Case Background

Hill Country Snacks Food Co. (HCSFC) located in Austin, Texas manufactured, marketed
and distributed variety of snacks, including churros, tortilla chips, salsa, pretzels, popcorn,
crackers, pita chips and frozen treats.

HSSFC focused on improving shareholder’s worth. They managed their operations well
and controlled costs and thus even when operating in food industry with immense
competition from PepsiCo and other companies managed to keep its 5 year compounded
annual growth rate at 5.8% and 5-year compounded annual growth rate for net income
margin at 8.6%.

However, Hill country’s culture and managerial philosophy was caution and risk aversion.
The company invested in new capacity and new products only when attractive opportunities
were identified and it did not make high-risks bets in its product markets. This strategy
produced growth rates that were steady but not spectacular compared to competitors. Same
was apparent in its cash balances, capital structure, and performance measures. Company’s
growing cash position, absence of debt financing and large equity balance made it difficult
for it, a company in mature market to earn high returns on its equity. To remain favorite
investment option, hill country needed to take advantage of low interest rate environment
and to signal to market its strength, which will boost its share value.