General Mills, Inc. (GIS)

edwinaanne (< 20) Submitted: 3/29/08 9:43 PM : Start Price: $58.94 GIS Score: 45.96

60.01^ 1.00 3/27


General Mills, Inc. manufactures and markets branded and packaged consumer foods worldwide. It also supplies branded and unbranded food products to the foodservice and commercial baking industries. The company's products include ready-to-eat cereals, refrigerated yogurt, microwave popcorn, frozen pizza and pizza snacks, ice cream and frozen desserts, frozen baked goods, ready-to-serve soup, dessert and baking mix, and refrigerated cookies. The company also offers grain, fruit, and savory snacks; dry dinners, and shelf stable and frozen vegetable products; refrigerated and frozen dough products; and organic products, including soups, granola bars, and cereals. Its customers include grocery stores, mass merchandisers, membership stores, natural food chains, commercial and noncommercial foodservice distributors and operators, and convenience stores, as well as drug, and dollar and discount chains. The company was founded in 1928 and is headquartered in Minneapolis, Minnesota.


After satsifying investors last fall with solid second-quarter growth, the company has served up positively tasty third-quarter results.


Volume growth: showing appetizing momentum. Pound volume for the quarter grew 6%, with the U.S. retail segment up 8% and international business advancing 4%. I like the company's simplistic approach to measuring core volume growth. No esoteric metrics for General Mills: A pound of product sold is simply a pound of product sold.


Ready-to-eat snack products: Fiber-One and Yoplait yogurt continue to deliver double-digit sales gains. Sales Growth: Net Sales Increased 12 Percent to $3.41 Billion; Net Earnings Totaled $1.23 per Share Including Certain Non-cash Items; Company Updates 2008 Full-year Guidance


In long-term franchise brands such as Cheerios, where sales have advanced 5% year to date. Bakery and foodservice sales improved 13%, but that was mainly because of price increases, since core volume was flat with the previous year. The company said it expected sales growth to moderate somewhat in the fourth quarter. But I wouldn't be surprised to find that General Mills thinks it's holding a winning hand and just doesn't want to show all of its cards just yet. Each of the company's business segments reported net sales and operating profit growth for the quarter. These gains came on top of good growth in last year's third quarter, when General Mills' net sales grew 6 percent and earnings per share rose 9 percent.


Net sales: for the 13 weeks ended Feb. 24, 2008, rose 12 percent to $3.41 billion, fueled by 6 percent pound volume growth. Gross margin: expanded to 39.8%, nearly 5 percentage points above last year's 35% margin, while segment operating profits grew 14%.


Third-quarter EPS: a whopping $1.23, with $0.36 of that figure coming from a mark-to-market of commodity grain positions. Even excluding that unusual item, the $0.87 increase was still up 18% from the previous year and well ahead of analyst consensus estimates of $0.79. Management is still looking at a tight range of $3.45-$3.47 per share for the full year.


Net earnings: grew 61 percent to $430 million including non-cash gains from mark-to-market valuation of commodity positions and a favorable ruling related to a tax contingency.


MORNINGSTAR: GROWTH C PROFITABILITY C FINANCIAL HEALTH C-


GENERAL MILLS IS MAKING A LOT OF THE RIGHT MOVES.


BOLLING: AG PLAY TEAM B FOOD PROCESSOR, BEAT EARNINGS


HIT BRANDS: CHERRIOS, YOPLAIT 14% SALES, LIGHT PROGRESSO SOUP, FIBER ONE CEREAL, BARS, HAMBURGER HELPER, NATURE WAY TRAIL MIX, GREEN GIANT


PILLSBURY: WORLDWIDE LEADER IN THE REFRIGERATED DOUGH. PILLSBURY USA ACCOUNTS FOR 19% OF U.S. SALES


STORES: 616 PRODUCT IN AV GROCERY STORE


KEN POWELL, CEO: "THIS WAS A TERRIFFIC QUARTER FOR GENERAL MILLS, FUELED BY CONTINUED STRONG DEMAND FOR OUR PRODUCTS IN MARKETS ALL AROUND THE WORLD." "OUR PRODUCT INNOVATION AND CONSUMER MARKETING INVESTMENTS ARE DRIVING STRONG GROWTH ON THE TOP LINE, AND COST-SAVINGS EFFORTS, TOGETHER WITH PRICING ACTIONS, ARE OFFSETTING SIGNIFICANTLY HIGHER INPUT COSTS AND PROTECTING OUR MARGINS. THIS PERFORMANCE HAS US ON PACE TO DELIVER STRONG SALES AND EARNINGS GROWTH FOR FISCAL 2008 IN TOTAL."FOOD PRICES ARE GOING UP 4=5%. OUR PRICES NET WILL GO UP LESS THAN THAT, BECAUSE WE’RE FOCUSING HARD ON PRODUCTIVITY. WHOLESALE PRICES ARE UP 20% BUT WE’RE WORKING HARD TO ABSORB THE INCREASES. THESE ARE EVERYDAY BRANDS. CHEERIOS IS THE BEST-SELLING CEREAL IN THE U.S. BETTY CROCKER CAKE MIX, USED BY A BROAD BASE OF CONSUMERS. WE WANT TO KEEP THEM AFFORDABLE. 98%U.S.HOUSEHOLDS HAVE PRODUCT IN THEIR KITCHEN. 23% OF GENERAL MILLS U.S. PROFITS COME FROM BIG G CEREALS LIKE WHEATIES, CHEERIOS AND CINNAMON TOAST CRUNCH. TAKE COST OUT OF THE SYSTEM, ELIMINATE WASTE, SO WHEN WE DO HAVE TO TAKE A PRICE INCREASE IT’S LESS THAN WHAT WE’D HAD TO IF WE DIDN’T HAVE THE FOCUS ON PRODUCTIVITY. THAT’S CRUCIAL FOR US. PROCUCTIVITY: THOUSANDS OF THINGS WE DO TO ELIMINATE WASTE. WE USED TO PUT 20 DIFFERENT VERSIONS OF SNACK PIECES IN OUR SNACK CHEX MIX; DIFFERENT SIZES AND SHAPES. CONSUMERS ARE HAPPY WITH 5 DIFFERENT SHAPES. WE USED TO BUY 10 DIFFERENT BLENDS OF MARGARINE, OIL. NOW WE BUY 4 DIFFERENT BLENDS. 22% OF U.S. SALES COME FROM DINNER MEALS.


