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Will General Mills Gain in FY16 from Innovation & Cost Cuts?

On Sep 24, we issued an updated research report on General Mills, Inc.GIS , a leading global manufacturer and marketer of branded consumer foods.

On Sep 22, General Mills issued mixed first-quarter fiscal 2016 results. Adjusted earnings per share of 79 cents beat the Zacks Consensus Estimate by 14.5% and increased 30% year over year. The improvement was driven by easy year-ago comparisons, cost savings, pricing gains and consumer focused innovation and marketing. However, sales missed the consensus mark marginally. Revenues grew 4% on a constant currency basis backed by incremental sales from Annie's and improved U.S. Retail sales. Despite the earnings beat, fiscal 2016 guidance remained unchanged, which raised investors' concern.

Sales and profits in General Mills' U.S. Retail segment, contributing 60% to sales, have been soft due to the changing consumer food preferences. General Mills, like many other U.S. food producers like Kellogg Company K and Mondelez International, Inc. MDLZ , has been struggling due to the shift in consumer's preference toward natural and organic food.

To cater to the evolving consumer food preferences, General Mills is investing in consumer-focused innovation and marketing and accelerating distribution of its natural and organic brands to boost sales. Management is trying to turn around its struggling U.S. Retail business through increased investments in cereal to foster growth, accelerate the performance of better-for-you snacking - both yogurt and snacks businesses - and drive double-digit growth in the natural and organic portfolio. Management is working to improve cereals performance through new products, renovation of existing brands and better execution of marketing and customer programs.

Management's innovation, renovation and marketing efforts led to slightly better trends in the U.S. Retail segment over the past three quarters, especially yogurt and cereals.

General Mills is also pursuing many multi-year restructuring initiatives focused at improving operational efficiency to generate cost savings and support key growth strategies. These significant restructuring savings can lead to steady bottom-line performance in fiscal 2016.

Earlier this month, General Mills announced definitive plans to sell the Green Giant and Le Sueur brands of frozen and shelf stable vegetables to food manufacturer B&G Foods, Inc. BGS in a cash transaction worth approximately $765 million. Of late, General Mills' profits were being affected negatively by Green Giant. Previously, in July, the company stated that it is pulling back resources from the underperforming business which was bearing the brunt of lower demand for processed and packaged food. Instead, the Zacks Rank #4 (Sell) company redirected the resources to turn around other businesses within the struggling U.S. Retail segment.

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GENL MILLS (GIS): Free Stock Analysis Report

B&G FOODS CL-A (BGS): Free Stock Analysis Report

KELLOGG CO (K): Free Stock Analysis Report

MONDELEZ INTL (MDLZ): Free Stock Analysis Report

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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.


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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