269 $0 $0 $145,269

10 Shift 5% fresh pack production to frozen pack. $0 $0 $0 $0
Total Cost $91,394,875

plants could be diverted to supply Mexican consumers instead. The fresh and frozen meat would
be transported by freight with the most significant cost being fuel. The closest processing plant
to Mexico is the Palestine, TX location. The average poultry export price stood at $1,181 per ton
in 2018 ($1.69/lb). See table below for assumptions used:

5. Employee turnover is a huge problem for poultry processors in the United States. An industry
estimate of employee turnover at 65% was used for the above recommendation. Sanderson
Farms has approximately 15,000 employees at any one time. Therefore, 15,000 x .65 = 9750
new recruits per year and $500 sign on bonus per recruit = $4,875,000

6. The process of modifying an existing chicken house from fully indoors to one that provides an
opportunity for the birds to access the outdoors involves removing the wall on one side from
about 4’ off the ground along the entire length of the building and then putting up a fence to keep
out predators. Contract farmers for Sanderson Farms currently operate about 6280 chicken
houses, one third of which would be 2072 houses. These houses are on average 500’ long and
cost about $200,000 to build brand new. As a conservative estimate, I used 15% of new
construction costs as a figure to modify each house, which totals $30,000 per house.

7. The estimate for this recommendation was derived from a small/medium sized restaurant using
20 lbs/day in chicken breast (365 days), which has a retail price of $9/lb. This is most likely a
somewhat generous estimate and is based on the assumption of restaurants utilizing more
chicken breast than other parts of the bird.

8. The cost to produce a high gloss tri-fold pamphlet for distribution to all shareholders on record
(22,203,920) is estimated from the Vistaprint website for an order of that quantity.

9. A search for the average salary of a corporate marketing director yielded the above estimation.
10. Shifting 5% of production from fresh-pack to frozen-pack would add no additional cost and

would also support the above recommendations regarding exports.

50% increase in exports $79,000,000
Price per ton $1,181
Additional tons to Mexico 66892
Tons per 20′ freight container 22
Additional freight containers 3041

Total additional cost $851,906

Fuel cost from Palestine, TX
to Nuevo Laredo, Mexico
(round trip) $280

Organizational Chart
Current Organizational Chart

Below is the current organizational chart for Sanderson Farms:

Sanderson Farms, Inc. bills itself as a small family company despite its position as the number three
poultry producer in the US. The scale of its operations, its risk environment, and logistical challenges
suggest that it could benefit from greater division of responsibilities in its corporate governance. Their
current corporate structure is too consolidated and severely lacking in diversity.

Proposed Organizational Chart

The redundancy of having a CFO and a CAO has been eliminated. The CFO and CLO positions have
been separated. The position of CIO has been added to the list of C suite executives. The addition of
presidents for domestic and international sales will allow for the delegation of responsibilities necessary
for Sanderson Farms to progress towards their goal of being market leader in the US and expanding its
presence internationally. Priority should be given to injecting substantial diversity into the leadership
team at Sanderson Farms, as they have already successfully achieved in the makeup of their board of
directors.

Perceptual Map
Below is a perceptual map for Sanderson Farms and its rival firms in the market. Because Sanderson
Farms only produces one product (raw chicken), the map uses two factors to evaluate the product
offerings among the competitors. The two factors are price and product variety.

The perceptual map further clarifies Sanderson Farms’ position among its competitors. It does one thing
very well, raise and process chicken. Its narrow product offerings are of high quality with a relatively
low price. In contrast, the competition has greatly diversified their product lines over the years. Tyson,
Pilgrim’s Pride, and Perdue also have greater name recognition in the United States and have been able
to demand a higher price because of this.

It is recommended that Sanderson Farms hire a dedicated marketing director and begin a new ad
campaign to boost consumer awareness and loyalty of their brand. These ads should focus on
highlighting their consistent high animal welfare ratings, their elimination of antibiotic use, and their
goal of transitioning one third of their grower operations to a free range model. It is not recommended
that Sanderson Farms attempt to diversify its product offerings. Although the competition has done so,
they have not reaped greater financial benefits as a result. Sanderson Farms has a stronger financial
position than any of its competitors and diversification would only put that strength in jeopardy as they
venture outside of their distinctive competency.

