Can Growth Plans Aid General Mills Amid Input Cost Woes?

General Mills, Inc.’s GIS cost-reduction efforts, e-commerce enhancement initiatives, Consumer First strategy along with focus on global growth bode well. Also, the company’s recent buyout of Blue Buffalo is boosting revenues. However, input cost headwinds and sluggish sales in North American unit are concerns.

We note that shares of this Zacks Rank #3 (Hold) company have gained 7.4% in the past month, against the industry’s decline of 4.2%.

Let’s delve deeper.

A Brief Introspection

General Mills is focused on reshaping its portfolio via buyouts and divestitures. In relation to this, the company acquired Blue Buffalo Pet Products in April 2018. In fact, Blue Buffalo has emerged into one of the leading brands in the pet food category, driven by which the company’s top line grew year over year during the second quarter of fiscal 2019.

Encouraged by this, management anticipates net sales to increase 9-10% on a constant-currency (cc) basis for fiscal 2019. Further, organic sales growth is expected in the range of flat to up 1%. Moreover, management plans to expand the Blue Buffalo product line-up in categories such as Drug, Food and mass channels.

Further, General Mills is on track with its Consumer First strategy and key global growth plans to support consistent sales growth. To this end, the company is focused on solid innovations, efficient customer marketing and strong in-store execution to sharpen its competitive edge. The company’s next main strategy focuses on driving growth across four differential global platforms, which include Haagen-Dazs ice cream & snack bars, Old El Paso Mexican food, and General Mills’ natural and organic food brands.

Additionally, General Mills is pursuing many initiatives focused on improving operational efficiency to generate cost savings and supporting key growth strategies. The company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply-chain optimization and continued expansion of zero-based budgeting across the business. These are likely to facilitate margin expansion.

Further, the company is on track with its Holistic Margin Management (HMM), which is expected to generate greater savings this year. In fact, savings from this initiative aided margin expansions during the second quarter of fiscal 2019.

Will Hurdles Be Offset?

However, General Mills has been grappling with input cost inflation for a while now. This also weighed on adjusted gross margin during the second quarter of fiscal 2019. Apart from this, the company witnessed soft performance in its North American business.

Sales in this segment, accounting for 60.7% of the company’s second-quarter sales, dipped 3.4% mainly due to lower merchandising activity in the U.S. Cereal unit and weak U.S. Snacks volumes. The segment noted sales decline of 4% and 5% in U.S. Snacks and U.S. Cereal, respectively.

Nevertheless, we believe that the above-mentioned strategies will help offset these hurdles and boost growth in the near future.

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