investment report
General Mills, Inc. (GIS)
business overview From Yahoo Finance
General Mills, Inc. is a leading producer of consumer foods in the United States, Canada, Latin
America, Europe, and the Asia. It was founded in 1928 and is based in Minneapolis, Minnesota. It
manufactures ready-to-eat cereals; dry packaged dinner mixes, Mexican foods and dinner kits, soups,
ingredients, canned and frozen vegetables, salad mix and salad toppings; as well as microwave-able and
packaged meals. One of General Mills greatest strengths is its superior branding power with such
enduring house hold names as Cheerios, Pillsbury, Yoplait, Betty Crocker, Hamburger Helper, Chex,
and Wheaties.
General Mills has over 28,000 full-time employees and the current Chairman of the Board and Chief
Executive Officer is Stephen W. Sanger.
competition
competitor company description
K: Kellogg
The Kellogg Company is primarily associated
Co.
with the production of cereal and other
convenience foods, including snacks like
cookies and crackers, and also products like
waffles and meat alternatives. Its cereal
products include the Kellogg brand line, and
its other products include consumer favorites
like Cheez-It, NutriGrain, Rice Krispies, and
its Eggo waffles.
KFT: Kraft
Kraft Foods produces and markets food
Foods Inc.
products like cheese, snacks like cookies and
crackers, and convenient meals. Kraft
produces many American staple products,
like Oreo, Chips Ahoy!, Ritz, Jell-O,
Macaroni and Cheese, and DiGiorno Pizza.
HAIN: Hain
Celestial
Group Inc
The Hain Celestial Group specializes in
organic and natural foods, and has developed
a line of grocery and snack products that are
distributed in supermarket and specialty
stores.
implications for GIS
Kellogg is one of General Mills
largest competitors in the cereal
market. Both have extensive lines of
branded cereals, but GIS is still the
#2 cereal maker to Kellogg.
Kraft is a major competitor of GIS
because it focuses on producing
convenience foods for consumers.
Their decision to stop advertising its
sweetest cereals to kids put pressure
on GIS, who have responded with
their “Choose Breakfast” campaign.
With the growing movement for a
healthier lifestyle in America, Hain
poses a large threat to General Mills
because it has developed a brand
focused on providing options for
such a lifestyle.
DLM: Del
The Del Monte Foods Company is involved
Monte Foods with the production of food products like
Company
processed vegetables, canned fruit, ketchup
and other tomato-based products, and tuna
products through StarKist Seafoods. DLM
also produces and distributes pet products
like Kibbles ‘n Bits and Meow Mix.
RAH:
Ralcorp is a supplier of store brand, or
Ralcorp
private label, products like cereals, cookies,
Holdings,
and other snacks.
Inc.
The DLM is one of General Mills’
larger competitors in its areas of
food production because it has
developed a large brand name in
these more specialized areas.
Store brand products offer a
substitute to the branded products
that General Mills markets. Sales of
these value products continue to
grow, posing a larger threat to GIS.
financials
income statement From Google Finance
The latest income statement from the company’s 2006 Investor Report indicates low yet stable growth
over the last six years. Excluding some significant drops in earnings and increases in costs between
2001 and 2002 (most likely due to the acquisition of The Pillsbury Company in 2001), key line items
show a steady, upward trend. First, we see that total revenue (net sales) has been increasing slowly over
the last two years from $11.07B in 2004 to $11.64B in 2006. In the last year alone, net sales increased by
4%. Furthermore, gross profit has also remained steady, decreasing slightly between 2004 and 2005, and
then increasing again between 2005 and 2006. Operating costs show the same pattern of decrease
followed by increase. In addition, though operating income has decreased from $2.27B in 2005 to
$1.96B in 2006, dividends per share have increased by 8% (from $1.24 to $1.34) in the same time
period. Total operating expenses increased over the last year due to an 8% increase in advertising
spending as well as an investment of $360M to support future business growth and productivity
initiatives.