Low Price

Lo
w
P
ro
du
ct
V
ar
ie
ty

Hi
gh
P
ro
du
ct
V
ar
ie
ty

High Price

Sanderson Farms

Tyson Foods

Pilgrim’s Pride

Perdue Farms

Koch Foods

0 1 2 3 4 5 6 7 8 9 10

Firm Valuation
Below is Sanderson Farms’ firm valuation compared to its closest competitor—Pilgrim’s Pride. All
values are in whole dollars.

Based on the firm valuations, we see that Pilgrim’s Pride’s net valuation is routinely higher than
Sanderson Farms’ because it is a larger and more diversified firm. It is worth noting that over the years
Pilgrim’s Pride has acquired smaller firms and therefore accumulated goodwill, whereas Sanderson
Farms has never done so. This is the reason that the first line (stockholders’ equity – (goodwill +
intangibles) is notably larger for Sanderson Farms.

EPS-EBIT Analysis
Below is an analysis of the Earnings Per Share (EPS) and Earnings Before Interest and Taxes (EBIT).
All numbers are in whole dollars.

Below is a figure illustrating the changes of EPS (y-axis) with estimated EBIT values (x-axis).

Sanderson Farms, Inc.
Stockholders’ Equity – (Goodwill + Intangibles)
Net Income x 5
(Share Price/EPS) x Net Income
Number of Shares Outstanding x Share Price
Method Average

$2,715,095,338
$2,715,095,338
$1,778,583,919

$1,417,675,000
$266,470,000

Pilgrim’s Pride
Stockholders’ Equity – (Goodwill + Intangibles)
Net Income x 5
(Share Price/EPS) x Net Income
Number of Shares Outstanding x Share Price
Method Average $2,874,779,973

$955,860,000
$2,279,620,000
$4,128,229,880
$4,135,410,012

Pessimistic Realistic Optimistic Pessimistic Realistic Optimistic
EBIT $20,000,000 $50,000,000 $80,000,000 $20,000,000 $50,000,000 $80,000,000
Interest 0 0 0 1,370,923 1,370,923 1,370,923
EBT 20,000,000 50,000,000 80,000,000 18,629,077 48,629,077 78,629,077
Taxes 4,200,000 10,500,000 16,800,000 3,912,106 10,212,106 16,512,106
EAT 15,800,000 39,500,000 63,200,000 14,716,971 38,416,971 62,116,971
# Shares 22,951,343 22,951,343 22,951,343 22,203,920 22,203,920 22,203,920
EPS $0.69 $1.72 $2.75 $0.66 $1.73 $2.80

Common Stock Financing Debt Financing

In both situations, EPS does not change significantly from choosing debt financing over common stock
financing.

From the analysis, we see that the best way to increase EPS is by financing the recommendations
through debt rather than issuing stock. This makes sense especially as interest rates are extremely low,
bringing down the cost of borrowing money. Sanderson Farms also carries very little debt currently and
its debt-to-equity ratio is consistently below .5 across all reported years. Therefore, taking on more debt
would not put them in an unreasonably precarious financial position. In addition, the current volatility
of their stock price and significant losses sustained this year due to COVID-19 may cause their stock to
be less attractive to investors making raising the necessary capital through stock issuance less of a
certainty.

Stock 50% Debt 50%
Pessimistic Realistic Optimistic

EBIT $20,000,000 $50,000,000 $80,000,000
Interest 685,462 685,462 685,462
EBT 19,314,538 49,314,538 79,314,538
Taxes 4,056,053 10,356,053 16,656,053
EAT 15,258,485 38,958,485 62,658,485
# Shares 22,577,631 22,577,631 22,577,631
EPS $0.68 $1.73 $2.78

Amount Needed $91,394,875
Interest Rate 2%
Tax Rate 21%
# Shares Outstanding 22203920.0
Additional Shares Outstanding Needed 747422.92
Stock Price $122.28

Projected Financial Statements
With the previously mentioned recommendations in mind, below are the projected financial statements
for the next three years. This includes the income statement and balance sheet. All dollar amounts are in
whole dollars.

A modest increase in revenues is projected for 2020 with the damaging effects of COVID-19 offset
somewhat by the recommended increase in exports to China and Mexico. Revenue gains for 2021 and
2022 are more pronounced resulting from the recommended increase in advertising and improving
public image for the firm. Interest expense has made a significant jump due to the recommendations
being financed 100% by debt.

