Trian Partners Sells Danone & State Street, Trims Family Dollar & Ingersoll Rand Stakes: Q2 Letter

Nelson Peltz's investment firm Trian Partners recently released its second quarter letter.  In it, they detail that they sold out of their investment in Danone (DANOY) as well as State Street (STT).  Additionally, the firm mentions that it has recently trimmed its positions in Ingersoll Rand (IR) and Family Dollar (FDO).


New Mystery Investment

Peltz has built a new mystery position which he did not reveal in the letter.  He said that some of the above stakes were sold in order to partially fund their new mystery purchase.

Here's all they had to say about this new position:  It's "a company comprised of world class businesses where we see a path to superior value creation."

Andrew Ross Sorkin said that sources are pointing to Peltz acquiring a stake in DuPont (DD) back at the Delivering Alpha Conference last month, but Peltz didn't really confirm it when asked about it.

At any rate, here's their long portfolio composition by sector: 30% consumer staples, 28.1% consumer discretionary, 17.6% industrials, 13.9% financials, 10.4% basic materials, 0% other.


Other Highlights

Their Q2 letter also touches on their investments in PepsiCo (PEP) and Mondelez (MDLZ) and basically re-hash everything they laid out in their white paper on the companies which we highlighted recently.  Peltz also talked about his PEP & MDLZ stakes at the Delivering Alpha Conference too.

According to the letter, Trian also retains its positions in Lazard (LAZ), Legg Mason (LM), and Wendy's (WEN).  Their thesis on Legg Mason remains unchanged: "Better fund flows, strong free cash flow, and improving margins should allow the shares to be valued closer to peer averages."

In the second quarter, Trian's total firm assets hit an all-time peak of approximately $6.3 billion.  Net exposure finished the month at 100% net long (136.4% long and -36.4% short).

Nelson Peltz's Presentation on Danone: Invest For Kids Chicago

Next up in our notes from Invest For Kids Chicago is Nelson Peltz of Trian Fund Management.  Here are notes from his pitch of Danone as well as his slideshow presentation:

•    Peter May's been a partner at his firm for 35 years.  Trian “invests in and fix businesses with great risk profiles where they aren't getting it quite right.”
•    Start on the income statement.
•    If you find a dollar on income statement it's worth 15 or 20 as opposed to a dollar on balance sheet which is a dollar
•    Founded current fund in 2005 and think of himself as a "constructivist"
•    Focus on getting businesses to grow
•    Trian has had success with food companies including: Heinz, Cadbury, Dr. Pepper, and Kraft Foods.
•    These food co’s have irreplaceable brands, high dividends, liquidity, and great balance sheets and are currently trading at half the premium to the S&P 500 that they normally maintain 


Peltz's Pick: Danone

•    Cheap with 3% dividend & focus on health & wellness products including yogurt, water, baby food etc
•    Trian owns 1% of Danone  and informed company last night of the stake per French law
•    Trading at 7% FCF yield, 14.8x P/E, 9.3x EV / 2013 EBITDA, basically priced in-line with slower growing domestic peers
•    40% of EBIT comes from yogurt (Activa a dominant brand)
•    37% is baby food & medical
•    Bottled water 17 percent of EBIT (and margins can be improved in this segment)
•    Sales are geographically diverse with 52% in emerging markets. 94 percent of world pop growth will come from emerging markets.
•    Danone’s margins in their emerging markets are above margins in the developed markets.  This is very rare.


Peltz Sees Danone Worth €78 by the End of 2014
 
•    One of the bear cases is significant European exposure to Spain, Italy, etc
•    Geographies are not static.  W Europe has been shrinking as a percent of sales for 20 years
•    Compared to many fresh portfolio of brands (Activia) etc
•    Premium water is excellent business (Evian)
•    Nestle and Kraft have product portfolios that aren’t as friendly to health & wellness
•    Company is leveraged to births thouerhg baby food and aging demographics with adult diapers
•    Milk formula at 12.1% is the top growing food category.  Other growth rates put Danone in the 8% growth area for the intermediate term
•    Nestlé bought Pfizer infant formula business at 20x EBITDA.
•    Danone should trade at 17x EPS. Trading at current multiples
•    French corporate governance is issue – Trian believes this should be fine.
•    Saw that in international hotel group earlier this year which re-rated
•    Peltz is looking for both sales & EPS growth and does not want dilutive M&A (bought health co in 2007) at 22x EBITDA


Peltz's Slideshow Presentation

Embedded below is Peltz's .pdf with his analysis of Danone:




For more from this investor, we've also posted up past activity from Nelson Peltz here.


For the rest of the hedge fund presentations from the event, head to notes from Invest For Kids Chicago.