General Mills: Expect Reasonable Growth And Stability
By:NewsyStocks   Wednesday, June 30, 2021 2:09 PM



General Mills, a global consumer food company, is a marketer and manufacturer of branded consumer foods sold through retail stores. General mills manufacture its products in fifteen countries and markets them in more than hundred countries.  Its total net sales for fiscal 2010 stood at $14.7B, which is 1% higher than prior fiscal year, and total earnings stood at $1.5B, which is 17% higher than last fiscal year. The stock also provide investors a good dividend income. General Mills returned more than $1.3B to shareholders in fiscal 2010 resulting in a 12% increase in dividend per share paid in 2009. Investors who are looking for growth and stability and would like to have a regular cash payout through dividend should consider this stock.

In the latest quarter General Mill's total revenue stood at $3.6B, down by 2% from prior quarter, resulting in earnings of $212M. The volume trends accelerated in the fourth quarter across all the segments. US retail pound volume increased 8% for the quarter. Pound volume for international was up 3% despite a 2 point reduction from divestitures. Due to almost flat revenue growth, gross margin was 36.2%, down from prior quarter. Analyst expected the company to earn $3.55B which should have resulted in earnings of 41 cents per share. The result did not meet the analyst expectation and thus stock price dived down by 1.3% in a day. The company operates in a challenging environment and its performance was hurt by increased raw material cost, higher media spending and currency fluctuations. The quarterly performance is as given below:

General Mills : Quarterly Performance Chart
Quarterly Performance (source: GM website, Finance Google)

General Mill earned total revenue $14.7B in fiscal 2010 representing 1% growth. This growth resulted in 8% growth in operating profit and 17% growth in earning after taxes. The businesses of General Mill are segregated in three operating segments- U.S. Retail; International, and Bakeries and Foodservice. Overall US Retail segment achieved 3% growth rate. Detailed breakdown is as given below:
 

US Retail +3%

Snacks

+6%

Big G

+5%

Small Planet Food

+3%

yoplait

+2%

Pillsbury

+1%

Meals

+1%

Baking products

flat

US Retail performance analysis (Source: Quarterly Earnings) 

Overall profit margins for all segment is as given below:

US Retail performance analysis chart

Operating profit margin analysis (source : Earnings call )

The decline in operating margin was due to price promotion and 14% increase in media spending. One of the important point is good sales growth which came from its international operation, total net sales from international sales was up by 3%. Detailed breakdown is as given below:


International Markets



Canada

+2%

Europe

+2%

Asia Pacific

+9%

Latin America

Flat

International performance (Source: Quarterly Earnings)

Positive Attributes:

Strong Brand: General Mill's products are established products and known for its quality and consistency in taste. Many of its brands like Cheerios, Pillsbury are household name and enjoy strong sales throughout the year.

Strong Dividend Income: Management has returned $1.3B to shareholders in fiscal 2010. Over the past five years, Management has returned over $8B to shareholders through dividend and share repurchases. Recently, management announced 17% increase in fiscal 2011 dividend rate to $1.12 per share and new 100M share repurchase authorization which confirms management commitment to provide superior returns to its shareholders through dividend and share repurchase program.

Financial Discipline: Management is able to deliver 28.51% ROE and 9.63% ROA. In its latest results, cash flow over debt is 34% which is significantly higher than 26% in 2009. Overall debt is high at $6.3B but enjoy a stable credit rating BBB+

Focus on international Market: General Mill continues to develop its international market; overall net growth was positive for all markets except the Latin American market.

Risk

Economic downturn can limit the demand: General Mill has well established product line but the economic downturn may force consumer to switch to more generic and economy brands

Fluctuating cost of raw material : The principle raw material used to produce products are various grains and its prices keeps fluctuating due to various reason such as demand, weather conditions, government regulation and thus increased price of raw input will hurt overall margin.

Currency Fluctuation: General Mill operates in around 100 countries and thus exposed to currency fluctuation related risk to its sales growth.

In current uncertain situation, investor should look for a stock which is stable in its performance and enjoy good brand values. General Mill fulfills those criteria; additionally it provides value through steady dividend stream.


 

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