May 30, 2014
Consumer Food
General Mills Inc.
Ticker: GIS
Recommendation: Hold
Current Price: $53.81
Price Target: $57.55
Investment Thesis

As a Fortune 500 corporation with stable operation performance and
consistent annual dividends, General Mills provides valuable diversification
to the UOIG portfolios.

General Mills’ established membership database on digital media will allow
the company to promote and collect information on consumer daily behavior,
allowing them to better predict the preference of their customers and increase
revenue.

General Mills expansion into Latin America and Canada has historically
provided large growth rates for the past two years and will continue to do so
in the foreseeable future, similar to the Asian market.

General Mills’ acquisitions help them to capture more market share, such as
Yoplait, and is spending heavily on promotions to grow the Yoplait brand.

General Mills’ acquisition of Yoki will help the company increase exposure
in international market.
Key Statistics
52 Week Price Range
50-Day M oving Average
46.18-54.78
52.06
Estimated Beta
0.49
Dividend Yield
3.10%
M arket Capitalization (M )
33,023
3-Year Revenue CAGR
2.70%
Trading Statistics
Diluted Shares Outstanding (M )
614.5
Average Volume (3-M onth) (M )
2.98
Institutional Ownership
Insider Ownership
A EV/EBITDA (LTM )
70.90%
0.11%
Five-Year Stock Chart
$60.00
400,000,000
7.07x
350,000,000
$50.00
Margins and Ratios
300,000,000
$40.00
Gross M argin (LTM )
36.14%
EBITDA M argin (LTM )
22.45%
Net M argin (LTM )
10.44%
Debt to Enterprise Value
47.30%
250,000,000
$30.00
200,000,000
150,000,000
$20.00
100,000,000
$10.00
50,000,000
$0.00
May-07
0
May-08
May-09
Volume
May-10
Adj Close
May-11
May-12
50-Day Avg
May-13
200-Day Avg
Covering Analysts: Fan Zhang
Email: fanz@uoregon.edu
1
University of Oregon Investment Group
University of Oregon Investment Group
May 30, 2014
Business Overview
Figure 1: General Mills Brands
General Mills was founded in 1866 and their headquarters are located in the
Minneapolis Minnesota. The company primarily concerned with food products.
In 1870, Washburn cooperated with John Crosby to form a company called
Washburn Crosby Company and changed the name to Gold Medal Flour because
they sell the most flour in the U.S. In 1928, the president of the company James
Ford Bell, merged 26 mills and formed the company, General Mills.
As one of the world’s largest food companies, they have over 45 brands and these
brands are known around the world for quality and taste. They also have a joint
venture with Häagen-Dazs and Cereal Partners Worldwide (CPW).
Source: Google Images
Figure 2: 2013 Revenue
Bakeries and
Food Service
11%
Recently, Gold Medal still remains the top selling flour company in the U.S. and
several of their brands occupy the No.1 or No.2 market positions. Moreover, their
business is in over fifteen countries through retail selling and operates 65 facilities
for the production of varies food products and they sell their products in more
than 100 countries over the world though their cooperated retailing stores.
Segments
International
29%
U.S. Retail
60%
Source: SEC-2013 10-K
Figure 3: International segment weight
US Retail (59.72%)
Categories: Big G, Baking Products, Snacks, Frozen Food, Meals Yoplait, and
small planet foods
Products: refrigerated and frozen dough products, dessert and baking mixes,
refrigerated yogurt, grain and fruit snacks side dishes, ready-to-eat cereals, shelf
stable and frozen vegetables, and dry dinners.
International (29.26%)
Regions: Europe, Canada, Asia/ Pacific, and Latin/ America
Products: In Canada, product categories include ready-to-eat cereals, shelf stable
and frozen vegetables, dry dinners, refrigerated and frozen dough products,
dessert and baking mixes, frozen pizza snacks, refrigerated yogurt, and grain and
fruit snacks. In markets outside North America, categories include super-premium
ice cream and frozen desserts, refrigerated yogurt, snacks, shelf stable and frozen
vegetables, refrigerated and frozen dough products, and dry dinners.
45%
40%
Percentage of Total Revenue(%)
In 2013, General Mills generated 17.77 billion dollars in revenue, and they review
their financial results under three operating segments: U.S. Retail; International;
and Bakeries and Foodservice.
35%
30%
25%
20%
15%
10%
5%
0%
Source: UOIG spreads
Figure 4: CPW Logo
Logo
Source: Google Images
Bakeries and Foodservice (6.7%)
Products: ready-to-eat cereals, snacks, refrigerated yogurt, unbaked and fully
baked frozen dough products, baking mixes, and flour. They sell to distributors
and operators in many customer channels including foodservice, convenience
stores, vending, and supermarket bakeries.
Joint Ventures:
Cereal Partners Worldwide: General Mills owns 50 percent equity interest in
CPW, which manufactures and ready-to-eat cereal products in more than 130
countries and republics outside the United States and Canada. In the meantime,
CPW also sell cereal bars in several European countries has manufacture for
private label cereals for UK market.
Häagen-Dazs: General Mills also have a 50 percent equity of HDJ, which
manufactures, distributes, and markets Haagen-Dazs ice cream products. And
UOIG 2
University of Oregon Investment Group
Figure 5: Häagen-Dazs Logo
Logo
May 30, 2014
HDJ’s target consumers are youngers with high income. And they expect
customer perceived higher value from their product through the higher price.
Haagen-Dazs also cooperate with many upscale restaurants to increase the
exposure of their products.
Strategic Positioning
Source: Google Images
Figure 6: Yoplait Logo
Source: Google
Images
Figure 7: Yoki
Logo
Source: Google Images
Figure 8: International Market Growth
12000
Revenue (Million)
10000
8000
6000
4000
2000
0
Source: UOIG spreads
Figure 9: 2013 New Products
Product Position
The consumer foods industry is highly competitive. To compete with store brands
like Great Value, General Mills differentiate themselves by putting lots efforts in
their product innovation, quality and taste. Based on that, they cultivate brand
recognition and loyalty from customers. Their products are highly regulated by
various federal government agencies. By keeping the consistency of the quality
of their product, General Mills become well-known high quality branded
company. In the meantime, competing with quality and taste helped them remain
profit margin.
Acquisitions
In order to achieve expansion of their business, on July 1, 2011, General Mills
completed their acquisition of Yoplait which is the second-largest brand in the
global yogurt market and this acquisition will help them effectively expand their
yogurt market internationally. Yoplait contributes 7.61% of their total revenue in
2013 and the management is confident about the future growth of the Yoplait due
to the incremental advertising inputs. On August 01, 2012 General Mills
completed the Yoki acquisition. And the acquisition helped General Mills
progressively expand their international markets due to the goodwill of Yoki. In
Brazil, they are launching a baking mixes line with Yoki and Betty Croker and
they are thinking of launching sweet snack production line in the future due to the
potential market.
Promotion& Marketing
The food industry’s growth potential is constrained by population growth.
Therefore they enhance their portfolio by adding innovative new products in faster
growing and more profitable categories. Effective advertising is essential for the
growth of the company, so in the meantime they remain the budget of advertising
through TV, they also increased budget to digital media to establish their customer
database for their future promotion and this help them ensure the successful
launching new products. To cultivate customer relationships, they developed
cooking website for their customers to get them share recipes and communicate
cooking experience. Through the membership system, they obtain vast
information about their customer daily behavior.
Research& Development
To overcome the life cycle of their products, they are actively developing new
products and expect these products. And General Mills already have but keep
innovating organic, gluten-free, and Non-GMO Project products to cater to
modern family health concept. Moreover, data that they collected through the
digital media membership system will enable them to target their consumers of
new products and acquire market growth through new products easier. Moreover,
the information with low cost they collected through the system will help them to
predict customers’ preference and this will help General Mills keep the leading
position of the industry.
