Packaged Foods Go Abroad

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Manufacturer and marketer of branded consumer foods, General Mills (NYSE: GIS) reported its fiscal year 2013 second quarter earnings on December 19. New businesses in Brazil and Yoplait Canada's acquisition helped in improving sales while higher gross margins and reduced advertisement and media expenses helped profits to grow at a faster pace.

Number Theory

Sales surged by 6% to $4.88 billion; the purchase of Yoki Alimentos, a Brazilian food company seems to have started yielding returns. The revenues have been growing consistently over the past four quarters. The company reported net income of $541.6 million, up by 21.8% from last year’s quarter, thus marking a rise in net income for three quarters continuously. The cash flow from operations was reported at $1.3 billion; an increase of 14% over last year. The company has returned cash to its shareholders by paying $434 million in dividends and by repurchasing 12 million shares of common stock totaling $479 million.

Prospects

Inflation is expected to rise due to drought; however, the company being covered with about 90% of its requirements for the fiscal year 2013 seems in a good position to check the same at a marginal 2-3%. The company’s portfolio of new products with its strong advertising and in-store merchandising capabilities should help it to sell its products worldwide.

The company’s innovative products and its health and nutrition bars are gaining market share with people becoming more health conscious. ‘General Mills’ Food Should Taste Good’ business is doing great with shipments having increased in double digits and gains from this business expected to grow further in the year.

General Mills’ international business segment is also delivering great response in all its geographic areas. The company has grown in Asia Pacific, Latin America, Canada and Europe.  Sweet & Nutty bars in the U.K have increased retail sales and with opportunities to increase household penetration in Europe; there is tremendous growth prospect in this region.  Kitano and Yoki brands have their reach in more than 70% of Brazilian households which gives the company’s new product a great market base in Brazil. Yoplait, the world's second largest yogurt brand, has also been acquired by General Mills. It has its presence in more than 70 countries which provides General Mills a global platform in the yogurt category.

Competitors

 Kellogg Company (NYSE: K) is a close competitor of General Mills. It keeps launching new products on a regular basis to increase its competitive prowess. The company has a good international presence alike its peer in North America, Europe and Asia Pacific. In order to improve its international presence Kellogg has been making certain strategic acquisitions. Pringle’s acquisition, with its 11% market share should help Kellogg’s to tap in the snacks market in Latin America and in the Asia Pacific regions. The joint venture with Wilmar International is a strategic move to tap in the growing Chinese snacks market.

Mondelēz International (NASDAQ: MDLZ), the world's largest chocolatier, biscuit baker and candy maker in the world also competes with General Mills. The company derives its main strength from its exposure in emerging markets like India, China, Brazil and Russia. With an exponential population growth in emerging markets along with an increase in the spending power of middle class families and their real incomes, the company should see tremendous growth in its business. Inflation in emerging markets might hinder Mondelēz’s growth but the overall picture with its large market share that has further increased with the acquisition of Cadbury should help it sail through.

Final Words

General Mills sees full year EPS of $2.65 to $2.67, up from a previous estimate of $2.65 which shows an optimistic outlook of the company in the future. The international growth of the company has been good and future prospects are wide because of its exposure to emerging markets like India, China and Brazil. This defensive stock has proved the test of time and being a low beta stock in cyclical industry it’s a good pick to diversify investors’ portfolio.


tarunbachhawat 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!

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