4 Things General Mills Wants Investors to Know -- The Motley Fool

General Mills (NYSE:GIS), which owns Cheerios, Häagen-Dazs, Yoplait, and other big packaged food brands, has struggled against competition from healthier alternatives and private label brands in recent years. However, its growth stabilized over the past few quarters as it integrated new acquisitions (like the premium pet food maker Blue Buffalo), refreshed its classic brands with new products, and hiked prices to offset lower shipments.

General Mills isn't out of the woods yet, but it's faring better than rival Kraft Heinz (NASDAQ:KHC), which sacrificed its margins to boost sales. General Mills also might still appeal to income investors, since it trades at just 15 times forward earnings and pays a forward dividend yield of nearly 4%.

General Mills recently outlined its top priorities for fiscal 2020, which started at the end of May, at its annual investor day. Let's look at the top four takeaways from that presentation, and whether or not they make General Mills a compelling buy.

Two years ago General Mills stated that it would expand its four "differential growth" platforms -- Häagen-Dazs, snack bars, Old El Paso Mexican food, and its portfolio of natural and organic brands -- to offset the slower growth of its weaker brands. General Mills reiterated that long-term goal during its presentation.

General Mills also stated that it planned to compete more effectively across "all brands and geographies" with better innovation, marketing, and in-store execution. It also plans to reshape its portfolio with "growth-enhancing acquisitions and divestitures" over the long term, and noted that Blue Buffalo is now the "leading brand" in the growing wholesome natural pet food category in the U.S.

General Mills' strategy is notably more aggressive than Kraft Heinz's approach, which was defined by conservative acquisitions and a lack of aggressive marketing strategies. Kraft Heinz's new CEO, Miguel Patricio, also recently told The Wall Street Journal that the company won't sell any brands or make any acquisitions in the following months.

General Mills' reported sales growth was significantly boosted by its takeover of Blue Buffalo over the past year. But on an organic basis that excludes that impact its growth still looks anemic:

General Mills' organic growth was throttled by weak sales in North America, Europe, and Australia, which offset its stronger sales in Asia and Latin America, and its convenience stores and food services segment.

General Mills stated that its organic sales would rise 1% to 2% in fiscal 2020, supported by improvements to its North American business (with its differential growth and portfolio expansion initiatives) and Blue Buffalo's growth.

General Mills' strategies of hiking prices and cutting costs stabilized its gross margin and expanded its operating margin last year.

The company expects to maintain those margins by using two strategies: "holistic margin management", which reduces supply chain costs with reductions in energy, delivery, and packaging costs; and "strategic revenue management" initiatives, which leverage analytics to optimize its pricing.

General Mills didn't offer exact margin guidance for 2020, but it expects its adjusted constant currency operating profit to rise 2% to 4%, and for its EPS to rise 3% to 5% on the same basis.

General Mills accumulated a lot of debt from its $8 billion takeover of Blue Buffalo. However, it reduced its long-term debt by 8% compared to the prior-year period to $11.6 billion during the fourth quarter, giving it a debt-to-adjusted EBITDA ratio of 3.9. It aims to reduce that ratio to 3.5 by the end of 2020.

General Mills is better run than many of its packaged foods peers, but it still faces a tough uphill battle. Winning back shoppers in North America could be challenging, and the company needs to carefully balance its spending on investments, marketing, and debt repayment to maintain its stable growth.

General Mills is still a solid defensive stock for a bear market, but it's rallied nearly 40% this year and its P/E ratio is a bit high relative to its earnings growth. Therefore, income investors should probably stick with safer stocks with lower valuations and higher yields for now.

Source: Fool.com

Powered by NewsAPI.org

Keywords:

General Mills • The Motley Fool • General Mills • New York Stock Exchange • Geographic information system • Cheerios • Häagen-Dazs • Yoplait • Convenience food • Brand • Competition law • Private label • Brand • Mergers and acquisitions • Insurance • Pet food • Buffalo, New York • Brand • Product (business) • General Mills • Kraft Heinz • NASDAQ • General Mills • Income • Investor • Income • Dividend yield • General Mills • Investor • General Mills • General Mills • Growth platforms • Häagen-Dazs • Snack • Old El Paso • Mexican cuisine • Organic food • Brand • Brand • General Mills • Goal • General Mills • Brand • Innovation • Marketing • Retail • Portfolio (finance) • Economic growth • Mergers and acquisitions • Divestment • Buffalo, New York • Brand • Pet food • General Mills • Strategy • Kraft Heinz • Conservatism • Mergers and acquisitions • Marketing strategy • Kraft Heinz • Chief executive officer • The Wall Street Journal • Company • Brand • Mergers and acquisitions • General Mills • Sales • General Mills • North America • Europe • Australia • Asia • Latin America • Convenience store • Foodservice • General Mills • Organic food • Sales tax • Finance • Business • Economic growth • Economic growth • Economic growth • General Mills • Strategic management • Price • Gross margin • Operating margin • Profit margin • Strategic management • Holism • Management • Supply chain • Cost • Energy technology • Packaging and labeling • Strategy • Revenue management • Leverage (finance) • Pricing • General Mills • Earnings before interest and taxes • General Mills • Debt • 1,000,000,000 • Debt • Fiscal year • Debt • Earnings before interest, taxes, depreciation, and amortization • General Mills • North America • Company • Investment • Marketing • Debt • Economic growth • General Mills • Stock • Market trend • Price–earnings ratio • Earnings growth • Income • Investor • Stock • Valuation (finance) • Yield (finance) •