SWM - Mark Moore

the early 2000’s recession, Schweitzer-Mauduit sales growth averaged -0.20%. In 2000, SWM’ssales growth was -1.51%, in 2001 growth came in at 0.54%, and 2002 at 0.38%. This gives usa good indicator of how SWM will fair during the current recession; however, there are stillother factors to consider.Schweitzer-Mauduit had an average sales growth of 7.54% from 2003-2008. In 2003sales growth was 13.06%, 2004 was 15.98%, 2005 was 1.87%, 2006 was -2.18%, 2007 was9.10%, 2008 was 7.43 %. The main reason why SWM came out of the early 2000’s recessionwith such a bang in 2003 and 2004 was due to backlog orders in their French segment. TheFrench segment is the primary segment of the three that SWM operates; French, U.S andBrazil. The French operation had cigarette paper orders backlogged in 2003 worth $54 million inrevenue and $39 million in 2004, with reconstituted tobacco leaf (RTL) backlogged in 2003worth $106 million in revenue and $62 million in 2004. This caused sales growth to spike above13% for both years. Furthermore looking at SWM’s 10-Q, we see through 6 months into 2009SWM has $367.4 million in sales. Comparing this with total 2008 sales of $767.9 million, theyhave reached about 47.8% through 6 months in 2009. All things considered, it is logical toforecast sales in 2009 to have a slight decline. We believe sales will decline 2% in 2009 andhike back up to 6% in 2010. The cause of the 8% turnaround from 2009 to 2010 is due to theU.S. government implementing lower ignition propensity paper (LIP) in all cigarettes. The U.S.government is requiring all states to use LIP papers in all cigarettes for safety precautions byJanuary 2010. From 2011-2018 we expect sales growth to be 5% through 2012 and level downto 3.5% by 2018.After giving careful thought and consideration to the sales growth and getting afoundation, a forecast for the firm’s cost of goods sold (COGS) is conducted. First, we need tofind the COGS as a percentage of sales. This is called common sizing the financial statement.For the income statement, we common size every line item in the statement as a percentage ofsales. Once the income statement has been common sized, we see that COGS over the last 6years averaged 84.38%. The COGS has had a steady relationship to sales of about 86%.Through 2005-2008, the COGS average was 86.02%. We feel confident and comfortablemaking the assumption to forecast COGS at 86%. By multiplying each year’s respected salesforecast by 86% we can estimate Schweitzer-Mauduit’s COGS forecasts from 2009-2018.139