Hill Country Snack Co. Case Study

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Case Study 2: Hill Country Snack Food Co. 1.Introduction: Hill Country Snack Food Co. located in Austin, Texas, manufactured, marketed, and distributed a variety of snacks. The company had seen its sales and profits grow at a steady rate during Howard Keener’s tenure as CEO, who also held significant proportion of the company’s common stock and rule a strategy of all equity funding. With the approaching of Howard Keener’s retirement, a more aggressive capital structure might be implemented in the near future. The investment community focused on two questions:” What’s the optimal structure and how large are the payoffs associated with a change to a more leveraged capital structure?” 2.Analysis 2.1 risk analysis Hill Country’s main strategy was the combination of good products, efficient and low-cost operations as well as caution and risk-aversion with all equity funding. Since the snack foods industry was very competitive, one of the main business risks derives from the competition in the markets. New players of the market would have a big influence on the Hill’s operations on lower price offering and lower production cost. Firstly, the company couldn’t rely on price increases in a high rivalry industry. Secondly, with the increase of competitor, Hill would face the decrease in its potential profit margin, hence, extremely high efficiency would be required and tight cost controls were necessary conditions for success. Another business risk should depend on the position of economic and the lack of productions’ diversification. The company invested in new capacity and new products when attractive opportunities were identified, but it did not make high-risk bets in its product markets. Since the main products Hill’s mainly offered were snacks, when the economy was downside, snacks would be not that necessary for people’s life, the demand would decline.
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