Source: Google Images
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May 30, 2014
Business Growth Strategies
Geographically
General Mills is actively seeking growth in their international markets such
Canadian, Latin American and Asian markets including China and Japan. The
acquisition of Yoki and Yoplait helps General Mills to gain international markets
and the Goodwill gained through the acquisition makes it easier to expand
internationally. And General Mills is actively looking for opportunity to invest in
new factory overseas to help them achieve market expansion in the future.
Figure 10: International Market
Product/ Service offering
For the consumer goods industry, the growth rate may be tied up by the growth
rate of population, so General Mills is actively innovating new products to cancel
the effect of the life cycle of their products and target more customers. They
innovating different tastes and distribute sampling as marketing method to
launching those new products. When researching new products, they value
people’s health concerns and combine into their products to get organic, glutenfree and Non-GMO Project-verified products.
Source: Google Images
Promotion
They run TV promotions and are actively putting more efforts into digital media
include baking website and smartphone apps to enable them establish database of
their customers and collect information for the future product innovation. And
they obtained 69 million visitors per year through these digital media. Moreover,
the establishment of the digital platform provides customers a way to
communicate and share with friends which help general mills advertise their
products potentially. In the meantime, they combined their products with the
recipes posted online to increase the dependency of customers to their products.
Figure 11: Digital Medias Promotion
Customers Development
One of their target consumer group, U.S. Millennial is a generation that is starting
family, which represents a growing customer base. And General Mills associate
their baking mixes and dough to these groups’ interest, baking from scratch. And
for the customer group of Hispanic families, they have baking products but not
get used to use baking dough to bake bread, so General Mills have advertising
plan focus on this customer group and they will show them how to use Pillsbury
dough to complete their meal and make their life become easier. So they are
expecting a increasing customer base for refrigerated baked goods.
Source: Fiscal 2014 3rd Quarter Results
Industry
Figure 12: Price of Wheat
350
Overview
300
General Mills has various kinds of products, but they concentrate their main
efforts into flour milling, cereal production and yogurt segments
$ per ton
250
200
150
100
50
0
1980
1985
1990
1995
2000
2005
2010
2015
2020
Flour Milling
The major raw material of this industry is grain inputs including wheat, corn,
barley and rice. They process these ingredients into flour, gluten, starch and malt.
Therefore, the flour milling industry’s revenue is highly affected by the price of
grain inputs. Although the world’s price of wheat is expected to increase during
2014 and remain stable next 5 years, the industry revenue will increase because
flour millers typically charge higher prices for consumers.
Source: IBIS world
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Barriers to entry in Flour Milling industry are medium and predictable because it
requires large up-front investment for operations. In addition, this industry has
the economies of scale, which also strengthens the barriers to entry and give
General Mills competitive advantage. Internal competition of Flour Milling
industry is high due to products typically being considered homogenous by
consumers.
Figure 13: Price of Corn
7
US Dollar (S)
6
5
Cereal Production
Wheat, corn, coarse grains and sugar are the primary inputs in cereals. Corn, as a
major input for cereal production, is expected to increase in its price, almost triple
next five years. Converting its portion of cost to consumers may defer consumers
from purchasing cereal products
4
3
2
1
0
1980
1985
1990
1995
2000
2005
2010
2015
2020
Source: IBIS world
Figure 14: Price of Milk
22
20
The most significant barrier to entry is the capital investment required to start a
new company. The recent technological innovation can minimize the expense of
raw materials and environmental discharge. The globalization in this industry is
mild because all the major companies have an extensive presence in overseas
markets. Therefore, finding suitable joint countries is primary due to their
proximity that can reduce transportation cost.
Yogurt
The supply industries includes dairy production, fruit & nut farming, sugar
processing and syrup production. As a key input, raw milk occupies one of the
largest expenses for yogurt production. Unfortunately, the price of milk is
projected to be almost doubled in the next 5 years. Because the producer will
charge a high price for milk, it may reduce the demand for yogurt.
18
$ per hundredweight (cwt)
May 30, 2014
16
14
12
10
1980
1985
1990
1995
2000
2005
2010
2015
Source: IBIS world
Figure 15: US Disposable Income
2020
The Yogurt Production industry experienced a significant decline in 2009 due to
financial recession but its revenue has recovered since the economic growth. From
this experience, it is observed that the consumption of yogurt is considerably
related to the growth of economy.
Globalization of the Yogurt production industry is low due to fast and refrigerated
transportation required. Barriers to entry in this industry are medium and are
steady because it also requires substantial capital investment initially. Other than
that, this industry deals with economies of scale as well. Because of more
alternative products provided, such as breakfast foods and snacks, external
competition arises.
Macro factors
Source: Trading Economics
Figure 16: US Population Growth Rate
1.4
Consumer Disposable Income
The disposable income of consumers is an important driver of the revenue. And
the disposable income in the U.S has an obvious increasing trend. By increasing
the disposable income, people will become more likely to consume brand product
of General Mills with higher quality and better taste.
Population growth rate
The revenue growth of consuming products are tied up with the population growth
rate. But General Mills actively seeking new target customers and promoting their
products through combining their products with their customers’ living habits. In
the meantime, they are launching new products to help expand new products to
target customers. Even though, the population growth rate slower down compare
to recent years, but General Mills still will pursue higher growth rate in the future,
1.2
1
0.8
0.6
0.4
0.2
0
1991
1996
2001
2006
2011
2016
Source: IBIS World
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University of Oregon Investment Group
May 30, 2014
Competition
Figure 17: International Highlights
Due to the variety of the products general mills provided, they also face the
competition from lots of food companies. Kellogg’s for their cereal products,
Campbell for their ready-to-eat soup, and Yoplait faces competition with diary
factory like Nancy’s. To differentiate themselves, General Mills put efforts in
their quality and tastes. They adopted taste-oriented advertising strategy and
distribute sampling to retail store for market expansion. They also use acquisition
to lower the competition in the market and earn more market exposure.
Management and Employee Relations
CEO:Kendall J. Powell
Ken Powell received his bachelor degree from Harvard in 1976, and pursued his
MBA at Stanford in 1979. He helped GM to launch CPW. In 1996, he became
president of Yoplait USA. In 2006, Powell was elected president and chief
operating officer of General Mills. He became CEO in September 2007 and
chairman in May 2008.
CFO: Donal L. Mulligan
Source: Third Quarter Earning Slides
Figure 18: Key Products Growth
Don Mulligan received his bachelor degree of BA from Duke University in 1983
and graduated from University of Michigan Business School for the MBA degree.
He was named as CFO in August 2007. Mulligan has overall company
responsibility for worldwide finance, mergers & acquisitions, strategy, investor
relations, external reporting, internal audit, tax, treasury, global business services,
and information systems. Mulligan joined General Mills in September 1998 as
vice president of finance for the International division. He became vice president
and treasurer in 2006 and be elected to be executive VP short after.
Senior VP; President, Baking Products: Ann W.H. Simonds
Ann Simonds graduated from Harvard MBA in 1990. She is responsible for the
profitable growth of the General Mills baking products portfolio and
Pillsbury refrigerated dough. Previously, Simonds was President of the General
Mills Pillsbury USA division. Simonds got lots leadership roles of brands in her
career such as Betty Crocker, Cheerios, Wheaties and Yoplait as well as the role
of general manager of the bakery and convenience store businesses. Those
experience make her become familiar with the industry and have sight of the trend
of the future for the industry.
Employee Relations
Source: Third Quarter Earning Slides
In General Mills, they trained their employee and expected them to behave
ethically. They have constructed a question welcomed environment to encourage
their employee speak up when they perceived any problems which related to their
commitment of ethics. And for problem like this, they can also talk to manager or
call Ethics Line to report.
Management Guidance
Management provides guidance that they will make significant incremental
investment in the U.S. yogurt business and they will also put more efforts in
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May 30, 2014
launching more new products to help the company expand market and keep their
growth rate.
They are also devoting efforts to establish their database through the membership
system of digital media, and this will effectively help the collect information and
target their future market.
Their promotion strategy also includes cultivate baking habits by using their
products through share recipes with their baking products through digital media
they established. And their advertisement to Hispanic families will focus on teach
them how to use their frozen dough to make dinner.
