Holistic Management is Driving this Food Stock
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
With most companies cashing in on the benefits of Social Media, General Mills (NYSE: GIS) has finally joined the mob with its initiative LiveBetterAmerica.aol.com. The website aims at engaging consumers with articles related to lifestyle and health, as well as recipes developed by General Mills.
Innovation in its products and regularity in new product launches has made General Mills a favorite brand in many homes, as its products provide great taste, convenience, and high nutrition. The company, with its diversified portfolio across the globe, aims at consistent growth and earnings. It has a strong base with several of its well-established brand names such as Cheerios, Progresso, Pillsbury, Nature Valley, and Yoplait, and it has plans to introduce around 70 new products in 2013 in the US, with as many as 35 in the popular Yogurt category.
Although it is in an established position, General Mills competes closely with Kellogg Company (NYSE: K) and Mondelez International Inc. (NASDAQ: MDLZ). Talking about its competitors, both of them are making strong moves in order to keep themselves ahead in this market.
Kellogg: Kellogg keeps on launching new products time and again, and these new products contributed 50% to its sales in 3Q 2012. In order to increase its international presence, the company acquired Pringles, which will give a boost to its snacks business and further help it gain exposure in Latin America and in the Asia Pacific regions. Pringles enjoyed 11% market share in the last quarter, which is said to be the highest since 2009. The company expects good growth in China, as at the end of the year the Chinese snack market is expected to reach $12 billion. To take advantage of the situation the company has entered into a joint venture with Wilmar International, which will provide it with the opportunity to establish itself in the Chinese market. Additionally, the company holds a strong pipeline of products like Cinnamon Jacks, Kashi Berry Fruitful, and Special K Chocolate Strawberry, which are poised to be launched in 2013.
Mondelez: This company has made a strong long term plan to strengthen its position in the market, and the acquisition of Cadbury in 2012 is considered to be its best strategic move. This acquisition has given the company an increased market share and expanded its presence in India, China, Mexico, Russia, and South Africa. It has had good marketing initiative by investing 10% of its marketing budget in developing business on the mobile platform and has launched Mobile Futures. This program aims at pairing start up entrepreneurs with intent to connect with the customers who spend most of their time on mobile phones. The company gets 44% of its revenue from the developing markets with products like Oreo and Gum, and is expected to continue doing well in the coming time. Its strong product portfolio will also deliver increased revenue in future.
Turning back to General Mills, I think that the company is well managed and has positioned itself well with its acquisitions and its Holistic Margin Management approach.
Holistic Margin Management approach (HMM): This approach aims at cost saving by eliminating all the non-value adding components and focusing on the value-generating areas. For example: reducing the size of pasta and shrinking the size of containers resulted in saving 10% of the production cost of Hamburger Helper (Brand); elimination of most of the multi-colored lids for yogurt brand (Old El Paso) resulted in cost saving of $2 million in a year; shifting a can manufacturer adjacent to its plant in France resulted in $1.5 million worth of savings per annum in transportation costs. This approach applies everywhere, from the manufacturing segment to the marketing segments, and further underlines the need for products that are valued more by its consumers. Through 2012 it has saved $1 billion, and a further $3 billion of savings are expected by the end of 2020.
Acquisitions: The acquisition of Yoplait has given a boost to the international growth of General Mills, and also accounts for 14% of the company's US revenue. Yoplait is the world's second largest yogurt brand with its presence in more than 70 countries. This acquisition has given General Mills a global platform and enhanced its growth in the yogurt category. Besides, the company has also completed its recent acquisition of the Brazilian Food Company Yoki for $940 million. Yoki generate $550 million of sales annually and is known for aggressive marketing campaigns, and also for its connection with the young generation.
Summing up, I think the company’s stock offers a good entry point, with acquisitions playing a major role in its growth and its HMM approach moving in the right direction. International business contributes 28% to its total net sales, and therefore the company is focusing on boosting its presence globally, especially in the emerging markets such as India, China, and Russia. For the last twelve months it has been trading at the P/E ratio of 16.02x, which is comparatively lower than the industry average of 20.32x. General Mill's sales for the last quarter were up 5% while the operating profit increased by 6%, driven by the international market and fruitful acquisitions. I anticipate further upside in this stock in the future, and suggest a buy.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!