Neutral on General Mills - Analyst Blog


We have a Neutral recommendation on General Mills Inc. ( GIS ) following appraisal of fourth quarter fiscal 2012 results.

General Mills' fourth-quarter 2012 earnings of 60 cents per share beat the Zacks Consensus Estimate by 3.4%. Earnings also topped the year-ago results by 15% driven by positive top-line growth and cost savings despite a significant rise in input cost.

Total revenue of the global consumer food company increased 12% year over year to $4.07 billion, benefiting mainly from the addition of Yoplait entities which were acquired in July last year. Revenues marginally missed the Zacks Consensus Estimate of $4.12 billion.

However, the addition of Yoplait International to the business mix, higher input cost inflation and lower U.S. retail volumes dragged the quarter's adjusted gross margin down by 140 basis points (bps) to 37.2%. Adjusted operating margin still expanded 40 bps to 16.2% in the quarter due to the company's cost saving efforts.

Read our full report at General Mills EPS Beats, Sales Miss .

General Mills has an outstanding portfolio of growth products and brands, especially its healthy and convenience packages. Its popular brands include Big G cereals, Betty Crocker, Pillsbury, Progresso, Hamburger Helper, Yoplait, and Old El Paso. The company's core brands hold the number one or two share positions in some fast-growing food categories.

Further, General Mills remains committed towards introducing a steady pipeline of new products in an effort to boost its sales momentum and capture market share. Particularly, in order to drive sales growth, General Mills is looking forward to expand into five global categories, which account for over 60% of worldwide sales: ready-to-eat cereal, super-premium ice cream, convenient meals, wholesome snack bars and yogurt.

General Mills is dedicated toward expanding its presence outside the U.S. due to low disposable income of consumers and near saturation in the U.S. market. The company is increasing focus on expansion in the emerging markets of China, Brazil, India, and Russia where the consumer spending growth is positive. In order to tap these fast growing markets, consumer companies are looking to introduce new capabilities and product lines.

Further, General Mills' Holistic Margin Management (HMM) program has successfully managed costs and abated inflation, thus improving the company's margins and gaining over its peers. The program has already delivered its three-year goal of $1 billion in cost savings that was announced in 2010. Moreover, the program is expected to generate additional productivity savings of $3 billion by the year 2020.

We believe the company's strong brand marketing, continuous innovation, expansion in emerging markets and productivity savings will help it to achieve long term goals. However, we prefer to remain on the sidelines until the U.S. retail volumes improve, margin pressures, due to input cost headwinds, subside and the macroeconomic environment recovers substantially.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: GIS

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