They adopt taste-oriented advertising strategy and using samples to help
customer get to know their products and expand their markets. They also actively
innovate new products include organic, natural, gluten-free and Non-GMO
Project-verified dough products to cater to different need of their customers.
Figure 19: Dividend Yield
1.4
The management announced the dividend increase on May 1 for 8%, and this
increase the dividends per share for the full fiscal year by 17%. They purchased
29 million share s and expect the diluted share become 3% below last year’s level.
1.2
US Dollar(S)
1
0.8
Portfolio Strategy
0.6
0.4
Tall Fir
0.2
We currently hold 450 shares of GIS in our Tall Fir Portfolio. We purchased GIS
on Oct 20, 2008 in the price of $27.62 and it weight 2.46% in the portfolio. The
cost of purchase was $14,674.25, and right now the price is $53.74 with total value
of $24, 183. It accumulates to a 64% rate of return.
0
2009
2010
2011
2012
2013
Source: NASDAQ
Recent News
“General Mills Makes Joint Commitment with Walmart To Protect
Environment and Strengthen Agricultural Communities”- Yahoo Finance
April 29, 2014
“General Mills CEO Ken Powell joined Wal-Mart Stores, Inc.CEO officer Doug
McMillon to announce a commitment to accelerate innovation in sustainable
agriculture and reduce greenhouse gas (GHG) emissions.”
Figure 20: One Year Stock Price
One-Year Stock Chart
14000000
$60.00
12000000
$50.00
10000000
$40.00
8000000
$30.00
6000000
$20.00
4000000
$10.00
$0.00
Dec-12
2000000
0
Feb-13
Apr-13
Volume
Jun-13
Aug-13
Adj Close
Oct-13
Dec-13
50-Day Avg
Source: UOIG Spreads
Feb-14
Apr-14
“General Mills receives high marks on DiversityInc Top 50 Companies for
Diversity List”-Yahoo Finance April 23, 2014
“For the 10th year, DiversityInc recognized General Mills’ corporate diversity
and inclusion programs and practices on the Top 50 Companies for Diversity
list. With more than 1,000 participating companies, the 2014 Top 50 list is the
leading assessment of diversity management in corporate America and
globally.”
“General Mills looking to expand internationally”-MPR News Feb 18, 2014
200-Day Avg
Due to the high growth international segment contributed, the management
looking forward to keep the increasing trend and they are looking for
opportunities of oversea acquisition in order to achieve their expanding goal.
Catalysts
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Upside

Digital Media promotion established customer database makes it
possible to predict customer’s taste. The establishment of database
potentially decrease the cost of promotion in the future and increase the
success rate of launching new products

The significant incremental promotion investment in the yogurt business
will start helping General Mills seize more market share in the future

General Mills is actively developing new products to help them seize
more market share and their newly launched products received a very
impressive outcome for the quarter performance
Figure 21: Comparable Analysis Valuation
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
$45.92
0.00%
$49.83
0.00%
$56.02
25.00%
$53.77
35.00%
$51.94
0.00%
$58.93
40.00%
$56.40
53.02
6.37%
Source: UOIG Spreads
Downside

The food categories are very competitive, so they are unable to increase
their profit margin through increasing price

Under the consolidating retail environment, their profit margin will also
be harmed

The incremental of the cost of dairy decrease the profitability of Yoplait
Comparable Analysis
I choose the comparable analysis due to metrics like beta, market capitalization
and industry. And companies chosen were Kellogg’s, Mondelez International,
Inc., Campbell’s Soup and War-mart Stores Inc.
Figure 22: Kellogg’s Logo
Kelogg’s-35%
Source: Google Images
“Kelogg’s is an American multinational food manufacturing company
headquartered in Battle Creek, Michigan, United States. Kellogg's produces
cereal and convenience foods, including cookies, crackers, toaster pastries, cereal
bars, fruit-flavored snacks, frozen waffles, and vegetarian foods. The company's
brands include Froot Loops, Corn Flakes, Frosted Flakes, Rice Krispies, Special
K, Cocoa Krispies, Keebler, Pringles, Pop-Tarts, Kashi, Cheez-It, Eggo, NutriGrain, Morningstar Farms, and many more. Kellogg's products are manufactured
in 18 countries and marketed in over 180 countries. Kellogg’s largest factory is
at Trafford Park in Manchester.”- Wikipedia
I choose this company due to the similar market capitalization and similar product
categories of cereals and snacks. Their international operation mode is very
similar to General Mills, which is why I gave the most weight to this company.
And the growth rate and beta is quite similar to General Mills which makes it a
more accurate to use to value General Mills.
Figure 23: Mondelez’s Logo
Mondelez International, Inc-30%
Mondelez International, Inc. is an American multinational confectionery, food
and beverage conglomerate, employing around 100,000 people around the world.
It comprises the global snack and food brands of the former Kraft Foods.
Mondelēz International manages well known snack brands around the globe,
including in cookies and crackers, chocolate, and gum and candy
Source: Google Images
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May 30, 2014
The company is headquartered in Deerfield, Illinois, a Chicago suburb, and is a
manufacturer of chocolate, biscuits, gum, confectionery, coffee, and powdered
beverages.-Wikipedia
Figure 24: Campbell’s Logo
The market capitalization and beta of Mondelez International, Inc. is higher than
General Mills, but the industries they are performing are similar with each other,
and this is the reason why I gave 30% weight to this company. Their exposure to
similar markets and risks, make them become similar in the future growth trend.
Campbell’s Soup-25%
“Campbell Soup Company, together with its subsidiaries, manufactures and
markets branded convenience food products. The company offers condensed and
ready-to-serve soups, broth and stocks, pasta sauces, Mexican sauces, snacks,
cookies, crackers, bakery and frozen products, biscuits, juices and beverages,
refrigerated beverages and refrigerated salad dressings, specialty entrées, and
other prepared foods, as well as canned gravies, poultry, pasta, and beans; and
fresh carrots, juice concentrate, and fiber in the United States, Canada, Australia,
and the Asia Pacific. The company sells its products directly and its retail stores,
as well as through third-party broker and distributor partners, retail food chains,
mass discounters, mass merchandisers, club stores, convenience stores, drug
stores, dollar stores, and other retail, commercial, and non-commercial
establishments.”- Yahoo! Finance
Source: Google Image
Figure 25: Wal-Mart Logo
Source: Google Image
I gave Campbell’s 25% weighting because of the similarities of the beta and
international growth strategy. But these two companies offer different degree
differ from each other in product lines.
Figure 26: Revenue growth
Wal-Mart Stores Inc-10%
“Wal-Mart Stores Inc. operates retail stores in various formats worldwide. The
company’s stores offer meat, produce, deli, bakery, dairy, frozen foods, alcoholic
and nonalcoholic beverages, and floral and dry grocery; health and beauty aids,
baby products, household chemicals, paper goods, and pet supplies; electronics,
toys, cameras and supplies, photo processing services, cellular phones, cellular
service plan contracts and prepaid service, movies, music, video games, and books;
and pharmacy, optical services, and over-the-counter drugs. As of April 29, 2014,
it operated 11,302 stores under 71 banners in 27 countries.”- Yahoo Finance
30000
$(Millions)
25000
20000
15000
10000
5000
0
I only gave 10% weighting to Walmart is due to the vast difference in market
capitalization. However, General Mills products distributed through Wal-Mart
Store.
Source: UOIG Spreads
Discounted Cash Flow Analysis
Revenue
The revenue is broken down to different segments, and I forecasted the future
growth of each segments’ different division to get the sum of the total revenue.
The growth of these divisions are based on their historical performance and also
the managements’ expectation.
2023E
2022E
2021E
2020E
2019E
2018E
2017E
2016E
2015E
2014E
2013A
2012A
2011A
2010A
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2009A
S(Millions)
Figure 27: Cost of Goods Sold
Cost of Goods Sold
COGS is projected through the percentage of the revenue method, due to the
variety of the products General Mills provided, and also because they have
derivatives for their raw materials, so I project the percentage to be stable.
