General Mills, Inc. GIS looks well placed for growth, courtesy of its key global strategies, prospects from acquisitions and cost-saving initiatives, among other factors. These upsides have helped the company deliver a strong earnings trend and also keep investors tuned in amid hurdles like the weak U.S. Snacks business and soft sales in Europe & Australia.
Notably, this Zacks Rank #3 (Hold) stock has surged 45.6% year to date compared with the industry’s growth of 18.2%.
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Let’s see if General Mills’ growth efforts can help it keep up the robust momentum.
Factors Driving the Stock
General Mills is on track with the Consumer First strategy and key global growth strategies to drive sales consistently. To this end, the company focuses on solid innovation, efficient customer marketing and strong in-store execution to sharpen its competitive edge. Management is on track with the Compete, Accelerate and Reshape growth framework. Additionally, the company is focusing on improving the U.S. Yogurt business, expanding presence in emerging nations, stabilizing distribution channels and enhancing price mix.
The company’s next main strategy focuses on driving growth across four differential global platforms — Haagen-Dazs ice cream, snack bars, Old El Paso Mexican food, and General Mills’ natural and organic food brands. Finally, the company is working toward reshaping its portfolio via prudent buyouts and divestitures. To this end, the company is benefiting from the Blue Buffalo buyout.
Markedly, General Mills acquired Blue Buffalo Pet Products in fiscal 2018, which now forms the company’s Pet segment. Blue Buffalo is contributing to General Mills’ top line. Management earlier stated that it anticipates sales and operating profit at the Pet segment to grow at a significant pace in fiscal 2020. These factors along with focus on innovation have helped the company deliver better-than-expected earnings for six straight quarters now.
Hurdles Likely to be Countered
General Mills is witnessing weakness in the U.S. Snacks unit for quite some time now, which is weighing on its North America Retail unit’s performance. In first-quarter fiscal 2020, revenues in the North America Retail segment came in at $2,376 million, down 0.5% year over year. Sales in categories such as U.S. Snacks, U.S. Meals & Baking and Canada were dismal. Although the company is undertaking efforts to boost performance in the snacks category, it is yet to yield results.
Moreover, sales at the Europe & Australia segment have been declining for the last few quarters due to a tough operating environment in France and weak trends in ice cream, among other factors. During the first quarter of fiscal 2020, revenues in the Europe & Australia segment declined 9%, marred by reduced volumes and unfavorable currency rates. Sales were also affected by issues in merchandising phasing. Persistence of such trends is a concern for the company.
Like Conagra Brands CAG, Campbell Soup CPB and TreeHouse Foods THS, among others, General Mills is battling input cost inflation. Nevertheless, the company is pursuing many initiatives to generate cost savings and support its key growth strategies. It expects to achieve cost savings through increased efficiency, SKU rationalization, supply-chain optimization and continued expansion of zero-based budgeting across the business. Also, the company is on track with its Holistic Margin Management program, which is expected to generate greater savings.
These efforts and growth drivers are likely to help General Mills keep its solid show on.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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