Looking Beyond This Food Company's Q1
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
General Mills (NYSE: GIS) posted blockbuster first-quarter results recently. Its great performance amidst prevailing economic conditions is an indication of a brighter future that investors can cash in on.
The food company was facing difficulties from quite some time. On one hand, customers were budget-conscious, trying to spend each penny judiciously. On the other hand, increasing input prices were shrinking its margins. Its efforts to offset the effects of cost inflation by increasing product prices scared away consumers, hurting volumes further. However, the retailer managed to put some strong strategies in place in order to stage a comeback.
Key Drivers of the Quarter…
Driven by a host of acquisitions, revenue surged 5% to $4.1 billion. Another important contributor to its top line was a large number of new product introductions, which strengthened volumes in most of the segments. Its strategies of attracting consumer attention paid off, which reflected on its earnings, registering a 35% growth to 82 cents per share.
Out of its three segments, General Mills’ International segment was the star, outshining other segments by a considerable margin. Increased demand by health-conscious customers for yogurt drove revenue; a variety of new flavors attracted customers, especially Greek yogurt, which was introduced later in the quarter. Hence, the company will be able to reap full benefits next quarter onwards.
The yogurt market has been increasingly attractive not only for the food retailers but also for the beverage company PepsiCo (NYSE: PEP). The beverage provider is planning to compete with the food retailers by entering into the growing segment in partnership with a German dairy company. The strategy was initiated in order to reduce PepsiCo’s reliance on soda sales. Hence, the growing yogurt business is attracting large number of competitors also.
Even the snacks business performed well as consumers switched to quick munching options, especially when it came in mega packs at supermarkets. General Mills’ addition to its snacks segment helped the business grow. The retailer’s healthy snacks options such as fruit snacks, baked chips, and grain snack bars are growing largely and are expected to continue to do so in the future.
The food retailer enjoys a large presence in grocery stores such as Wal-Mart (NYSE: WMT) which offer discounted prices to shoppers. This lures customers especially in the prevailing tough economic environment. Moreover, Wal-Mart’s efforts to open smaller sized stores in customers’ neighborhood will also help the consumer food giant when shoppers will walk into the grocer for their daily requirements.
Even General Mills’ smaller stores are growing increasingly. Attractive prices for the smaller packaged items help the store attract new consumers by giving them an opportunity to try it out. Additionally, its premium ice-cream business Haagan Dazs has been gaining foothold in the market. The company’s efforts to launch new flavors and increase promotional activities are paying off.
Future Plans
General Mills performed well in spite of challenges such as stronger dollar and prevailing economic conditions. Moreover, it has some bright plans for the future which is expected to boost its results going forward.
The company plans to increase its marketing spend. Its new products have not yet been advertised. Its plans to advertise its new launches heavily which will attract more customer attention. This will be coupled with even more product launches in the year. It plans to launch 40 new yogurts in the year along with new low-calorie products for health conscious people.
General Mills also announced that it will increase its focus on the emerging markets where it sees huge potential. After the success of acquisition of Parampara, it is eyeing expansion in the Indian market on large scale.
The Takeaway
The food retailer has performed well because of the initiatives taken. It is looking even better with most of the benefits expected to show in the months to come. Its future plans are also well made and will benefit the retailer further. Additionally, cost inflation has been moderating and is expected to be in the range of 2% to 3% which will help in widening the margins as well as attracting more customers. With a number of growth plans in place I believe General Mills has a great future ahead.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo. Motley Fool newsletter services recommend PepsiCo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
