Carlos Omar Trejo-Pech

Is Growing Oranges in Florida a Good Investment

&NA; We provide a financial model to evaluate an orange grove investment in Florida, the producing region supplying around 90% of U.S. domestic production of orange juice. A representative orange grower planting early‐mid varieties for the processed market is featured in the case. The study assumes that an existing grove has become disease‐infested to a degree that there is little, if any economic value in maintaining it. The grower is left with the choice to replant the grove or to convert the land to other uses. The replanting baseline model yields a 9.7% Modified Internal Rate of Return (MIRR) and the Monte Carlo simulation shows that MIRR is equal or higher than the 7.5% hurdle rate around 81% times the model is simulated. The risk of managing an orange grove is higher than a decade ago mainly due to the presence of citrus greening, a disease that reduces yields and degrades fruit quality, causing variability in productivity and operating costs. Opportunities for growers include planting incentive programs implemented by both the government and major citrus processors and from policy changes such as the possibility of changes in depreciation of new investment for income tax purposes. Readers of this case study are expected to challenge the assumptions of the financial model and consider additional elements of risk and opportunities on their assessment of the potential orange grove investment.

Florida’s Natural® and the supply of Florida oranges

This case study provides a thorough description of the U.S. orange juice industry, and focuses on Florida’s Natural, a cooperative of citrus growers and owner of the Florida’s Natural® brand. Florida’s Natural® competes mainly with Tropicana, owned by PepsiCo, and with Minute Maid and Simply Orange, brands of The Coca-Cola Company. The objective of the case is to evaluate the orange juice industry, assess the position of Florida’s Natural within the industry, and propose business actions for the cooperative. By the end of 2016, the orange juice industry was in the midst of a severe crisis, threatened by decreasing supply and changing consumption preferences. Total orange production in the State of Florida during the 2015-16 season was the smallest crop since the 1960s due mainly to a disease known as citrus greening. Marketers were also facing consumers’ concerns regarding high levels of calories and sugar in some juice categories. Furthermore, on May 2016, the Food and Drug Administration mandated a chan...

Factors Influencing Organic and Fair Trade Coffee Growers Level of Engagement with Cooperatives: The Case of Coffee Farmers in Mexico

Abstract We study the factors influencing the percentage of organic and fair trade certified coffee sold through a cooperative by growers of five cooperatives in Mexico. The percentage of coffee sold through the cooperative was used as a proxy of growers’ engagement with a cooperative. Using factor analysis and a fractional probit regression, we evaluated the proposition that the level of engagement can be explained by transaction cost economics, social norms and connections, and farmer and farm business characteristics. We found that farm size, uncertainty regarding cooperative time of payment to the members and cooperative commitment on price to be paid negatively influence the level of engagement. In contrast, asset specificity, relational commitment, and price have a positive impact on engagement. Our results may help cooperatives and policy makers to build strategies aiming to increase this level of engagement. This is relevant because lower grower engagement has been found to be positively correlated with weak performing cooperatives.

ConAgra Foods: valuing a potential recipe for success

In the fall of 2012, ConAgra Foods had the opportunity to become the largest private-label packaged food producer in North America. ConAgra was considering the purchase of Ralcorp, a large private brands manufacturer. This could be a strategic step for ConAgra, since the potential acquisition seemed aligned to the firm’s strategy for growth. Ralcorp, with revenue and assets representing about one third of ConAgra’s, was large enough to impact ConAgra’s business strategy and financial structure. This case study provides both firm level and private brands industry data to assess the potential acquisition. Ranges of implied stock prices could be estimated by using Discounted Cash Flow Valuation, Comparable Multiples, and Comparable Merger and Acquisitions Transaction analysis. A comparison of implied stock prices and actual stock price by the time of the case leads to the topic of control premium paid during acquisitions and to potential enterprise synergies.

Corporate Cash Holdings and Economic Crises in Mexico

We study cash holdings for firms listed on the Mexican Stock Exchange for 24 years, rendering special attention to changes in cash holdings during economic crises. By using fixed-effects panel regression models, two alternative model specifications are adapted to analyze the effects of economic crises in Mexico on cash holdings. The first model relates cash and contemporaneous firm characteristics mainly. A second model relates lead and lag firm characteristics and macroeconomic factors. The results suggest that growth opportunities, firm size, operating cash flow, free cash flow, volatility of cash flows, net working capital, leverage, dividends paid, bank loans, and economic crises are statistically significant related to cash holdings. Particularly important is the positive relation of size and dividends with cash holdings in this emerging economy, which is contrary to the prediction by financial theory and findings in developed countries, but is in line with findings in developing markets studies.

Financial Distress at Comercial Mexicana, 2008 - 2011

Synopsis Controladora Comercial Mexicana, a Mexican retailer, had successfully managed the bankruptcy process and was ready to emerge from its problems, primarily caused by speculation and excessive debt, and begin operations anew. Was the restructured Comerci capable of regaining its position as a premier retailer, and more importantly, was the firm capable of repaying the high level of debt that it carried following bankruptcy reorganization? How strong was the reorganized firm? Had Comerci truly left its problems behind in bankruptcy court, or would history repeat itself? How could Comerci raise funds needed for growth – through additional debt? Though asset sales? Research methodology This case was researched using publicly available information, including the companys financial statements, bankruptcy filings, news stories about the bankruptcy and financial data bases (e.g. ISI Emerging Markets, Economatica, Capital IQ, etc.) to obtain information about the competitors and from financial analysts. Relevant courses and levels This case is intended for advanced undergraduate or MBA electives in finance. Students should have a basic understanding of valuation and financing before attempting this case. The case could also be used in a corporate finance or banking class to illustrate bankruptcy and credit risk, or could be used in an international business class to illustrate the differences between USA and international bankruptcies.

Inventories, Financial Metrics, Profits, and Stock Returns in Supply Chain Management

This chapter studies the role of inventory in supply chain management and in its impact in the book value and market value of firms. We elaborate on the idea that inventory models can be useful for implementing inventory policies for the different stages of a supply chain. In section 2, the role of inventory in supply chain management is discussed. In section 3, we provide a discussion of existing inventory models that have been developed to model real systems.Many authors have proposed mathematical models that are easy to implement in practical situations. We provide a simple classification of these models based on stocking locations and type of demand. In section 4, we address the empirical question of whether inventory level decisions should be focused on efficiency (i.e., minimum inventory levels) or on responsiveness (i.e., maximum product availability). To answer this, we analyze the US agribusiness (food) sector during 35 years. This sector weights about 10% of the complete US market, and has been chosen by the authors for two reasons. Inventory levels in agribusinesses could be considered more critical due to the highly perishable nature of food products, and because the sample includes firms considered as mature (Jensen (1988)). Mature firms are expected to have already fine tuned their inventory level positions. Using regression analysis, empirical results show that both, the growth in inventories1 and capital expenditures in year t, negatively affect stock returns in t+1 at 1% level of significance. Further, while property, plant and equipment represents 70% of total invested capital compared to inventories representing 30%, a 1% change in inventories has an economic impact similar to a 1% investment in capital expenditures. This emphasizes the economic importance of managing inventories.