General Mills, Inc. (GIS) Justin Craigwell-Graham Charles Gambino Jacob Rapp 12/3/2009
Introduction • Company, Industry, Competitor, and Macroeconomic Analysis • Financial Statement Analysis – Du. Pont Analysis – Pro Forma Analysis • Valuation – DCF Valuation – Multiples Valuation – Dividend Discount Model • Recommendation
Company Overview ØFounded in 1866 ØBased in Minneapolis, MN ØApproximately 30, 000 employees ØWebsite: www. generalmills. com
Famous Products
Company Overview • Three Segments – US Retail (68% of sales) – International (18%) – Bakeries & Food Service (14%) • Trends – Healthy/Organic – Convenient products
Industry Overview • Consumer Food & Food Processing Industry – Large & Mature – Stable – Trends • Divestitures • Consolidations – Main Competitors • Kellogg, Kraft Foods, Campbell Soup, & HJ Heinz
Competitors Company Market Cap* Annual Sales Brands Kellogg $20. 10 B $12. 822 B Rice Krispies, