On Aug 23, we issued an updated research report on General Mills Inc. (GIS - Free Report) — a global manufacturer and marketer of branded consumer food.
Sales have been soft due to lower demand amid changing consumer food preferences. Sales at the North America Retail segment, accounting for 65.3% of sales in fiscal 2017, decreased 6.8% affected by declines in the U.S. Meals & Baking, U.S. Yogurt, U.S. Cereal, and Canada operating units. Volumes at the North America Retail segment dropped 11% owing to deterioration in the developed markets of North America, Europe and Australia. Like other U.S. food producers — Kellogg Company (K - Free Report) The Kraft Heinz Company (KHC - Free Report) , Mondelez International, Inc. (MDLZ - Free Report) — General Mills has been facing the brunt of the shift in consumer preference toward natural and organic food.
Notably, shares of the company have lost 19.2% in the last one year, compared with the industry’s ’s decline of 9.6%. In the last 60 days, earnings estimates have moved south by 2.5% and 1.8% for fiscal 2018 and 2019, respectively.
Efforts to Counter Tepid Sales
To combat the weak sales, General Mills has outlined four key global strategies for fiscal 2018. The company plans to focus more on growing its cereal business which has been sluggish for quite some time now. Cereal sales nonetheless declined around 1% in fiscal 2016 and 3% in fiscal 2017.
Also, restructuring its U.S. yogurt portfolio through fundamental innovation is a key objective as the unit has been experiencing sluggish sales over the last few quarters, declining 18% in fiscal 2017. The company’s third main strategy focuses on driving differential growth across several global platforms where it has already witnessed solid revenue momentum. Investing in its Foundation businesses (includes refrigerated dough, soup, and baking mixes etc.) is also a priority for fiscal 2018.
Apart from these strategies, consumer-focused innovation, marketing initiatives and robust restructuring savings are making up for the sluggish revenue growth at General Mills. The company is investing in consumer-focused innovation, marketing and accelerating its organic product portfolio to boost sales.
Also, by fiscal 2018, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion. The company plans on delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing Holistic Margin Management (HMM) efforts. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which is expected to rake in approximately $700 million in aggregate cost savings by fiscal 2018.
The Road Ahead
Despite the several initiatives undertaken to boost sales, General Mills expects organic sales decline of 1%-2% year over year. The company expects earnings in the first half of fiscal 2018 to decline on lower sales, phasing of its cost savings initiatives and brand investments. However, management anticipates earnings for this Zacks Rank #3 (Hold) stock to improve in the second half as sales pick up pace. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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