Source: UOIG Spreads
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SG&A
Selling General and Administrative Expense include their promotion budget, so
this is forecasted by using the percentage of revenue and I would expect slightly
increase of this section because the management will increase the promotion
budget for their Yoplait and the incremental of the promotion will lead the revenue
increase, so it is reasonable to use percentage of revenue to project SG&A.
Net Working Capital
The currents asset includes Account Receivable, Inventory, Prepaid Expense and
other and Deferred Income Tax, and their current liabilities includes Accounts
Payable, Note Payable, Current Portion of Long Term Debt, and Other Liabilities.
I projected the Net Working Capital by breaking down to those categories and
projected through the management’s expectation by using the percentage of
revenues.
Figure 28: Weighted Average Beta
Beta
SE
Weighting
5-yr dailry
0.41
0.02
20.00%
5-yr weekly
0.27
0.05
0.00%
5-yr monthly
0.15
0.12
0.00%
3-yr daily
0.44
0.03
55.00%
3-yr weekly
0.35
0.06
5.00%
3-yr monthly
0.25
0.17
0.00%
1-yr daily
0.74
0.06
20.00%
General Mills, Inc. Beta
May 30, 2014
0.49
Depreciation & Amortization
I projected the depreciation due to the percentage of the PP&E.
Acquisitions
Acquisitions only occurred in recent three years, so I have a conservative forecast
for about 3% of the revenue each year.
Cost of Debt
The cost of debt is concluded from weighted average method of their current debt.
Beta
I calculated beta through weighted average method and picked 1-year, 3-year and
5-year daily beta due to the smaller standard deviation and I believe this will lower
the influence of specific event and give me the general relation between GIS and
the market.
Source: UOIG Spreads
Tax Rate
Tax Rate is projected by the percentage of the revenue, and because General Mills
is a well-established leading consuming food company, so the historical data is
useful for making future prediction. So based on that, 34% is a fair percentage to
project.
Figure 29: Final Implied Price
Method
Implied Price Weighting
DCF
Comparable Analysis
$
$
58.69
56.40
50%
50%
Price Target
$
Current Price
$
Undervalued
Source: UOIG Spreads
57.55
53.81
6.94%
Recommendation
I recommend a hold for the Tall Firs Portfolio. The company’s performance is in
a stable growing stage and as a food production company, it will not be effected
too much by the macro economy factor. Additionally, they are fairly undervalued
which makes them a valuable equity. Moreover, General Mills pays consistent
dividends over years which increases the portfolio’s diversified risk.
UOIG 10
University of Oregon Investment Group
May 30, 2014
Appendix 1 – Comparable Analysis
Comparables Analysis
GIS
General Mills,
Inc.
($ in millions)
Stock Characteristics
Current Price
Beta
Max
$77.96
0.66
Min
$37.51
0.38
Size
Short-Term Debt
Long-Term Debt
Cash and Cash Equivalent
Non-Controlling Interest
Preferred Stock
Diluted Basic Shares
Market Capitalization
Enterprise Value
7,670.0
41,771.0
6,677.0
1,491.0
0.0
3,227.0
251,576.9
295,831.9
1,028.0
2,544.0
273.0
9.0
0.0
313.7
14,240.2
18,369.2
1,772.5
10,406.0
1,498.5
110.5
0.0
1,045.1
43,816.4
54,196.4
Growth Expectations
% Revenue Growth 2014E
% Revenue Growth 2015E
% EBITDA Growth 2014E
% EBITDA Growth 2015E
% EPS Growth 2014E
% EPS Growth 2015E
4.41%
3.84%
6.70%
8.50%
14.20%
14.50%
1.40%
1.00%
(2.10%)
(6.55%)
(4.00%)
(0.02%)
Profitability Margins
Gross Margin
EBIT Margin
EBITDA Margin
Net Margin
40.13%
15.95%
19.30%
11.14%
Credit Metrics
Interest Expense
Debt/EV
Leverage Ratio
Interest Coverage Ratio
Operating Results
Revenue
Gross Profit
EBIT
EBITDA
Net Income
Capital Expenditures
Multiples
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Median
Weight Avg.
$55.46
$53.32
0.54
0.56
K
Kellogg
Company
Mondelez
MDLZ
International,
Inc.
CPB
Campbell Co
WMT
Wal-Mart Stores
Inc.
$53.02
0.49
35.00%
$65.43
0.55
30.00%
$37.51
0.66
25.00%
$45.49
0.52
10.00%
$77.96
0.38
2,094.9
11,373.2
1,645.7
220.8
0.0
1,046.6
56,189.7
68,232.8
2,043.0
5,926.0
847.1
1,457.7
0.0
643.8
33,322.7
41,902.3
1,028.0
6,330.0
273.0
62.0
0.0
368.2
23,641.3
30,788.3
1,636.0
14,482.0
2,664.0
159.0
0.0
1,722.0
63,991.5
77,604.5
1,909.0
2,544.0
333.0
9.0
0.0
313.7
14,240.2
18,369.2
7,670.0
41,771.0
6,677.0
1,491.0
0.0
3,227.0
251,576.9
295,831.9
2.20%
2.25%
2.00%
3.60%
3.80%
7.50%
2.04%
2.08%
2.44%
4.65%
5.57%
7.88%
4.41%
3.84%
4.12%
(6.55%)
0.01%
(0.02%)
1.80%
1.90%
2.20%
3.70%
6.20%
5.80%
1.40%
2.60%
6.70%
8.50%
14.20%
14.50%
2.90%
1.00%
(2.10%)
1.80%
(4.00%)
2.30%
2.60%
3.80%
1.80%
3.50%
1.40%
9.20%
24.23%
5.76%
7.65%
3.42%
36.93%
13.81%
17.13%
8.80%
36.81%
13.40%
16.74%
8.50%
40.00%
15.95%
19.30%
11.14%
40.13%
14.86%
18.29%
9.53%
37.50%
12.75%
15.97%
8.08%
36.36%
15.18%
19.14%
9.60%
24.23%
5.76%
7.65%
3.42%
$2,643.0
0.24
2.82
14.14
$131.0
0.17
1.32
3.62
907.00
0.22
2.73
11.96
853.00
0.22
2.61
9.65
316.90
0.19
2.23
11.30
235.00
0.24
2.67
11.72
1,579.00
0.21
2.82
3.62
131.00
0.24
2.79
12.19
2,643.00
0.17
1.32
14.14
488,440.00
118,327.00
28,146.00
37,382.00
