General Mills, Inc. (GIS) Justin Craigwell-Graham Charles Gambino Jacob Rapp 12/3/2009 Introduction • Company, Industry, Competitor, and Macroeconomic Analysis • Financial Statement Analysis – DuPont Analysis – Pro Forma Analysis • Valuation – DCF Valuation – Multiples Valuation – Dividend Discount Model • Recommendation Company Overview Founded in 1866 Based in Minneapolis, MN Approximately 30,000 employees Website: www.generalmills.com Famous Products Company Overview • Three Segments – US Retail (68% of sales) – International (18%) – Bakeries & Food Service (14%) • Trends – Healthy/Organic – Convenient products Industry Overview • Consumer Food & Food Processing Industry – Large & Mature – Stable – Trends • Divestitures • Consolidations – Main Competitors • Kellogg, Kraft Foods, Campbell Soup, & HJ Heinz Competitors Company Market Cap* Annual Sales Brands Kellogg $20.10B $12.822B Rice Krispies, Frosted Flakes, Cheez-It, Pop-Tarts, Eggo, Nutri-Grain Kraft Foods 39.33B 42.401B Kraft, Oscar Meyer, Nabisco, Oreo, Maxwell House Campbell Soup 12.10B 7.586B Campbell’s, Pepperidge Farm, Prego, Swanson, V8 HJ Heinz 13.56B 10.148B Heinz, Bagel Bites, OreIda, Smart Ones General Mills 22.38B 14.691B Betty Crocker, Bisquick, Cheerios, Yoplait •Intraday 12/1/09 Macroeconomic Overview • Subject to fluctuations in input prices and foreign exchange rates – GIS has done well historically in hedging these risks. • General Mills has the potential to perform well even during recessions – As consumers try to save money during economic downturns, they typically eat out less and buy more products to cook at home • As economy recovers in 2010 and beyond, strong product lines and broad distribution networks allow the company to maintain growth through expansion into international markets such as China • Product categories have historically grown 3-4% regardless of economic conditions SWOT Strength Weaknesses Successful international expansion Strong leadership training programs and high employee retention Brand recognition Distribution networks Older product lines can suffer from lack of innovation Fierce and constant competition in food industry High marketing costs to retain market share Opportunities Threats Continued international expansion Healthy food segment Innovative internet research techniques Gluten-free offerings Consolidation of retail environment Dependence on few large customers for sales Increasing commodity prices Price Movement YTD S&P and Competitors DuPont Analysis Historical DuPont 500.0% 450.0% 400.0% 350.0% 300.0% Equity Multiplier Total Asset Turnover 250.0% Net Income Margin % 200.0% Return on Equity % 150.0% 100.0% 50.0% 0.0% 2005 2006 2007 2008 2009 DuPont Analysis Forward-Looking DuPont 450.0% 400.0% 350.0% 300.0% Equity Multiplier 250.0% Total Asset Turnover Net Income Margin % 200.0% Return on Equity % 150.0% 100.0% 50.0% 0.0% 2010 2011 2012 2013 2014 2015 2016 Management Evaluation Growth Objectives: How they did: Low single digit growth in annual net sales 2009: 8% 2008: 10% 2007: 6% Mid single digit growth in operating profit 2009: -1% 2008: 8% 2007: 5% High single digit growth in EPS 2009: 2% 2008: 19% 2007: 8% Relative Valuation Actual Value General Mills Share Price as of 11/24/09 Trailing P/E P/B P/S TEV/EBITDA $68.34 -5% +5% $64.92 71.757 Average Median Max Value Min Value Value Value $68.96 $64.41 $70.15 $72.31 $149.40 $26.55 $152.12 $269.53 $61.08 $44.28 $66.07 $72.90 $61.58 $39.34 $59.22 $86.17 Green = Above +5% of Current Stock Price Yellow = Between -5% and +5% of Current Stock Price Red = Below -5% of Current Stock Price Valuation Summary • DCF – $65.45 to $79.99 • Multiples – P/E: $64.41 to $72.31 – P/B: $26.55 to $269.53 – P/S: $44.28 to $72.90 – EBITDA: $39.34 to $86.17 • DDM – $39.47 to $48.24 Recommendation • Closing price on 12/01/09: $68.68 • Recommendation: Add to Watch List – GIS is currently fairly valued – Possible Benefits: • • • • Large dividend Diversification benefits Costs are well managed Growth during all market cycles