A Staple of the Global Consumer Foods Industry
Ryan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A SWOT analysis is a look at a company’s strengths, weaknesses, opportunities, and threats, and is a tremendous way to gain a detailed and thorough perspective on a company and its future. As 2013 begins, I would like to pinpoint on a leading manufacturer and marketer of a wide array of branded consumer foods, General Mills Incorporated (NYSE: GIS).
Warren Buffett once said, “Never invest in a business you can’t understand.” This not only allows the investor to purchase a company with conviction, however also allows them to spot trends blind to unfamiliar eyes. With this in mind, investors in any company should fully understand the business model of the company. General Mills is a leading manufacturer and marketer of a wide array of branded consumer foods. The company’s product portfolio includes: Big G Cereals, Pillsbury, Yoplait, Haagen-Dazs, Green Gaint, Hamburger Helper, and much more. Based on market capitulation, the company is valued at $29.37 billion. Because of the company’s strong business model and pricing power, General Mills possesses a profit margin of 11.09%.
- Historic Revenue Growth: In 2003, General Mills reported revenue of $10.50 billion; in 2012, the company announced revenue of $16.65 billion, representing year over year annual growth of 5.26%, a strong trend which is highly anticipated to sustain into the future with projections placing 2017 revenue at $20.61 billion (this growth has been a result of consistent product innovation and explosive international growth)
- Institutional Vote of Confidence: 89% of shares outstanding are held by institutional investors, displaying the confidence some of largest investors in the world have in the company and its future
- Relatively Low Volatility: Currently, General Mills carries a beta ratio of 0.16, representing a company trading with considerably less volatility than the overall market, a major strength for long-term investors
- Reasonable Valuation: At the moment, the company possesses a price to earnings ratio of 16.78, a price to book ratio of 4.59, and a price to sales ratio of 1.76; all of which indicate a company trading with a reasonable valuation
- Strong Cash Flow: In 2012, General Mills produced $1.24 billion in cash flow, representing the financial strength and security of the business
- Steady Assets Growth: Assets of the company have grown from $18.22 billion in 2003 to $21.09 billion in 2012; this trend of steady asset growth is a major strength of the company
- Diversified & Established Nature: General Mills possesses a distinguished portfolio of leading brands, derives United States revenue from several different channels, possesses a global presence, and employs 35,000; with this diversified and established nature comes a greater level of security and predictability for investors
- Sustaining Profit Margin: Over the past decade the company’s profit margin has held strong around the current 11.09% level, representing a company which is able to perform consistently
- Net Debt: The company’s $734.90 million of cash and cash equivalents is outweighed by its debt load of $5.57 billion, resulting in a substantial net debt of $4.83 billion, a minor financial weakness of the business
- Dividend Growth: Since implementing their dividend program in 1992, the company has consistently raised their dividend payouts, and is widely anticipated to continue to do so into the future
- Product Innovation: General Mills is constantly working towards launching the next major alteration or product to one of its brands, from a new flavor of Nature Valley granola bars or a new line of Progreso soups; any further product innovations could spark customer interest and fuel sales
- Latin America: From 2011 to 2012, the company experienced 11% year over year annual growth in its Latin American region, driven by the launch of several new products distinct to the region, and further accelerated growth from this region is highly anticipated as economic prosperity increases
- Canada: Year over year annual growth from 2011 to 2012 in the company’s Canada region was 29%, driven partially by Liberte (Greek yogurt), up from growth of only 8% year-over-year annual growth from the year before; further premium performance from the Canada region could fuel overall sales growth
- Asia/Pacific: The company’s Asia-Pacific region has been among the fastest growing, with year-over-year growth from 2010 to 2011 equaling 14% and year-over-year growth from 2011 to 2012 equaling 21%; further strong performance in this critical region is a prime opportunity as General Mills rolls out more products adaptable to that market
- Results from R&D Spending: In 2012, General Mills poured $245 million into research and development, and any results from this investment could lead to new products and sales growth
- Advertising Campaigns: Last year the company spent $914 million on advertising campaigns, in hopes of acquiring new market share and fueling sales
- Rising Ingredient Prices: Any rise in the ingredient prices the company utilizes to make its products could squeeze margins or lead to lost customers if prices were raised
Major publicly traded competitors of General Mills include Kellogg Company (NYSE: K), The J.M. Smucker Company (NYSE: SJM), Mondelez International Incorporated (NASDAQ: MDLZ), and Unilever N.V. (NYSE: UN). Kellogg is valued at $21.58 billion, pays out a dividend yielding 2.94%, and carries a price to earnings ratio of 23.25. J.M. Smucker is valued at $9.97 billion, pays out a dividend yielding 2.26%, and carries a price to earnings ratio of 19.58. Mondelez is valued at $47.77 billion, pays out a dividend yielding 1.92%, and carries a price to earnings ratio of 14.58. Unilever is valued at $112.80 billion, pays out a dividend yielding 3.15%, and carries a price to earnings ratio of 19.36.
The Foolish Bottom Line:
Financially, the only weakness of the company is its minor debt load. The company possesses a historic track record of solid revenue growth, a growing dividend, and a broad and diversified business which can withstand the difficulties of economic downfall. Looking forward, the company will derive growth from its Latin America and Asia Pacific regions, and should experience slight growth domestically due to product innovation. All in all, General Mills is a recession proof business and is a tremendously safe long-term investment, however investors should wait for a pullback from these all-time highs before pouring in.
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