This Food Company Seems To Have A Bright 2015

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Jan 22, 2015

Branded food manufacturer General Mills (GIS, Financial) has had a mixed quarter, and its shares have risen 3% in the last month. Through active measures and strategies the company is able to register gains in the recently reported second-quarter numbers. The results were mixed since the top line missed the estimates, whereas the bottom line was ahead of the Street’s expectations, sending its shares higher.

The quarterly details

The top line of the company dropped 3% to $4.71 billion, as compared to the previous year. This was lower than the estimate of $4.89 billion. Unfavorable currency movements, weak demand in the U.S. as well as a slowdown in the international markets resulted in the decline. Also, volumes dropped 2%, which was partly offset by a favorable price/mix which added 1% to the top line.

Further, the gross margin of the company shrunk 80 basis points to 34.9%. This decline was because of lower sales and an unfavorable product mix. However, the bottom line was pretty impressive. Earnings stood at $0.80 per share, higher than the estimate of $0.76 per share. There was a drop of 9% in advertising costs, which helped the bottom line grow. The retailer is making a number of cost-cutting moves and has undertaken a program called the Project Century. Its efforts to make supply chain efficient and the cutting of 700 to 800 jobs should help General Mills boost its profits.

By the segments

The U.S. Retail segment dropped 4% to $2.86 billion, due to a decline of 1% in product prices as well as a drop of 3% in volumes. The cereals category was the worst-performing segment during the quarter, as it continues to suffer from the competitive pressures of higher protein breakfast options such as eggs and sandwiches. However, weakness in the cereals and the Baking segment was partially offset by higher demand in the snacks and yogurts division.

Revenue from the International segment slipped 6% to $1.32 billion, mainly due to unfavorable currency movements. Excluding currency fluctuations, sales rose 3%, driven by price/mix gains and flat volumes. Regions such as Latin America, Asia and Europe did well.

The Convenience stores and Foodservice segment grew 4% to $530 million and was driven by higher demand for yogurt, frozen breakfast and snack. Also, price increases on the products resulted in higher sales.

The road ahead

Furthermore, General Mills plans to introduce 50 new high protein and gluten-free products next year, which will help in attracting more customers. Since demand for gluten-free products are on the rise, expanding in this space should be rewarding.

The company also acquired Annie’s, in October, in order to expand its presence in the snacks category. Annie’s is a premium natural and organic food producer and will also help in controlling its costs.

My takeaway

Although the top line estimates were missed, the rest of the numbers look decent enough. Moreover, it was mainly the currency movements that affected the revenue of the company. However, the company’s strategic efforts to control costs and expand its business look interesting. New products should provide an added reason for customers to visit its stores. Also, the food retailer retained its outlook for the year, which made the investors hopeful. Hence, this company should be given a thought.