16,687.00
(346.00)
8,344.00
3,034.00
1,267.00
1,597.00
801.00
(13,120.00)
25,421.50
9,730.50
3,401.00
4,234.00
2,163.00
(1,238.50)
66,936.20
18,731.80
5,283.90
6,815.60
3,238.55
(2,175.85)
18,557.23
7,422.89
2,959.99
3,581.55
2,066.79
(835.08)
15,066.00
6,046.00
2,239.00
2,755.00
1,436.00
(685.00)
35,777.00
13,415.00
4,563.00
5,713.00
2,890.00
(1,792.00)
8,344.00
3,034.00
1,267.00
1,597.00
801.00
(346.00)
488,440.00
118,327.00
28,146.00
37,382.00
16,687.00
(13,120.00)
2.26x
6.05x
17.01x
13.58x
10.34x
22.14x
0.61x
2.50x
10.51x
7.91x
5.86x
15.08x
2.11x
5.44x
14.12x
11.34x
9.20x
17.12x
1.98x
5.28x
14.59x
11.65x
9.18x
18.36x
2.26x
5.65x
14.16x
11.70x
9.49x
16.12x
2.04x
5.09x
13.75x
11.18x
8.95x
16.46x
2.17x
5.78x
17.01x
13.58x
10.34x
22.14x
2.20x
6.05x
14.50x
11.50x
9.45x
17.78x
0.61x
2.50x
10.51x
7.91x
5.86x
15.08x
Multiple
EV/Revenue
EV/Gross Profit
EV/EBIT
EV/EBITDA
EV/(EBITDA-Capex)
Market Cap/Net Income = P/E
Price Target
Current Price
Undervalued
Implied Price
Weight
$45.92
0.00%
$49.83
0.00%
$56.02
25.00%
$53.77
35.00%
$51.94
0.00%
$58.93
40.00%
$56.40
53.02
6.37%
UOIG 11
University of Oregon Investment Group
May 30, 2014
Appendix 2 – Discounted Cash Flows Valuation
Discounted Cash Flow Analysis
($ in millions)
2009A
2010A
2011A
2012A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Total Revenue
$14,652.8
$14,535.6
$14,880.2
$16,657.9
$17,774.1
$18,557.2
$19,319.9
$20,177.4
$21,006.6
$21,803.6
$22,637.6
$23,477.8
$24,306.6
$25,138.1
$25,994.8
% YoY Growth
7.33%
(.80%)
2.37%
11.95%
6.70%
4.41%
4.11%
4.44%
4.11%
3.79%
3.83%
3.71%
3.53%
3.42%
3.41%
Cost of Goods Sold
8,927.3
8,378.3
8,454.1
10,071.7
10,762.2
11,134.3
11,785.1
12,219.4
12,767.8
13,300.2
13,659.5
14,262.8
14,904.8
15,188.4
15,843.8
% Revenue
60.93%
57.64%
56.81%
60.46%
60.55%
60.00%
61.00%
60.56%
60.78%
61.00%
60.34%
60.75%
61.32%
60.42%
60.95%
Gross Profit
$5,725.5
$6,157.3
$6,426.1
$6,586.2
$7,011.9
$7,422.9
$7,534.7
$7,958.0
$8,238.8
$8,503.4
$8,978.1
$9,215.1
$9,401.8
$9,949.7
$10,151.0
Gross Margin
39.07%
42.36%
43.19%
39.54%
39.45%
40.00%
39.00%
39.44%
39.22%
39.00%
39.66%
39.25%
38.68%
39.58%
39.05%
Selling General and Administrative Expense
2,893.2
3,162.7
3,192.0
3,380.7
3,552.3
3,804.2
4,130.6
4,338.1
4,535.3
4,807.7
4,993.9
5,240.3
5,483.6
5,691.3
5,939.8
19.75%
21.76%
21.45%
20.29%
19.99%
20.50%
21.38%
21.50%
21.59%
22.05%
22.06%
22.32%
22.56%
22.64%
22.85%
% Revenue
Depreciation and Amortization
% PP&E
Reconstructuring, impairment, and Other
% Revenue
Earnings Before Interest & Taxes
% Revenue
Interest (net)
% Revenue
Earnings Before Taxes and From Joint Venture
% Revenue
Less Income Taxes (Benefits)
Tax Rate
After-tax earnings from joint ventures
2013A
453.6
457.1
472.6
541.5
588.0
621.6
737.1
848.8
951.2
1,041.1
1,145.2
1,230.2
1,316.1
1,406.0
1,487.7
14.10%
13.41%
12.74%
13.76%
14.19%
15.00%
15.00%
15.00%
15.00%
15.00%
15.00%
15.00%
15.00%
15.00%
15.00%
41.6
31.4
-13.0
101.6
19.8
37.1
48.3
40.4
42.0
43.6
45.3
47.0
48.6
50.3
52.0
.28%
.22%
(.09%)
.61%
.11%
0.20%
0.25%
0.20%
0.20%
0.20%
0.20%
0.20%
0.20%
0.20%
0.20%
$2,337.1
$2,506.1
$2,774.5
$2,562.4
$2,851.8
$2,960.0
$2,618.8
$2,730.7
$2,710.2
$2,611.0
$2,793.7
$2,697.7
$2,553.5
$2,802.1
$2,671.5
15.95%
17.24%
18.65%
15.38%
16.04%
15.95%
13.55%
13.53%
12.90%
11.98%
12.34%
11.49%
10.51%
11.15%
10.28%
382.8
401.6
346.3
351.9
316.9
0.0
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.61%
2.76%
2.33%
2.11%
1.78%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
1,954.3
2,104.5
2,428.2
2,210.5
2,534.9
2,960.0
2,618.8
2,730.7
2,710.2
2,611.0
2,793.7
2,697.7
2,553.5
2,802.1
2,671.5
13.34%
14.48%
16.32%
13.27%
14.26%
15.95%
13.55%
13.53%
12.90%
11.98%
12.34%
11.49%
10.51%
11.15%
10.28%
720.4
771.2
721.1
709.6
741.2
1006.4
877.3
925.7
916.1
879.9
938.7
917.2
868.2
952.7
908.3
36.86%
36.65%
29.70%
32.10%
29.24%
34.00%
33.50%
33.90%
33.80%
33.70%
33.60%
34.00%
34.00%
34.00%
34.00%
236.55
91.90
101.70
96.40
88.20
98.80
113.20
125.58
143.26
157.55
167.89
178.84
192.52
206.61
223.73
% Revenue
0.63%
.70%
.65%
.53%
.56%
.61%
.65%
.71%
.75%
.77%
.79%
.82%
.85%
.89%
.91%
Net Income
$1,325.8
$1,435.0
$1,803.5
$1,589.1
$1,892.5
$2,066.8
$1,867.1
$1,948.2
$1,951.7
$1,899.0
$2,033.9
$1,973.0
$1,891.9
$2,073.1
$1,999.7
Net Margin
9.05%
9.87%
12.12%
9.54%
10.65%
11.14%
9.66%
9.66%
9.29%
8.71%
8.98%
8.40%
7.78%
8.25%
7.69%
453.6
457.1
472.6
541.5
588.0
621.6
737.1
848.8
951.2
1,041.1
1,145.2
1,230.2
1,316.1
1,406.0
1,487.7
Add Back: Depreciation and Amortization
Add Back: Interest Expense*(1-Tax Rate)
241.7
254.4
243.5
238.9
224.2
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
$2,021.1
$2,146.5
$2,519.6
$2,369.5
$2,704.7
$2,688.3
$2,604.2
$2,797.0
$2,902.9
$2,940.1
$3,179.1
$3,203.1
$3,208.0
$3,479.1
$3,487.4
% Revenue
13.79%
14.77%
16.93%
14.22%
15.22%
14.49%
13.48%
13.86%
13.82%
13.48%
14.04%
13.64%
13.20%
13.84%
13.42%
Current Assets
2,785.1
2,806.8
3,282.4
3,288.5
3,489.2
3,741.7
4,004.0
4,235.3
4,399.7
4,567.1
4,718.7
4,826.8
4,985.5
5,185.0
5,342.4
19.01%
19.31%
22.06%
19.74%
19.63%
20.16%
20.72%
20.99%
20.94%
20.95%
20.84%
20.56%
20.51%
20.63%
20.55%
Operating Cash Flow
