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Analyst Actions: General Mills Keeps Neutral, Has Target Price Raised at Credit Suisse

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Lots of Pricing But Not A Lot Of Volume: Remain Neutral; Raising Target Price to $41 (from $40).

"We expect GIS to report an in-line 2Q on December 20 with EPS of $0.79. While the pace of earnings growth is likely to improve in the back half due to easier input cost comparisons, we remain concerned about elasticity of demand. Our tracking data indicates that General Mills volume declined more severely than any food company we follow overt the past 3 months as the company pushed through big price increases. In our view the algorithm for US Retail growth will continue to feel pressure from share losses to Greek yogurt competitors and the lack of category growth in cereal and soup."

US retail pricing continues to drag volume down. "For Q2 we expect sales up 5%, including a 4% volume decline. For the last 12-week period ending on November 26 FDM data shows extreme price increases (12%) and unit declines (-9.5%). Our tracking data shows positive growth and market share gains for Big G. However we see weak growth trends for the category overall as price increases have started to hurt cereal's value proposition. On snacks we expect positive results driven by innovation (Fiber One 90 Calorie Brownies, Totino's Pizza Stuffers). In contrast we continue to expect weak performance in yogurt. Our view is that the Yoplait brand lost some of its health and wellness credential over the years as it extended into dessert-flavored varieties and smoothies. As a result we are not surprised to see this year's re-launch of Yoplait Greek get off to such a slow start. Consumers eating Chobani are seeking an authentic experience that Yoplait will struggle to provide. Dannon has a better chance in our view. We expect operating profit for the segment to grow only 1% due to input cost inflation and accelerating advertising expense."

Bakeries and Foodservice: "For the quarter we expect 13% sales growth with driven by strong pricing and volume down -2%. During Q1 General Mills Bakeries and Foodservice sales outpaced the foodservice industry as the company has focused on the fastest growing channels. We expect General Mills to continue outpacing weak industry trends. Convenience store sales, which represent 12% of Bakeries and Foodservice sales, are targeted to be up 5%. The company's shift to a direct sales force has resulted in increased distribution. We expect operating profit for the segment to decline 3% as the company starts lapping strong grain merchandising earnings last year."

International. "We expect 7% organic sales growth driven mainly by pricing and 48% total growth due to three full months of the Yoplait acquisition. We expect slower operating profit growth (44%) as Yoplait's margins are lower than those of the base business. For the year management expects $0.01 of EPS dilution from the Yoplait acquisition. However down the road there may be cost synergies as Yoplait is combined with General Mills in Europe."

Raising target price. "We are raising our target price by $1, to $41, because valuation multiples for the large-cap food group have risen since we last published in September. Our target price is based on a 14.0x P/E multiple against our calendar 2013 estimate of $2.95, which is a 3-4% discount to GIS's food peers."

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

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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 Nasdaq, Inc.

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