$ Million
YE May 2006 YE May 2005 YE May 2004 YE May 2003 YE May 2002 YE May 2001
Revenue
11,640.00
11,244.00
11,070.00
10,506.00
7,949.00
5,450.00
Total Revenue
11,640.00
11,244.00
11,070.00
10,506.00
7,949.00
5,450.00
Cost of Revenue, Total
6,966.00
6,834.00
6,584.00
6,109.00
4,662.00
2,841.00
Gross Profit
4,674.00
4,410.00
4,486.00
4,397.00
3,287.00
2,609.00
Selling/General/Admin. Expenses, Total
2,678.00
2,418.00
2,443.00
2,472.00
2,070.00
1,393.00
Interest Expense(Income) - Net Operating
-
-
-
-
-
-
30.00
-415.00
26.00
62.00
134.00
12.00
0.00
137.00
-
-
-
-
Total Operating Expense
9,674.00
8,974.00
9,053.00
8,643.00
6,866.00
4,246.00
Operating Income
1,966.00
2,270.00
2,017.00
1,863.00
1,083.00
1,204.00
Net Income
1,090.00
1,240.00
1,055.00
917.00
458.00
665.00
1.34
1.24
1.10
1.10
1.10
1.10
Unusual Expense (Income)
Other Operating Expenses, Total
Dividends per Share - Common Stock Primary Issue
balance sheet From Google Finance
Since May 2002, there has been a noticeable fall in cash and cash equivalents from $975M to $647M.
Similarly, total current assets have also fallen from $3.44B to $3.18B since 2002. However, both of
these indicators have grown in the last year, which points to the prospective for increased growth in the
future. Total long term debt has decreased significantly in the last year while total debt, total liabilities,
and total equity remain relatively stable.
$ Million
Cash & Equivalents
Cash and Short Term Investments
Accounts Receivable - Trade, Net
Total Current Assets
Property/Plant/Equipment, Total - Gross
Long Term Investments
Other Long Term Assets, Total
Total Assets
Accounts Payable
Accrued Expenses
Notes Payable/Short Term Debt
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total
Total Current Liabilities
Total Long Term Debt
Total Debt
Total Liabilities
Total Equity
Total Liabilities & Shareholders' Equity
Total Common Shares Outstanding
YE May 2006
647.00
647.00
1,076.00
3,176.00
5,806.00
1,775.00
18,207.00
1,151.00
1,203.00
1,503.00
2,131.00
150.00
6,138.00
2,415.00
6,049.00
12,435.00
5,772.00
18,207.00
356.00
YE May 2005
573.00
573.00
1,034.00
3,055.00
5,670.00
1,684.00
18,066.00
1,136.00
962.00
299.00
1,638.00
149.00
4,184.00
4,255.00
6,192.00
12,390.00
5,676.00
18,066.00
369.00
YE May 2004 YE May 2003 YE May 2002
751.00
703.00
975.00
751.00
703.00
975.00
1,010.00
980.00
1,010.00
3,215.00
3,179.00
3,437.00
5,319.00
4,929.00
4,618.00
1,797.00
1,796.00
1,776.00
18,448.00
18,227.00
16,540.00
1,110.00
1,303.00
1,217.00
583.00
1,236.00
3,600.00
233.00
105.00
248.00
831.00
800.00
682.00
2,757.00
3,444.00
5,747.00
7,410.00
7,516.00
5,591.00
8,226.00
8,857.00
9,439.00
13,200.00
14,052.00
12,964.00
5,248.00
4,175.00
3,576.00
18,448.00
18,227.00
16,540.00
379.00
370.00
367.00
YE May 2001
64.10
64.10
664.00
1,408.20
3,179.30
1,311.80
5,091.20
619.10
252.80
857.90
349.40
129.60
2,208.80
2,221.00
3,428.30
5,039.00
52.20
5,091.20
285.20
statement of cash flows From Google Finance
From 2005 to 2006, net income decreases from $1.24B to $1.09B. However, the full cash flow
statement from the last 4 years shows a relatively stable net income without any large fluctuations. Cash
from operating has stayed the same over the last fiscal year, though it is expected to increase as General
Mills expands into international markets. Furthermore, cash from investing has decreased due to a
reinvestment of earnings ($360M) into marketing and innovation.
$ Million
Quarterly (Aug’06)
Annual (2006)
Annual (2005)
Net Income/Starting Line
267.00
1,090.00
1,240.00
Cash from Operating
104.00
1,771.00
1,711.00
Cash from Investing
-240.00
-292.00
496.00
Cash from Financing
-86.00
-1,405.00
-2,385.00
Net Change in Cash
-222.00
74.00
-178.00
valuation
General Mills is a value stock, generating market-consistent returns over the past 5 years. Its price has
remained steady in the upper 40s. Like its peers, this stock's earnings per share have grown steadily over
the past three years, though they fell last year. Note that this stock's sustainable growth rate is close to
the rate at which its earnings per share have grown. That means that the company may have to raise
additional capital from outside sources at some point if it continues to grow at its current rate.