12/31/2020 12/31/2021 12/31/2022
$3,509,063,160 $3,684,516,318 $3,905,587,297
3,228,338,107 3,389,755,013 3,593,140,313
280,725,053 294,761,305 312,446,984
210,543,790 221,070,979 234,335,238
70,181,263 73,690,326 78,111,746
5,517,923 5,517,923 5,517,923
64,663,340 68,172,403 72,593,823
13,579,301 14,316,205 15,244,703

0 0 0
51,084,039 53,856,199 57,349,120

Projected Income Statement
Revenues
Cost of Goods Sold
Gross Profit
Operating Expenses

Net Income

EBIT
Interest Expense
EBT
Tax
Non-Recurring Events

In terms of assets, property, plant, and equipment is projected to increase for the next three years by
$20.7 million per year from capitalizing the chicken house modifications required to transition one third
of them to a free range production model. As the modifications are replacing a major component of the
chicken houses and not simply repairs due to normal wear and tear of the structure, the costs can be
capitalized.

In the liabilities section, as the interest expense increased on the projected income statement, so too does
long-term debt as a result of using 100% debt to finance all of the recommendations.

In the equity section, modest yearly growth is projected to continue for the common stock and paid in
capital accounts as it has for all past reported years.

12/31/2020 12/31/2021 12/31/2022

$172,511,998 $175,270,101 $178,692,820
140,362,526 147,380,653 156,223,492
280,725,053 294,761,305 312,446,984
70,181,263 73,690,326 78,111,746

663,780,840 691,102,385 725,475,042
1,206,580,000 1,227,300,000 1,248,020,000

0 0 0
0 0 0

7,018,126 7,369,033 7,811,175
1,877,378,967 1,925,771,418 1,981,306,216

140,362,526 147,380,653 156,223,492
70,181,263 73,690,326 78,111,746
210,543,790 221,070,979 234,335,238
146,394,875 146,394,875 146,394,875
70,181,263 73,690,326 78,111,746
427,119,928 441,156,180 458,841,859

22,304,000 22,404,000 22,504,000
1,330,545,039 1,353,401,237 1,379,750,358

0 0 0
97,410,000 108,810,000 120,210,000

1,450,259,039 1,484,615,237 1,522,464,358

1,877,378,967 1,925,771,418 1,981,306,216

Projected Balance Sheet

Total Liabilities and Equity

Total Assets

Liabilities
Accounts Payable
Other Current Liabilities
Total Current Liabilities

Retained Earnings
Treasury Stock
Paid in Capital & Other
Total Equity

Assets
Cash and Equivalents
Accounts Receivable
Inventory
Other Current Assets
Total Current Assets

Total Liabilities

Property Plant & Equipment
Goodwill
Intangibles
Other Long-Term Assets

Equity
Common Stock

Long-Term Debt
Other Long-Term Liabilities

Projected Financial Ratios
Below are the financial ratios, projected for the next three years, using our recommendations.

Items of particular interest from the table are the increases in the current ratio, debt-to-total-assets ratio,
and debt-to-equity ratio. These changes are not surprising, as the recommendations call for an increase
in exports to China and Mexico and a funding of the recommendations wholly through long-term debt.
Sanderson Farms carries such little debt, that even adding $91 million dollars still results in very low
ratios of debt versus total assets or equity. The projected ratios provide further evidence of the benefits
outweighing the costs for the recommendations.

Retained Earnings Table
Below is a projected Returned Earnings Table for the next three years, using the recommendations. All
amounts are in whole dollars.

Sanderson Farms has traditionally issued yearly dividends and it is recommended for that practice
continue. Dividend payout positively influences both new investor interest and current shareholder
satisfaction.

