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General Mills' Growth Plans

GIS K

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General Mills Inc (GIS - Analyst Report) has discussed its plans and growth strategies for fiscal 2013 in a meeting with its investors. The company plans to take the following steps for growth in fiscal 2013.

Innovation

In order to drive sales growth, General Mills is looking forward to expand in five global categories, namely ready-to-eat cereal, super-premium ice cream, convenient meals, wholesome snack bars and yogurt. The company particularly intends to focus on its Haagen-Dazs and Yogurt businesses in Europe and plans to launch about 70 new products in the first half of fiscal 2013.

Through an innovative approach to new and established brands, the company wants to cater to the increasing global demand for packaged food. Some of these innovations add more nutritional value to the packaged food with more fruits, vegetables and fiber and less fat content. The idea is to appeal to the growing numbers of health conscious customers that prefer the convenience of packaged food in a healthier way.

Global Expansion in developed and emerging markets

The U.S. market is mostly saturated, and to counter this, the company intends to expand in the emerging markets of China, Brazil, India, and Russia. The company plans to focus on its Haagen-Dazs and Nature Valley business in Brazil.

The acquisition of Yoki Alimentos, one of the leading food companies in Latin America, is expected to generate significant sales growth in the region, while strengthening the company’s position in Brazil.

The number of middle class consumers with positive consumer spending is growing in these emerging markets and a majority of them are shifting to urban living. As a result, the demand for convenient and branded packaged food is on the rise, presenting good growth opportunity for the company.

Special Focus on China

China has one of the largest consumer bases with its growing number of middle class and affluent households. The company’s growth in China is driven by four leading brands, Haagen-Dazs super-premium ice cream, Wanchai Ferry frozen convenience meals, Bugles and Trix wholesome snack products.

In fiscal 2013, the company plans to launch 50 Haagen-Dazs shops in China. It plans to operate more than 250 shops by the end of fiscal 2013. The company plans to achieve $900 million in sales from its wholly owned businesses in China by 2015.

Outlook

The company expects fiscal 2013 adjusted earnings to be approximately $2.65 a share, below the Zacks Consensus Estimate of $2.75. The guidance includes headwinds of 2–3 cents from the Yoki Alimentos acquisition, which is expected to close in the first half of the fiscal year. Increased pension expenses and a higher tax rate are likely to temper earnings growth by 8 cents.

The company expects sales and profits to increase due to the recent acquisitions of Yoplait International, Parampara in India and Food Should Taste Good in the United States. It also mentioned that the supply chain projects under its Holistic Margin Management (HMM) have generated $1 billion of cost savings over the last three years. Savings from HMM are expected to go up to $3 billion by the year 2020.

General Mills’ effort to grow through new products and brand building is encouraging. However, we prefer to remain on the sidelines, as the margin remains affected by inflationary input costs. Also, the U.S. market is mostly saturated and the company may require time before it can accrue its profits from the rest of the global market.

General Mills Inc. carries a Zacks #4 Rank in the near term (Sell rating). One of its peers, Kellogg Co (K - Analyst Report), currently has a Zacks #3 Rank in the near term (Hold rating).

Based in Minneapolis, General Mills Inc. is a producer of packaged consumer food and operates exclusively in the consumer food industry. Some of the well known brands of the company are Pillsbury, Cheerios, Chex, Total, Kix, Wheaties, Golden Grahams, Trix and Lucky Charms.

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