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Will General Mills' Key Global Plans Take It Toward Recovery?

Zacks Equity Research
Updated

General Mills, Inc. GIS shares have lost 26.2% in the past six months, wider than the industry’s decline of 7.7%. This can be blamed on input cost inflation, which remains a threat to the company’s margins and is a major hurdle for the overall food space. Markedly, the Zacks Food-Miscellaneous industry is placed among the bottom 16% out of more than 250 Zacks industries.



Coming back to General Mills, the company has also been suffering lackluster sales at its U.S. Retail Segment, particularly due to softness in Yogurt category. Recently, the U.S. Yogurt category witnessed a 5% and 12% drop in sales in the fourth quarter and fiscal 2018, respectively. Nonetheless, the company is on track to restructure this category through fundamental innovation. This is also one of General Mills’ four key global strategies to drive sales.

Moving to the other core initiatives, the company plans to focus more on growing its cereal business. For that, General Mills plans to introduce new product varieties to its global product portfolio. Further, the company’s strategy focuses on driving differential growth across several global platforms where it has already witnessed solid revenue (roughly $4 billion) momentum. The platforms include Häagen-Dazs ice cream, snack bars (primarily under Nature Valley), Fiber 1 and Larabar brands, Old El Paso Mexican foods, and its natural and organic brands in North America.

Investing in its Foundation businesses (includes refrigerated dough, soup, and baking mixes etc.) is also a priority for fiscal 2018. Apart from these four key priorities, the company is focused on improving its e-commerce channel, given its rapid acceleration. E-commerce already represents about 1.5% of the company's total sales in the United States as of fiscal 2017 and it is expected to grow 5% by fiscal 2020. The company’s U.S. e-commerce business grew nearly 70% in fiscal 2018, while its global e-commerce sales surged 50%.

These endeavors, along with General Mills’ robust cost-saving initiatives should provide some cushion to this Zacks Rank #3 (Hold) company and help it uplift investors’ sentiment.

Notably, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, further supply-chain optimization and continued expansion of zero-based budgeting across the business. All of this together will result in accelerated margin expansion for the company. Further, General Mills remains on track with its Holistic Margin Management (HMM), which is expected to generate greater savings this year. Management expects cost of goods sold and HMM savings of roughly $450 million in fiscal 2019. These initiatives will help the company battle input cost inflation and costs related to additional growth investments in fiscal 2019.

Check Out These Solid Food Stocks

MEDIFAST INC MED, a Zacks Rank #1 (Strong Buy) stock, has delivered positive earnings surprises in the past three quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Chefs' Warehouse, Inc. CHEF, with long-term earnings per share growth rate of 22%, flaunts a Zacks Rank #2 (Buy).

B&G Foods BGS, with a Zacks Rank #2, delivered positive earnings surprise in the last reported quarter and has gained 31.5% in the past three months.

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