% Revenue
Current Liabilities
3,271.9
3,769.1
3,659.2
3,843.2
5,293.9
4,927.8
5,258.1
5,420.2
5,680.7
5,954.4
6,202.4
6,358.2
6,732.5
6,821.3
6,938.7
% Revenue
22.33%
25.93%
24.59%
23.07%
29.78%
26.55%
27.22%
26.86%
27.04%
27.31%
27.40%
27.08%
27.70%
27.14%
26.69%
Net Working Capital
($486.8)
($962.3)
($376.8)
($554.7)
($1,804.7)
($1,186.1)
($1,254.2)
($1,185.0)
($1,281.0)
($1,387.3)
($1,483.7)
($1,531.4)
($1,747.0)
($1,636.3)
($1,596.3)
% Revenue
(3.32%)
(6.62%)
(2.53%)
(3.33%)
(10.15%)
(6.39%)
(6.49%)
(5.87%)
(6.10%)
(6.36%)
(6.55%)
(6.52%)
(7.19%)
(6.51%)
(6.14%)
(486.8)
(475.5)
585.5
(177.9)
(1,250.0)
618.6
(68.0)
69.2
(96.0)
(106.3)
(96.3)
(47.7)
(215.5)
110.7
40.0
562.6
649.9
648.8
675.9
613.9
835.1
902.2
926.1
920.1
1081.5
1032.3
1098.8
1186.2
1196.6
1193.2
3.84%
4.47%
4.36%
4.06%
3.45%
4.50%
4.67%
4.59%
4.38%
4.96%
4.56%
4.68%
4.88%
4.76%
4.59%
0.0
0.0
123.3
1050.1
898.0
556.7
579.6
605.3
630.2
654.1
679.1
704.3
729.2
754.1
779.8
0.00%
0.00%
.83%
6.30%
5.05%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
3.00%
$1,945.3
$1,972.1
$1,162.0
$821.4
$2,442.8
$678.0
$1,190.3
$1,196.4
$1,448.7
$1,310.8
$1,564.0
$1,447.8
$1,508.2
$1,417.7
$1,474.5
$669.8
$1,120.5
$1,073.1
$1,238.1
$1,067.4
$1,213.5
$1,070.3
$1,062.4
$951.5
$942.9
Change in Working Capital
Capital Expenditures
% Revenue
Acquisitions
% Revenue
Unlevered Free Cash Flow
Discounted Free Cash Flow
EBITDA
EBITDA Margin
EBITDA Growth
2790.7
2963.2
3247.1
3103.9
3439.8
3581.5
3355.9
3579.5
3661.4
3652.1
3938.9
3927.8
3869.6
4208.1
4159.2
19.05%
20.39%
21.82%
18.63%
19.35%
19.30%
17.37%
17.74%
17.43%
16.75%
17.40%
16.73%
15.92%
16.74%
16.00%
6.18%
9.58%
(4.41%)
10.82%
4.12%
(6.30%)
6.66%
2.29%
(.26%)
7.85%
(.28%)
(1.48%)
8.75%
(1.16%)
UOIG 12
University of Oregon Investment Group
May 30, 2014
Appendix 3 – Revenue Model
U.S. Retail Revenue Model
($ in millions)
Big G
2009A
$ 2,293.6 $
2010A
2,251.3 $
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2,293.6 $
2,387.9 $ 2,340.8 $
2,387.6 $
2,438.2 $
2,503.1 $
2,572.9 $
2,645.5 $ 2,739.7 $
2,836.9 $
2,940.8 $
3,051.0 $
2023E
3,162.4
% Growth
13.10%
(1.84%)
1.88%
4.11%
(1.97%)
2.00%
2.12%
2.66%
2.79%
2.82%
3.56%
3.55%
3.66%
3.75%
3.65%
% of Total Revenue
15.65%
15.49%
15.41%
14.33%
13.17%
12.87%
12.62%
12.41%
12.25%
12.13%
12.10%
12.08%
12.10%
12.14%
12.17%
Baking Product
1,809.0
1,814.6
1,736.0
1,792.8
1,845.7
1,865.1
1,883.9
1,903.9
1,925.0
1,947.6
1,971.5
1,996.2
2,020.7
2,045.0
2,068.5
% Growth
16.49%
0.31%
(4.33%)
3.27%
2.95%
1.05%
1.01%
1.06%
1.11%
1.17%
1.23%
1.25%
1.23%
1.20%
1.15%
% of Total Revenue
7.96%
12.35%
12.48%
11.67%
10.76%
10.38%
10.05%
9.75%
9.44%
9.16%
8.93%
8.71%
8.50%
8.31%
8.13%
Snacks
1,237.7
1,315.8
1,378.3
1,578.6
1,717.2
1,898.1
2,031.0
2,164.2
2,305.8
2,441.1
2,552.4
2,674.2
2,798.5
2,898.2
3,013.5
% Growth
3.35%
6.31%
4.75%
14.53%
8.78%
10.54%
7.00%
6.56%
6.54%
5.87%
4.56%
4.77%
4.65%
3.56%
3.98%
% of Total Revenue
8.45%
9.05%
9.26%
9.48%
9.66%
10.23%
10.51%
10.73%
10.98%
11.20%
11.28%
11.39%
11.51%
11.53%
11.59%
Frozen Food
1,588.4
1,593.8
1,596.8
1,601.0
1,549.6
1,550.4
1,551.3
1,553.6
1,558.6
1,560.8
1,569.5
1,575.0
1,581.2
1,584.0
1,589.9
% Growth
2.31%
0.34%
0.19%
0.26%
(3.21%)
0.05%
0.06%
0.15%
0.32%
0.14%
0.56%
0.35%
0.39%
0.18%
0.37%
10.84%
10.96%
10.73%
9.61%
8.72%
8.35%
8.03%
7.70%
7.42%
7.16%
6.93%
6.71%
6.51%
6.30%
6.12%
1,436.7
1,441.0
1,431.5
1,452.8
1,481.0
1,421.8
1,422.5
1,423.8
1,425.9
1,428.9
1,431.9
1,435.1
1,438.5
1,441.7
1,444.8
(0.81%)
0.30%
(0.66%)
1.49%
1.94%
(4.00%)
0.05%
0.09%
0.15%
0.21%
0.21%
0.22%
0.24%
0.22%
0.22%
% of Total Revenue
9.81%
9.91%
9.62%
8.72%
8.33%
7.66%
7.36%
7.06%
6.79%
6.55%
6.33%
6.11%
5.92%
5.74%
5.56%
Yoplait
1,468.9
1,491.2
1,499.0
1,418.5
1,352.6
1,291.7
1,265.9
1,303.9
1,360.7
1,422.8
1,489.1
1,558.6
1,634.8
1,716.4
1,802.2
% Growth
13.60%
1.52%
0.52%
(5.37%)
(4.65%)
(4.50%)
(2.00%)
3.00%
4.36%
4.56%
4.66%
4.67%
4.89%
4.99%
5.00%
% of Total Revenue
10.02%
10.26%
10.07%
8.52%
7.61%
6.96%
6.55%
6.46%
6.48%
6.53%
6.58%
6.64%
6.73%
6.83%
6.93%
198.9
202.1
228.7
248.6
328.0
354.2
382.4
411.7
442.4
471.3
497.5
519.1
543.2
566.8
584.9
32.16%
1.61%
13.16%
8.70%
31.94%
8.00%
7.95%
7.66%
7.45%
6.54%
5.55%
4.35%
4.65%
4.33%
3.21%
% of Total Revenue
Meals
% Growth
Small Planet Foods and other
% Growth
% of Total Revenue
1.36%
1.39%
1.54%
1.49%
1.85%
1.91%
1.98%
2.04%
2.11%
2.16%
2.20%
2.21%
2.23%
2.25%
2.25%
Total US. Retail Revenue
10,033.2
10,109.8
10,163.9
10,480.2
10,614.9
10,768.9
10,975.2
11,264.2
11,591.3
11,917.9
12,251.6
12,595.0
12,957.7
13,303.0
13,666.2
% Growth
10.60%
0.76%
0.54%
3.11%
1.29%
1.45%
1.92%
2.63%
2.90%
2.82%
2.80%
2.80%
2.88%
2.66%
2.73%
% of Total Revenue
68.47%
69.55%
68.30%
62.91%
59.72%
58.03%
56.81%
55.83%
55.18%
54.66%
54.12%
53.65%
53.31%
52.92%
52.57%
International
($ in millions)
Europe
% Growth
% of Total Revenue
Canada
% Growth
% of Total Revenue
Asia/ Pacific
2009A
2010A
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
849.1
859.6
1,079.2
1,988.5
2,214.6
2,347.5
2,501.5
2,659.6
2,775.3
2,898.5
3,028.9
3,166.7
3,293.1
3,420.2
3,553.2
(5.50%)
1.24%
25.55%
84.26%