This stock's forward earnings yield of 5.49% is the annual return it would generate if its profits
remained fixed and it paid out all of its earnings as dividends. Not only is this much higher than the
earnings yields of other stocks in its industry, it is extremely healthy in absolute terms. For this
company to generate decent returns for investors, it will probably only have to realize moderate growth
in earnings or a higher valuation by the market.
key
GIS
metric
comparison
comparison
to industry
to S&P 500
PE Ratio
18.72
21.99
20.40
Price to
Book
3.63
4.42
3.89
Price to
Sales
1.62
1.51
2.90
implications for GIS
General Mills has a relatively low PE ratio in
comparison to the industry and the S&P
500, which means that investors are not
expecting higher than average earnings
growth in the future compared to other
companies in the industry.
General Mills has a relatively low P/B ratio,
which may mean that the stock is
undervalued. In other words, the stock
market value is lower than the book value of
the company.
In general, the lower the P/S, the better the
value of a stock. General Mills’ P/S is above
the industry average but below the S&P,
thus the stock is a good, but not great,
value.
investment opportunities
During a recent conference in New York, Chairman and CEO of General Mills, Stephen W. Sanger,
spoke about growth opportunities for General Mills. Confident about the company’s future prospects,
he said: "We compete in segments of the food industry that are on trend and that are growing. We are
in product categories where we can add value for consumers and build brand equity over time. And we
hold leading market positions in those categories."
There are a number of reasons to believe General Mills has many opportunities for growth, chief
among them its global market portfolio, which is very strong. General Mills is highly capable of
innovation, demonstrates a focus on health and wellness, has many chances for global growth, and is
expanding its profit base.
innovation
General Mills is working to make its food products more convenient for their consumers by making
them faster and easier to prepare. Examples of convenient products include the Old El Paso Mexican
Product Line and a new dumpling line planned for Taiwan called the Wanchai Ferry Dumplings. Based
on the success the Nature Valley granola bars has demonstrated, General Mills also intends to release a
new Nature Valley cereal this January.
health and wellness
General Mills sells products that are by nature healthy, like cereal, which contains vitamins, whole
grains, fibers, etc, all of which are food products health-conscious consumers seek in their food.
Additionally, yogurt is a healthy food that is extremely popular today. It is currently a $1 billion
business for General Mills. Nature Valley granola bars and Progresso Soup are two other major
products for General Mills, both of which are advertised as healthier alternatives to products offered by
competitors.
Recently, General Mills set a new goal to have 40% of its domestic product line make a health
improvement by the year 2010.
global growth
General Mills has the potential to branch out to international markets and strengthen its brand there.
Due to the rise of wholesale supermarkets and natural and organic stores—places where General Mills
cereal and breakfast products are readily sold—General Mills has the opportunity to grow significantly.
expansion of profit base
General Mills’ profit base has expanded to include more than just cereal products. With its popular
yogurts, canned soups, and breakfast bars, General Mills no longer relies purely on cereal to generate
profit. As a result of the popularity and proven success of their other products, General Mills has the
potential to continue expanding and can depend on a variety of products for its profit.
investment risks
growth and expansion
General Mills has been pushing for growth and expansion within the consumer foods market with a
focus on healthier foods. Earlier this year General Mills announced that they would be switching all of
their cereal products to whole grain products in order to do this. This differentiates it from competitors
like Post and Kellogg, who have not taken any similar steps.
However, not all expansionist strategies have been successful. Following the merger of Pillsbury and
Betty Crocker with Trix and Hungry Jack was predicted to generate 9.7 million dollars in additional
revenue and cut costs. Chairman Sanger has had to eat his own words, as during the last few quarters
revenue growth has ground to a halt in amidst business integration setbacks and a stagnant market and
considerable debt.
brand name loyalty
Because General Mills has been in operation for decades, the company has created substantial brand
name loyalty and a reputation as a well-established, stable enterprise. While consumer loyalty brings in
revenue, General Mills needs to be innovative in order to grow and therefore push stock up to generate
earnings.