WE WORK HARD ON LOGISTICS, AND HOW WE GET OUR PRODUCTS TO OUR CUSTOMERS. MAKING SURE THAT’S AS EFFIECIENT AS POSSIBLE, SO WE DON’T HAVE TRUCKS ON THE ROAD THAT WE DON’T NEED. WE KEEP OUR PRICES AS AFFORDABLE AS WE CAN. THE FUNDAMENTAL REASON THAT WE’RE SEEING INFLATION IN COMMODITIES IS GLOBAL DEMAND. THE GLOBAL ECONOMY IS VERY VERY STRONG, PARTICULARLY IN ASIA, INDIA, INDONESIA, LATIN AMERICA, RUSSIA, AND EASTERN EUROPE. THEY’RE DRIVING UP THE PRICE OF CORN AND WHEAT, OILS, METALS AND ENERGY. WHEAT IS A SUPPLY ISSUE. WE HAD A COUPLE OF BAD HARVESTS IN A ROW. THAT’S UNUSUAL. EVERYBODY IS EXPECTING THIS YEAR THE HARVEST WILL BE A LITTLE BETTER. USUALLY, YOU’LL HAVE A COUPLE OF BAD HARVESTS OVER A DECADE. THE HAD THE MISFORTUNE OF HAVING TWO IN A ROW. I BELIEVE WE’LL GET BACK TO A STABLE WHEAT PRICE.


NEW INNOVATION THEMES: 1) TRYING TO MAKE THINGS TASTE AS GOOD AS WE CAN


2) WE WANT TO MAKE THEM MORE CONVENIENT, MAKE THEM SIMPLE TO PREPARE


3) MAKING HEALTHIER FOODS


HEALTHY PRODUCTS: 1)YOPLAIT YOGURT IS THE LEADING PRODUCT IN THEIR CATEGORY. GENERAL MILLS MADE YOGURT TASTE GREAT. THE CATEGORY EXPLODED. IT IS SMOOTH, CREAMY, AND TASTES GREAT. WE MAKE A LIGHT VERSION THAT IS 100 CALORIES PER SERVING. WE HAVE A VARIETY OF YOGURTS. THIS IS THE FASTEST PART OF THE BUSINESS NOW. CONSUMERS ARE LOOKING FOR THIS.


2) PEOPLE LOVE OUR PROGRESSO BRAND. IT IS A VERY RAPIDLY-GROWING BRAND. CONSUMERS FOUND OUT THAT SOUP IS LOW IN CALORIES, ANS CAN BE A GREAT FOOD WHEN YOU’RE WATCHING YOUR WEIGHT. WE TOOK THAT INSIGHT AND LAUNCHED LIGHT PROGRESSO SOUP WITH 60 CALORIES PER SERVING. IT HAS GAINED A ZERO POINT ENDORCEMENT FROM WEIGHT WATCHERS. THE DEMAND FOR THIS IS MUCH HIGHER THAN WE THOUGHT. THESE ARE VERY CONVENIENT PRODUCTS.


3) FIBER: EVERYBODY KNOWS “I NEED MORE FIBER”. WE FIGURED OUT HOW TO MAKE FIBER TASTE MUCH BETTER. WE PUT THAT IN CEREALS FIBER ONE AND BARS. DEMAND HAS TAKEN OFF VERY RAPIDLY BECAUSE THEY TASTE BETTER. LOW CALORIE, GOOD TASTE. CONSUMERS SAY “I LIKE THAT AND I’LL BUY THAT.”


52wk Range: 51.00 - 61.52


Volume: 2,258,247


Market Cap: 20.12B


P/E (ttm): 15.82


EPS (ttm): 3.80


Div & Yield: 1.60 (2.70%)


ANALYSTS: 12 BROKERS


13-Feb-08 Stifel Nicolaus Initiated Buy


28-Jan-08 Citigroup Upgrade Hold Buy


14-Jan-08 JP Morgan Upgrade Underweight Neutral


26-Oct-07 Deutsche Securities Upgrade Hold Buy


20-Sep-07 Credit Suisse Upgrade Neutral Outperform


6-Sep-07 UBS Upgrade Neutral Buy


27-Aug-07 BMO Capital Markets Upgrade Market Perform Outperform


5-Jun-07 Bear Stearns Downgrade Outperform Peer Perform


16-Feb-07 BMO Capital Markets Upgrade Underperform Market Perform


Jim Cramer: said Buy General Mills on CNBC's "Stop Trading!" segment Thursday. "You have to buy General Mills," Cramer said. He said that if commodity costs do decline, the company's profit margins will improve. "I've liked the stock since the 80s," he said. "Your kids like it as much as you do."

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