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Can Strategies Aid General Mills Pare Weak Units & Cost Woes?

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Like most food companies, General Mills, Inc. (GIS - Free Report) has been bearing the brunt of input cost inflation, shifting consumer preferences and stiff competition. In fact, such downturns have caused shares of the company to decline 5.5% in the past three months compared with the industry’s decline of 3.4%. However, the company is trying to revamp operations by focusing on customer-centric innovations, strategic marketing efforts and savings initiatives. Let’s take a closer look.

Strategic Efforts to Boost Performance

As part of the Consumer First strategy, General Mills focuses on customer-centric innovations to enhance sales. It focuses on executing such efforts across four main platforms, which include Haagen-Dazs ice cream, snack bars, Old El Paso Mexican food as well as General Mills’ natural and organic food brands.

Markedly, the company has an outstanding portfolio of products and brands in the organic category. The company’s net sales from the North America natural and organic portfolios, which include fast-growing Liberte brand in Canada, have already crossed $1 billion. Also, the company expects to benefit from Annie’s — its biggest natural and organic brand.

Another noteworthy initiative is the generation of adequate cost savings for supporting growth-related investments. The company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply chain optimization and consistent expansion of zero-based budgeting across the business.

Apart from these, this Zacks Rank #3 (Hold) company is working toward improving e-commerce channels. Further, the company is inclined toward augmenting marketing efforts and in-store execution for attracting more shoppers. Also, the company is on track with the integration of Blue Buffalo Pet Products, which was acquired in April 2018. Apart from General Mills, Smucker (SJM - Free Report) has been striving to expand in the pet foods category, evident from the acquisition of Ainsworth.

High Costs & Weak Categories are Hurdles  

General Mills has been battling input cost inflation for a while. During the first quarter of fiscal 2019, the company’s adjusted gross margin and operating margin declined year over year, thanks to input cost inflation as well as one-time adjustment related to inventory. These headwinds are expected to persist as the company anticipates input cost inflation of 5%, a point higher than the level in fiscal 2018. Well, rising input costs have been posing hurdles to many other food companies like Campbell Soup (CPB - Free Report) and Conagra Brands (CAG - Free Report) among others.

To top this, the North America Retail segment remained sluggish during the first quarter, due to low volume contributions. The regions performance was also impaired by lower organic sales in U.S. Snacks, U.S. Meals & Baking and U.S. Yogurt businesses. We note that shifting preferences of consumers is the primary reason for the declines.

Nevertheless, we expect General Mills’ consumer-focused marketing and innovation efforts to revive the lost sheen across categories in the North American region. Further, the company’s cost-management initiatives look impressive, which are expected to cushion cost-related hurdles and boost margins.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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