full financial statements From Google Finance
income statement
In Millions of USD (except for
per share items)
Revenue
Other Revenue, Total
Total Revenue
52 weeks
52 weeks
53 weeks
52 weeks
52 weeks
52 weeks
Ending 2006-05- Ending 2005-05- Ending 2004-05- Ending 2003-05- Ending 2002-05- Ending 2001-0528
29
30
25
26
27
11,640.00
11,244.00
11,070.00
10,506.00
7,949.00
5,450.00
11,640.00
11,244.00
11,070.00
10,506.00
7,949.00
5,450.00
Cost of Revenue, Total
Gross Profit
Selling/General/Admin. Expenses,
Total
Unusual Expense (Income)
Other Operating Expenses, Total
Total Operating Expense
Operating Income
Interest Income(Expense), Net
Non-Operating
Gain (Loss) on Sale of Assets
Other, Net
Income Before Tax
Income After Tax
Minority Interest
Equity In Affiliates
Net Income Before Extra. Items
Net Income
Preferred Dividends
Income Available to Common
Excl. Extra Items
Income Available to Common
Incl. Extra Items
Dilution Adjustment
Diluted Weighted Average Shares
Diluted EPS Excluding
Extraordinary Items
Dividends per Share - Common
Stock Primary Issue
Diluted Normalized EPS
6,966.00
4,674.00
6,834.00
4,410.00
6,584.00
4,486.00
6,109.00
4,397.00
4,662.00
3,287.00
2,841.00
2,609.00
2,678.00
2,418.00
2,443.00
2,472.00
2,070.00
1,393.00
30.00
0.00
9,674.00
1,966.00
-415.00
137.00
8,974.00
2,270.00
26.00
9,053.00
2,017.00
62.00
8,643.00
1,863.00
134.00
6,866.00
1,083.00
12.00
4,246.00
1,204.00
-399.00
-455.00
-508.00
-547.00
-416.00
-206.00
1,567.00
1,026.00
64.00
1,090.00
1,090.00
-
1,815.00
1,151.00
89.00
1,240.00
1,240.00
-
1,509.00
981.00
74.00
1,055.00
1,055.00
-
1,316.00
856.00
61.00
917.00
917.00
-
667.00
428.00
33.00
461.00
458.00
-
998.00
648.00
17.00
665.00
665.00
-
1,090.00
1,240.00
1,055.00
917.00
461.00
665.00
1,090.00
1,240.00
1,055.00
917.00
458.00
665.00
9.00
379.00
20.00
409.00
20.00
413.00
0.00
378.00
0.00
342.00
0.00
292.00
2.90
3.08
2.60
2.43
1.35
2.28
1.34
1.24
1.10
1.10
1.10
1.10
2.95
2.44
2.64
2.53
1.60
2.30
balance sheet
In Millions of USD (except for per share
items)
Cash & Equivalents
Short Term Investments
Cash and Short Term Investments
Accounts Receivable - Trade, Net
Receivables - Other
Total Receivables, Net
Total Inventory
Prepaid Expenses
Other Current Assets, Total
Total Current Assets
Property/Plant/Equipment, Total - Gross
As of 2006-05- As of 2005-05- As of 2004-05- As of 2003-05- As of 2002-05- As of 2001-0528
29
30
25
26
27
647.00
573.00
751.00
703.00
975.00
64.10
647.00
573.00
751.00
703.00
975.00
64.10
1,076.00
1,034.00
1,010.00
980.00
1,010.00
664.00
1,076.00
1,034.00
1,010.00
980.00
1,010.00
664.00
1,055.00
1,037.00
1,063.00
1,082.00
1,055.00
518.90
216.00
203.00
222.00
184.00
156.00
99.30
182.00
208.00
169.00
230.00
241.00
61.90
3,176.00
3,055.00
3,215.00
3,179.00
3,437.00
1,408.20
5,806.00
5,670.00
5,319.00
4,929.00
4,618.00
3,179.30
Goodwill, Net
Intangibles, Net
Long Term Investments
Other Long Term Assets, Total
Total Assets
Accounts Payable
Accrued Expenses
Notes Payable/Short Term Debt
Current Port. of LT Debt/Capital Leases
Other Current liabilities, Total
Total Current Liabilities
Long Term Debt
Capital Lease Obligations
