General Mills (GIS) is a $26.2 billion market cap company engaged in the manufacturing and marketing of brand name consumer foods sold through retail stores. In addition, the company is a supplier of food products to the foodservice and commercial baking industries. In the United States we know General Mills for its ready-to-eat cereals, refrigerated yogurt, ready-to-serve soup, dry dinners, frozen vegetables, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grain, fruit and savory snacks, and a variety of organic products including granola bars, cereal, and soup. Across the globe the company is known for these products and more, especially frozen and dry snack products branded and packaged locally in international countries to appeal to local tastes and customs.
More Than 100 Years of Uninterrupted Dividends
As of the market close on Dec. 6, 2012, General Mills was paying an annual dividend of $1.32 for a yield of 3.20%. Dividends have been paid since 1898 without reduction or interruption, with consecutive dividend increases since 1994. The five-year average dividend increase is 10.86%. More than 100 years of dividend payments is a record not matched by many companies -- and likely insures uninterrupted dividend payments next year and into the future.
For the beginning investor, General Mills has a direct stock purchase plan with a $15 set-up fee and an initial investment of as little as $250. The company pays all brokerage commissions and other fees associated with dividend reinvestments and additional cash investments. Beginning investors are often faced with inertia, and this is the kind of inexpensive program that can help one take the leap. Regular investments over time along with reinvestment of dividends can really add up over the long haul for the novice investor.
The Power of Brands
- General Mills boasts a diversified portfolio of familiar names including Cheerios, Green Giant, Betty Crocker, Pillsbury, Old El Paso, Nature Valley, Haagen-Dazs, Yoplait, and Progresso.
- General Mills claims the No. 1 or 2 market position in 11 key product categories, including ready-to-eat cereal, frozen vegetables, dessert mixes, ready-to-eat soup, refrigerated yogurt, and a host of others.
- Leading brands and the impressive diversity of the General Mills portfolio act as an anchor, providing stability and insuring growth through both up and down economic cycles.
Source: Fact sheet (PDF).
Looking Into the Future: Drivers of the Business
- Acquisitions: This includes its July 2011 purchase of Yoplait (General Mills had licensed the brand in the U.S. in the 1970s, but purchased it in 2011). Yoplait has lifted international sales.
- Innovation: Improving current products and developing new ones. According to Zacks Research, the company intends to launch 70 new products in the first half of 2013, including 35 in the yogurt category in the United States. In addition, the company intends to plug into the health conscious trend by adding fruit, vegetables, and fiber and reducing sugar and fats to existing products both in the United States and across the globe. The company has an interesting initiative called Innovation Intersection that matches people inside the company and across the globe to imagine new possibilities. These teams are made up of inventors, academics, suppliers, customers, and entrepreneurs with the goal of new product development or adding health benefits to existing products, as well as targeting sustainability efforts and new ways to engage with on-the-go consumers.
- Brand building: Supporting brands with increasing consumer marketing including unique social media and other subtle forms of advertising. General Mills recently launched the website LiveBetterAmerica.aol.com, which will be a collection of health and lifestyle articles from AOL's (AOL) Huffington Post, recipes from General Mills, and health articles from wellness publisher Everyday Health. Increased budgets and creative use of social media will facilitate brand building into the future.
- Partnering with retailers and foodservice customers to grow business: Successful partnerships include a Haagen-Dazs joint venture in Japan and Cereal Partners Worldwide, a 50/50 international cereal joint venture with Nestles that began in 1991. CWP markets breakfast cereal in 130 countries and accounts for 85% of General Mills joint venture revenue of $1.3 billion.
- Margin expansion by eliminating non value-added costs: In its 2012 annual report, the company titles this initiative "Holistic Margin Management," which includes cost-savings projects, marketing spending efficiencies, and profitable sales-mix strategies. In 2011 the company achieved a 2% increase in total segment operating profit despite higher input costs with the initiative.
- Growing international business: This now accounts for 28% of net sales with products marketed in over 100 countries. In 2013 and beyond, the company intends to continue a growing presence in emerging markets with special focus on Russia, China, Brazil, and India where an emerging middle class with disposable income and increasingly urban lifestyle will increase demand for packaged goods. The current breakdown is U.S. net sales of $10.5 billion and international net sales of $4.2 billion (42% Europe, 24% Asia/Pacific, 23% Canada, and 10% Latin America).
Fairly Priced or Opportunistically Priced?
Price-to-Earnings Ratio (TTM)
52-week price change
Source: Yahoo Finance.
General Mills has had very little price appreciation over the past 52 weeks, especially when compared to the S&P 500. Trailing 12 months (TTM) P/E ratios reflect that the company is priced right where the S&P 500 index is.
Build Your Portfolio With General Mills or Kellogg (K)?
Return on Equity (TTM)
Per Share Metrics:
Earnings per share (TTM)
Revenue per share
Source: Yahoo Finance.
In comparing General Mills and Kellogg, I am struck by how close they are in terms of most of the metrics. They are thought of as competitors because they compete in the ready-to-eat cereal space. But each is well diversified and both have product portfolios that are not common to one another. Both are solid, even iconic, companies with above average dividends. Both are good examples of American companies that are spreading across the globe. The ROE percentage for each company is above average and the ROE for Kellogg is striking.
General Mills is a well-managed company with a growing branded product portfolio and expanding international footprint. This is a "sleep well at night" stock and is appropriate for both beginners (through a DSP plan discussed above) and experienced investors, including retirees like myself who are seeking income from solid dividend paying companies. With more than a 100-year track record of uninterrupted and never-reduced dividend payments and almost a decade of increasing dividends, the company has a track record not matched by many.