11.37%
6.00%
6.56%
6.32%
4.35%
4.44%
4.50%
4.55%
3.99%
3.86%
3.89%
5.79%
5.91%
7.25%
11.94%
12.46%
12.65%
12.95%
13.18%
13.21%
13.29%
13.38%
13.49%
13.55%
13.61%
13.67%
645.9
709.9
769.9
990.9
1,210.5
1,331.6
1,478.0
1,611.0
1,752.2
1,902.2
2,066.7
2,218.6
2,357.3
2,511.7
2,643.3
(7.33%)
4.41%
9.91%
4.88%
8.45%
5.17%
28.71%
5.95%
22.16%
6.81%
10.00%
7.18%
11.00%
7.96%
9.00%
8.68%
8.76%
9.44%
8.56%
10.25%
8.65%
11.14%
7.35%
11.96%
6.25%
12.70%
6.55%
13.53%
5.24%
14.24%
634.5
720.0
663.7
810.1
899.1
1,007.8
1,138.8
1,275.4
1,390.2
1,478.5
1,570.3
1,663.6
1,757.7
1,854.2
1,960.8
% Growth
9.89%
13.48%
(7.82%)
22.06%
10.99%
12.08%
13.00%
12.00%
9.00%
6.35%
6.21%
5.94%
5.66%
5.49%
5.75%
% of Total Revenue
4.33%
4.95%
4.46%
4.86%
5.06%
5.43%
5.89%
6.32%
6.62%
6.78%
6.94%
7.09%
7.23%
7.38%
7.54%
442.3
395.4
362.7
404.8
876.0
1,138.8
1,252.7
1,384.2
1,507.1
1,606.3
1,708.3
1,801.9
1,899.9
2,001.6
2,112.7
14.62%
(10.60%)
(8.27%)
11.61%
116.40%
30.00%
10.00%
10.50%
8.88%
6.58%
6.35%
5.48%
5.44%
5.35%
5.55%
% of Total Revenue
3.02%
2.72%
2.44%
2.43%
4.93%
6.14%
6.48%
6.86%
7.17%
7.37%
7.55%
7.67%
7.82%
7.96%
8.13%
Total International Revenue
2,571.8
2,684.9
2,875.5
4,194.3
5,200.2
5,825.6
6,370.9
6,930.2
7,424.8
7,885.4
8,374.2
8,850.8
9,308.0
9,787.7
10,270.0
Latin/ America
% Growth
% Growth
% of Total Revenue
0.51%
4.40%
7.10%
45.86%
23.98%
12.03%
9.36%
8.78%
7.14%
6.52%
5.35%
5.32%
5.24%
5.10%
5.08%
17.55%
18.47%
19.32%
25.18%
29.26%
31.39%
32.98%
34.35%
35.34%
36.17%
36.99%
37.70%
38.29%
38.94%
39.51%
Bakeries and Food Service
($ in millions)
2009A
2010A
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Total Bakeries and Food Service
2,047.8
1,740.9
1,840.8
1,983.4
1,959.0
1,962.7
1,973.7
1,983.0
1,990.5
2,000.3
2,011.9
2,032.0
2,040.9
2,047.5
2,058.5
% Growth
1.31%
(14.99%)
5.74%
7.75%
(1.23%)
0.19%
0.56%
0.47%
0.38%
0.49%
0.58%
1.00%
0.44%
0.32%
0.54%
% of Total Revenue
5.69%
5.09%
4.67%
5.21%
11.27%
10.58%
10.64%
10.69%
10.73%
10.78%
10.84%
10.95%
11.00%
11.03%
11.09%
Total General Mills Revenue
($ in millions)
2009A
2010A
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
Total Revenue
14652.8
14535.6
14880.2
16657.9
17774.1
18557.2
19319.9
20177.4
21006.6
21803.6
22637.6
23477.8
24306.6
25138.1
25994.8
% Growth
7.33%
(0.80%)
2.37%
11.95%
6.70%
4.41%
4.11%
4.44%
4.11%
3.79%
3.83%
3.71%
3.53%
3.42%
3.41%
UOIG 13
University of Oregon Investment Group
May 30, 2014
jptwn
Appendix 4 – Working Capital Model
Days in Year
365
365
365
366
365
365
365
365
365
365
365
365
365
365
365
Working Capital Model
($ in millions)
Total Revenue
Current Assets
Accounts Receivable
Days Sales Outstanding A/R
% of Revenue
Inventory
Days Inventory Outstanding
% of Revenue
Prepaid Expenses and other
Days Prepaid Expense Outstanding
% of Revenue
Deferred Income Taxes
% of Revenue
Total Current Assets
% of Revenue
Long Term Assets
Net PP&E Beginning
Capital Expenditures
Acquisitions
Depreciation and Amortization
Net PP&E Ending
Total Current Assets & Net PP&E
% of Revenue
Current Liabilities
Accounts Payable
Days Payable Outstanding
% of Revenue
Note Payable
% of Revenue
Current Portion of Long Term Debt
% of Revenue
Other Liabilities
% of Revenue
Total Current Liabilities
% of Revenue
2009A
2010A
2011A
2012A
2013A
2014E
2015E
2016E
2017E
2018E
2019E
2020E
2021E
2022E
2023E
14652.8
14535.6
14880.2
16657.9
17774.1
18557.2
19319.9
20177.4
21006.6
21803.6
22637.6
23477.8
24306.6
25138.1
25994.8
953.4
23.7
6.51%
1346.8
55.1
9.19%
469.3
11.7
3.20%
15.6
0.11%
2785.10
19.01%
1041.6
26.2
7.17%
1344.0
58.6
9.25%
378.5
9.5
2.60%
42.7
0.29%
2806.80
19.31%
1162.3
28.5
7.81%
1609.3
69.5
10.82%
483.5
11.9
3.25%
27.3
0.18%
3282.40
22.06%
1323.6
29.1
7.95%
1478.8
53.7
8.88%
358.1
7.9
2.15%
128.0
0.77%
3288.50
19.74%
1446.4
29.7
8.14%
1545.5
52.4
8.70%
437.6
9.0
2.46%
59.7
0.34%
3489.20
19.63%
1515.1
29.8
8.16%
1662.5
54.5
8.96%
508.4
10.0
2.74%
55.7
0.30%
3741.70
20.16%
1587.9
30.0
8.22%
1775.8
55.0
9.19%
582.2
11.0
3.01%
58.0
0.30%
4003.98
20.72%
1686.1
30.5
8.36%
1908.2
57.0
9.46%
580.4
10.5
2.88%
60.5
0.30%
4235.27
20.99%
1749.6
30.4
8.33%
2028.9
58.0
9.66%
558.3
9.7
2.66%
63.0
0.30%
4399.72
20.94%
1827.9
30.6
8.38%
2040.6
56.0
9.36%
633.2
10.6
2.90%
65.4
0.30%
4567.10
20.95%
1891.6
30.5
8.36%
2058.3
55.0
9.09%
700.8
11.3
3.10%
67.9
0.30%
4718.68
20.84%
1964.4
30.5
8.37%
2110.1
54.0
8.99%
681.8
10.6
2.90%
70.4
0.30%
4826.79
20.56%
2043.1
30.7
8.41%
2164.3
53.0
8.90%
705.2
10.6
2.90%
72.9
0.30%
4985.50
20.51%
2126.1
30.9
8.46%
2184.6
52.5
8.69%
798.9
11.6
3.18%
75.4
0.30%
5185.03
20.63%
2203.5
30.9
8.48%
2263.3
52.1
8.71%
797.6
11.2
3.07%
78.0
0.30%
5342.42
20.55%
3108.1
562.6
0.0
453.6
3217.1
6002.2
40.96%
3217.1
649.9
0.0
457.1
3409.9
6216.7
42.77%
3409.9
648.8
123.3
472.6
3709.4
6991.8
46.99%
3709.4
675.9
92.0
541.5
3935.8
7224.3
43.37%
3935.8
613.9
182.0
588.0
4143.7
7632.9
42.94%
4143.7
835.1
556.7
621.6
4913.9
8655.6
46.64%
4913.9
902.2
579.6
737.1
5658.7
9662.7
50.01%
5658.7
926.1
605.3
848.8
6341.3
10576.6
52.42%
6341.3
920.1
630.2
951.2
6940.4
11340.1
53.98%
6940.4
1081.5
654.1
1041.1
7634.9
12202.0
55.96%
7634.9
1032.3
679.1