Total Long Term Debt
Total Debt
Deferred Income Tax
Minority Interest
Other Liabilities, Total
Total Liabilities
Common Stock, Total
Additional Paid-In Capital
Retained Earnings (Accumulated Deficit)
Treasury Stock - Common
Other Equity, Total
Total Equity
Total Liabilities & Shareholders' Equity
Shares Outs - Common Stock Primary
Issue
Total Common Shares Outstanding
6,652.00
3,607.00
1,775.00
18,207.00
1,151.00
1,203.00
1,503.00
2,131.00
150.00
6,138.00
2,415.00
2,415.00
6,049.00
1,822.00
1,136.00
924.00
12,435.00
50.00
5,737.00
5,107.00
-5,163.00
-167.00
5,772.00
18,207.00
6,684.00
3,532.00
1,684.00
18,066.00
1,136.00
962.00
299.00
1,638.00
149.00
4,184.00
4,255.00
4,255.00
6,192.00
1,851.00
1,133.00
967.00
12,390.00
50.00
5,691.00
4,501.00
-4,460.00
-241.00
5,676.00
18,066.00
6,684.00
3,641.00
1,797.00
18,448.00
1,110.00
583.00
233.00
831.00
2,757.00
7,410.00
7,410.00
8,226.00
1,773.00
299.00
961.00
13,200.00
5,680.00
3,722.00
-3,921.00
-233.00
5,248.00
18,448.00
6,650.00
3,622.00
1,796.00
18,227.00
1,303.00
1,236.00
105.00
800.00
3,444.00
7,516.00
7,516.00
8,857.00
1,661.00
300.00
1,131.00
14,052.00
5,684.00
3,079.00
-4,203.00
-385.00
4,175.00
18,227.00
8,473.00
90.00
1,776.00
16,540.00
1,217.00
3,600.00
248.00
682.00
5,747.00
5,591.00
5,591.00
9,439.00
407.00
153.00
1,066.00
12,964.00
5,733.00
2,568.00
-4,292.00
-433.00
3,576.00
16,540.00
804.00
66.00
1,311.80
5,091.20
619.10
252.80
857.90
349.40
129.60
2,208.80
2,221.00
2,221.00
3,428.30
423.20
0.00
186.00
5,039.00
744.70
2,467.60
-3,013.90
-146.20
52.20
5,091.20
-
-
-
-
-
-
356.00
369.00
379.00
370.00
367.00
285.20
statement of cash flows
In Millions of USD (except for
per share items)
52 weeks
52 weeks
53 weeks
52 weeks
52 weeks
Ending 2006-05- Ending 2005-05- Ending 2004-05- Ending 2003-05- Ending 2002-0528
29
30
25
26
Net Income/Starting Line
1,090.00
1,240.00
1,055.00
917.00
458.00
Depreciation/Depletion
424.00
443.00
399.00
365.00
296.00
Amortization
Deferred Taxes
26.00
9.00
109.00
27.00
93.00
Non-Cash Items
47.00
-239.00
84.00
76.00
29.00
Changes in Working Capital
184.00
258.00
-186.00
246.00
37.00
Cash from Operating Activities
1,771.00
1,711.00
1,461.00
1,631.00
913.00
Capital Expenditures
-360.00
-434.00
-653.00
-711.00
-506.00
Other Investing Cash Flow Items,
68.00
930.00
183.00
-307.00
-2,765.00
Total
Cash from Investing Activities
-292.00
496.00
-470.00
-1,018.00
-3,271.00
Financing Cash Flow Items
-3.00
822.00
-3.00
70.00
178.00
Total Cash Dividends Paid
-485.00
-461.00
-413.00
-406.00
-358.00
Issuance (Retirement) of Stock,
-728.00
-576.00
168.00
67.00
-2,297.00
Net
Issuance (Retirement) of Debt,
-189.00
-2,170.00
-695.00
-616.00
5,746.00
Net
Cash from Financing Activities
-1,405.00
-2,385.00
-943.00
-885.00
3,269.00
Foreign Exchange Effects
Net Change in Cash
74.00
-178.00
48.00
-272.00
911.00
Cash Interest Paid, Supplemental
378.00
450.00
490.00
502.00
346.00
Cash Taxes Paid, Supplemental
321.00
227.00
225.00
248.00
196.00
52 weeks
Ending 200105-27
665.10
223.10
48.40
-126.70
-73.00
736.90
-307.50
-152.60
-460.10
10.20
-312.40
-119.30
183.20
-238.30
38.50
214.90
230.80