General Mills, Inc. (GIS) recently re-affirmed its fiscal 2014 guidance at the Barclays Back-to-school Conference in Boston. The consumer food giant also gave the outlook for the first quarter of 2014 and discussed its long-term and product innovation plans.
Fiscal 2014 Outlook Retained
General Mills maintained its prior guidance for fiscal 2014. Earnings per share are expected to grow at a high single-digit rate in the range of $2.87 to $2.90.
The company continues to expect net sales to grow at a low single-digit rate and exceed $18 billion in fiscal 2014 on the back of new product innovations and contribution from new businesses such as Yoplait Canada and Yoki.
Adjusted gross margin is projected to improve modestly from 2013 levels even though the first-quarter margins will be light. Commodity cost inflation is expected to be 3% in fiscal 2014, lower than an average of 4%–5% in recent years. However, at the Barclays conference, management said that inflation will be higher in the first half than in the later half.
Moreover, the company plans to increase dividends and share buybacks in the year, thus, offering greater shareholders’ value. The company increased its dividend by 15% effective from the quarterly payment due on Aug 1.
Fiscal First-Quarter 2014 Guidance Issued
In the first quarter of fiscal 2014 (results expected to be announced on Sep 18), management expects gross margins to decline due to unfavorable business mix and increased commodity costs. However, segment operating profit is expected to increase despite currency headwinds and increased marketing spend.
Top line is expected to improve driven by contribution from new products as well as new businesses such as Yoplait Canada and Yoki.
Product Innovation Plans
The company intends to launch more than 200 products (including 100 across the U.S. Retail) in the first half of fiscal 2014. More products are expected to be introduced later in the year. The company discussed its innovation plans for many food categories with special focus on Cereal, Snacks, Yogurt and Meals.
Re-Invigorate Cereals and Yogurt Categories
General Mills’ two most important categories – cereals and yogurt – have been showing sluggish results since the past few quarters. The company discussed aggressive plans to re-invigorate their growth.
In order to re-invigorate sales in the cereal category, the company plans to offer cereal options and conduct aggressive advertising in fiscal 2014. Some recent new cereal products launches in the U.S. include Honey Nut Cheerios Medley Crunch cereal, a vanilla flavored variety under the Chex cereal line, Nature Valley granola cereal bars and a new breakfast shake. Management expects this category to show positive growth in the first quarter.
The company intends the yogurt category to return to growth in fiscal 2014, through solid innovation, increased marketing support and expanded distribution. In the U.S., it will launch a reformulated version of the Yoplait Greek yogurt to capitalize on the increasing growth of the Greek yogurt category.
Beyond the Yoplait Greek brand, the company is launching Yoplait fruitful yogurt, a high-protein variety of Go-GURT, and is also continuing the regional rollout of Liberté yogurt and Méditerranée varieties in the U.S. The company has several product launches planned for its yogurt business in Europe, especially in France and the U.K.
Long-Term Targets
General Mills’ long-term targets include low single-digit growth in net sales, mid single-digit growth in segment operating profit and high single-digit growth in earnings per share.
Other Stocks to Consider
General Mills carries a Zacks Rank #3 (Hold). Some other food companies which are currently doing well include Pinnacle Foods Inc. (PF), Kraft Foods Group, Inc. (KRFT) and Dole Food Company Inc. (DOLE). All the companies carry a Zacks Rank #2 (Buy).
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