Jump in Wrigley’s Stock Is More to Investors’ Tastes

It’s a 108-year-old giant of its industry, but many of its famed products are generations old and face daunting competition from newer rivals. Its U.S. sales and profit are sluggish. Its overseas results--the bulk of its business--aren’t doing much better. And it has a new chief executive who’s all of 36.

That’s the sticky situation at Wm. Wrigley Jr. Co., the Chicago-based global leader whose Juicy Fruit, Spearmint and other brands have made it synonymous with chewing gum. And it’s a set of problems that led investors to punish Wrigley’s stock for most of this year.

Yet suddenly the stock is on the rebound.

The shares have jumped 18% in just the last month--adding $1.5 billion to the company’s market value. After gaining another $3.31 a share Wednesday, the stock fell back $1.44 a share Thursday, to $82.75, in New York Stock Exchange composite trading.

The catalysts: Wrigley’s third-quarter performance, which showed mild improvement, and recent announcements by Chief Executive William Wrigley Jr. signaling that the company “will use its cash-rich balance sheet to support the stock price” through share-buyback plans and other actions, said analyst John McMillin of Prudential Securities in New York. Wrigley has virtually no long-term debt on its balance sheet.

Investors also applauded the company’s recent hiring of a new chief financial officer, Ronald Waters from Gillette Co., and a new senior vice president for international operations, Peter Hempstead from Procter & Gamble Co.

“The jury is still out on whether it’s time to buy the stock,” McMillin said. “But I’ve stopped saying negative things about it.”

To be sure, Wrigley isn’t the only one struggling. The entire U.S. gum market has shown virtually no growth for five years, with industrywide annual sales running just above $1 billion, according to Information Resources Inc., a consumer-products research firm in Chicago.

Wrigley leads with 48.9% of the market on the basis of dollar sales, the IRI reports, followed by Warner-Lambert Co. (maker of Trident and Dentyne) and Nabisco Group Holdings Corp. (Carefree and Bubble Yum).

The young Wrigley took the company’s reins in March when William Wrigley, his father and the company’s prior chief executive, died of pneumonia. William Wrigley Jr. represents the fourth generation of his family to hold the post of chief executive.

Certainly the entire Wrigley family has an incentive to boost the stock; the family still has majority voting control of the company. And though the company and the clan once had a variety of interests--they formerly owned the Chicago Cubs baseball team, its Wrigley Field stadium and most of Catalina Island off the Southern California coast--the company now focuses on just making gum.

Wrigley executives declined to be interviewed, but spokesman Christopher Perille discounted the company’s current sluggishness, saying it is in one of the periodic slowdowns that plague the industry, whether due to a lack of new products, heightened competition from non-gum snacks or weakness overseas.

“We’ve seem them in the past and worked through them,” he said.

International sales, especially, had been growing at a double-digit pace for much of the 1990s until problems in Asia and Russia braked that growth in the last 18 months, Perille said. But those markets are slowly starting to improve, he said.

The company’s U.S. brands are household names in good part because they’re so old: Wrigley’s Spearmint and Juicy Fruit (both introduced in 1893), along with Doublemint, Big Red, Freedent and Extra. Freedent and Big Red arrived in the 1970s, and the sugarless gum Extra has been on the market since 1984.

With sales of $2 billion last year, Wrigley operates 14 factories worldwide, and its products are sold in more than 100 countries. The U.S. market now accounts for only 41% of sales, but it still kicks in more than 50% of Wrigley’s profit.

Trouble is, Wrigley’s gums face enormous competition in U.S. stores not only from Warner-Lambert and Nabisco in the gum market but also from makers of breath mints and a plethora of chewy, gum-like candies that have flooded the market in recent years and are especially popular with youngsters.

But in the third quarter, Wrigley finally showed signs of turning the corner--lighting a fire under its stock. U.S. sales edged up 2%, rebounding from a decline in the first half of 1999. And its foreign sales rose 3% (7% if the strong dollar’s effects on currency translations were excluded).

Overall, Wrigley’s third-quarter net income rose 6% from a year earlier, to $77.6 million, on a 3% gain in sales to $508 million. The company also announced a new plan to buy back as much as $200 million of its stock in periodic open-market purchases.

And Wrigley is starting to peddle a breath gum in pellet form called Eclipse--only its second new gum in 15 years. Eclipse is squarely aimed at curbing the inroads that breath mints have made into the gum market.

Eclipse’s success probably won’t be known until next year, but the brand “will be an indication of Wrigley’s potential to bring out new products in the United States,” said analyst Patrick Schumann of the investment firm Edward D. Jones & Co. in St. Louis.

Wrigley’s Perille said the company is also planning more ad campaigns and new products, or product extensions, to boost U.S. sales.

“We know the [existing] brands themselves have equity, and there may be some room for improvement” of those brands, he said.

Indeed, Wrigley can point to the fact that its last new gum--Winterfresh, which arrived in 1994--is now the nation’s largest-selling sugar gum, according to Information Resources.

But Prudential’s McMillin said Wrigley should step up that effort.

“It still needs to contemporize some of its core brands” to maintain solid growth, he said. “Why not have a Juicy Fruit with a raspberry blast? As good a job as Wrigley has done internationally to grow their business, it’s done as weak a job domestically.”

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Wrigley Rebound

The stock of chewing-gum giant Wm. Wrigley Jr. Co. has rebounded amid signs the company’s sluggish sales are improving, even in the face of stagnant growth for the entire U.S. gum industry.

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Sources: Bloomberg News, Information Resources Inc.