12/31/2020 12/31/2021 12/31/2022
Current Ratio 3.15 3.13 3.10
Quick Ratio 1.82 1.79 1.76
Debt-to-Total-Assets Ratio 0.23 0.23 0.23
Debt-to-Equity Ratio 0.29 0.30 0.30
Times-Interest-Earned Ratio 13 13 14
Inventory Turnover 11.50 11.50 11.50
Fixed Assets Turnover 2.91 3.00 3.13
Total Assets Turnover 1.87 1.91 1.97
Accounts Receivable Turnover 25 25 25
Average Collection Period 14.60 14.60 14.60
Gross Profit Margin % 8% 8% 8%
Operating Profit Margin % 2% 2% 2%
ROA % 3% 3% 3%
ROE % 4% 4% 4%

Projected Ratios

Year
Current Year’s
Net Income

Less Current Year’s
Dividends Paid

New RE
Plus Prior Year’s

RE
Current Year’s

Balance Sheet RE

12/31/2020 $51,084,039 $30,000,000 $21,084,039 $1,309,461,000 $1,330,545,039
12/31/2021 $53,856,199 $31,000,000 $22,856,199 $1,330,545,039 $1,353,401,237
12/31/2022 $57,349,120 $31,000,000 $26,349,120 $1,353,401,237 $1,379,750,358

Dividend Information Balance Sheet Information

Steps 1 2 3 4 5

Executive Summary
Sanderson Farms is a strong, well-managed company in a highly competitive industry characterized by
volatility, high risk, and low profit margins. Part of its strength has been its unwavering commitment to
its distinctive competence of producing the very best chicken. Tyson Foods and Pilgrim’s Pride,
Sanderson Farms’ two biggest competitors, have greatly diversified their operations to offer a wide
variety of prepared foods in addition to meat products. However, diversification has not translated to
greater financial stability or greater shareholder value. Sanderson Farms’ stock is worth more than twice
as much as Tyson’s and 8 times as much as Pilgrim’s Pride.

Sanderson Farms has long been an industry leader in the humane production of chicken by the
conventional production method of 100% indoor confinement. Now in order to maintain its standing, it
must adapt. Its competitors have introduced free range and/or organic options to their product mix in
response to changing consumer preferences. With 83% of millennials taking animal welfare into
account when buying food, it’s clear that public demand for better treatment of farm animals is not just a
trend. Significant investments in modifying chicken grower houses to allow for outdoor access are
necessary to secure its place in the market for many more years to come. I recommend transitioning
one-third of their chicken houses to this free range model over a period of three years to address this
substantial weakness.

In addition, after years of banning poultry imports, China’s borders are now open, tariff-free. The
country is home to an enormous quantity of potential customers. Sanderson Farms’ competition is
moving to secure a foothold in this market, but there is still plenty of demand to be satisfied. It is
recommended that Sanderson Farms increase exports to China by 25% in 2020. Mexico is another
market with unfulfilled demand. Its proximity to Sanderson Farms’ processing plants is a huge strategic
advantage. Increasing exports to both countries would translate to large gains for minimal cost.

Several recommendations focus on marketing, an area of weakness for Sanderson Farms. I recommend
hiring a marketing director dedicated to improving brand awareness and their public image. New
packaging with certified humane labeling, a new ad campaign, and a restaurant competition would help
differentiate Sanderson Farms from its competition in a positive way.

Sanderson Farms has worked very hard to earn a place on Forbes’ 2019 list of best places to work.
However, the poultry industry, in general, is plagued by high employee turnover and relies heavily on
immigrant labor. The net increase of immigrants in the American population dropped by more than
70% from 2018, representing a major threat to their ability to find new employees. It is recommended
that Sanderson Farms begin a new program offering a $500 sign on bonus to domestic recruits.

The COVID-19 pandemic has been devastating for meat processors nationwide. Processing plants have
become hotspots for infection. The resulting plant shutdowns have caused unprecedented losses up and
down the supply chain. The last two recommendations deal with these issues specifically. First, I
recommend that an informational pamphlet be distributed to all shareholders on record. Sanderson
Farms’ solid financial position gives it greater resilience to weather these short-term losses than the
competition. Secondly, as plants reopen and demand from the food service industry is still depressed, I
recommend that they shift 5% production from fresh-pack to frozen-pack. This is a no cost strategy that
will also support the recommendations of increasing exports to China and Mexico.

Although facing many challenges, Sanderson Farms is in an advantageous position and should pursue
aggressive growth through market penetration internationally and product development domestically.

The company is uniquely American. Traditional values of conservatism and an emphasis on quality and
ethical behavior have grown it from a small family-owned feed store in Mississippi to a complex, fully
vertically-integrated corporation with over 15,000 employees. With the solid foundation they have
carefully built, Sanderson Farms is ready to compete more aggressively to secure its place as the
provider of the highest quality chicken products in the United States and abroad.

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