1145.2
8201.1
12919.8
57.07%
8201.1
1098.8
704.3
1230.2
8774.0
13600.8
57.93%
8774.0
1186.2
729.2
1316.1
9373.3
14358.8
59.07%
9373.3
1196.6
754.1
1406.0
9918.0
15103.0
60.08%
9918.0
1193.2
779.8
1487.7
10403.3
15745.7
60.57%
469.3
19.2
3.20%
812.2
5.54%
508.5
3.47%
1481.9
10.11%
3271.9
22.33%
849.5
37.0
5.84%
1050.1
7.22%
107.3
0.74%
1762.2
12.12%
3769.1
25.93%
995.1
43.0
6.69%
311.3
2.09%
1031.3
6.93%
1321.5
8.88%
3659.2
24.59%
1148.9
41.8
6.90%
526.5
3.16%
741.2
4.45%
1426.6
8.56%
3843.2
23.07%
1423.2
48.3
8.01%
599.7
3.37%
1443.3
8.12%
1827.7
10.28%
5293.9
29.78%
1494.7
49.0
8.05%
649.5
3.50%
927.9
5.00%
1855.7
10.00%
4927.8
26.55%
1614.4
50.0
6.99%
705.2
3.65%
1095.4
5.67%
1843.1
9.54%
5258.1
27.22%
1657.2
49.5
7.01%
716.3
3.55%
1099.7
5.45%
1947.1
9.65%
5420.2
26.86%
1784.0
51.0
6.78%
764.6
3.64%
1121.8
5.34%
2010.3
9.57%
5680.7
27.04%
1818.3
49.9
6.85%
767.5
3.52%
1279.9
5.87%
2088.8
9.58%
5954.4
27.31%
1889.9
50.5
6.94%
776.5
3.43%
1344.7
5.94%
2191.3
9.68%
6202.4
27.40%
1989.0
50.9
6.99%
788.9
3.36%
1333.5
5.68%
2246.8
9.57%
6358.2
27.08%
2082.6
51.0
6.97%
860.5
3.54%
1395.2
5.74%
2394.2
9.85%
6732.5
27.70%
2130.5
51.2
8.48%
925.1
3.68%
1417.8
5.64%
2347.9
9.34%
6821.3
27.14%
2192.1
50.5
8.43%
868.2
3.34%
1388.1
5.34%
2490.3
9.58%
6938.7
26.69%
UOIG 14
University of Oregon Investment Group
May 30, 2014
Appendix 5 – Discounted Cash Flows Valuation Assumptions
Discounted Free Cash Flow Assumptions
Tax Rate
34.00% Terminal Growth Rate
Risk Free Rate
2.62% Terminal Value
Beta
0.49 PV of Terminal Value
Market Risk Premium
5.75% Sum of PV Free Cash Flows
Considerations
3.00%
62,632
Avg. Industry Debt / Equity
33,397
Avg. Industry Tax Rate
12,359
Current Reinvestment Rate
Reinvestment Rate in Year 2019E
16.37%
Implied Return on Capital in Perpetuity
18.32%
% Equity
81.30% Firm Value
45,756
% Debt
18.70% Total Debt
7,969
Cost of Debt
4.26% Cash & Cash Equivalents
CAPM
5.44% Market Capitalization
WACC
4.95% Fully Diluted Shares
Terminal Risk Free Rate
3.60% Implied Price
$58.69
Terminal CAPM
6.42% Current Price
$53.81
Terminal WACC
5.75% Undervalued
9.08%
Method
DCF
Comparable Analysis
847
37,787
644
297.00%
31.32%
(21.06%)
Terminal Value as a % of Total
73.0%
Implied 2014E EBITDA Multiple
12.8x
Implied Multiple in Year 2023E
8.0x
Free Cash Flow Growth Rate in Year 2023E
4%
Implied Price Weighting
$
$
58.69
56.40
50%
50%
Price Target
$
57.55
Current Price
$
53.81
Undervalued
6.94%
UOIG 15
University of Oregon Investment Group
May 30, 2014
Appendix 6 –Sensitivity Analysis
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
59
2.0%
2.5%
3.0%
3.5%
4.0%
0
2.3%
2.3%
3.0%
3.8%
4.5%
0.29
63.29
75.61
94.71
128.36
203.35
0.29
27.95%
27.95%
76.01%
191.84%
861.39%
0.39
52.55
60.95
73.02
91.87
125.43
0.49
44.49
50.50
58.69
70.54
89.15
0.59
38.21
42.67
48.53
56.54
68.16
0.69
33.18
36.60
40.94
46.64
54.47
Adjusted Beta
Adjusted Beta
Terminal Growth Rate
0.39
4.82%
4.82%
35.70%
96.82%
275.31%
0.49
(12.14%)
(12.14%)
9.08%
46.22%
127.97%
0.59
(25.11%)
(25.11%)
(9.82%)
14.77%
60.85%
0.69
(35.34%)
(35.34%)
(23.93%)
(6.67%)
22.43%
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
59
2.3%
2.3%
3.0%
3.8%
4.5%
0
2.3%
2.3%
3.0%
3.8%
4.5%
2.95%
49.57
49.57
60.98
80.97
124.96
2.95%
(7.89%)
(7.89%)
13.33%
50.47%
132.23%
3.95%
48.38
48.38
59.79
79.78
123.77
3.95%
(10.10%)
(10.10%)
11.12%
48.26%
130.02%
4.95%
47.28
47.28
58.70
78.69
122.68
4.95%
(12.13%)
(12.13%)
9.09%
46.23%
127.98%
5.95%
46.28
46.28
57.69
77.68
121.67
5.95%
(14.00%)
(14.00%)
7.22%
44.36%
126.11%
6.95%
45.35
45.35
56.77
76.75
120.74
6.95%
(15.73%)
(15.73%)
5.49%
42.63%
124.39%
WACC
WACC
Terminal Growth Rate
Implied Price
Undervalued/(Overvalued)
3.0%
Terminal Growth Rate
59
2.3%
2.3%
3.8%
4.5%
3.74%
124.65
124.65
245.71 -18858.40
-229.52
4.74%
70.12
70.12
98.06
168.32
676.64
5.74%
47.41
47.41
58.89
79.04
123.54
6.74%
35.20
35.20
41.14
50.06
64.95
7.74%
27.72
27.72
31.20
36.00
43.01
Terminal WACC
Terminal WACC
Terminal Growth Rate
0
2.3%
2.3%
3.0%
3.8%
4.5%
3.74%
131.64%
131.64%
356.63%
-35146.28%
-526.55%
4.74%
30.31%
30.31%
82.24%
5.74%
-11.90%
-11.90%
9.45%
46.88%
129.58%
15.74%
-80.27%
-80.27%
-79.79%
-79.27%
-78.67%
25.74%
-85.73%
-85.73%
-85.67%
-85.60%
-85.52%
Implied Price
Undervalued/(Overvalued)
Terminal Growth Rate
Terminal Growth Rate
59
2.3%
2.3%
3.0%
3.8%
4.5%
0
2.3%
2.3%
3.0%
3.8%
4.5%
32.00%
47.01
47.01
58.29
77.97
121.00
34%
-12.14%
-12.14%
9.08%
46.22%
127.97%
33.00%
47.14
47.14
58.49
78.33
121.83
24%
-14.59%
-14.59%
5.42%
39.86%
113.19%
34.00%
47.28
47.28
58.69
78.68
122.67
34%
-12.14%
-12.14%
9.08%
46.22%
127.97%
35.00%
47.41
47.41
58.90
79.04
123.52
44%
-9.58%
-9.58%
12.96%
53.10%
144.77%
36.00%
47.55
47.55
59.10
79.40
124.39
54%
-6.89%
-6.89%
17.08%
60.59%
164.01%
Tax Rate
Tax Rate
212.80% 1157.46%
UOIG 16
University of Oregon Investment Group
May 30, 2014
Appendix 7 – Sources
Company Investor Relations page
Company presentations
GIS Earnings call transcripts Fiscal 2014 Q3
Google Image
FactSet
Inside ownership
IBIS World
MPR News
NASDAQ
Prospectuses
SEC Filings
Seeking Alpha
Trading Economics
Wikipedia
Yahoo Finance
UOIG 17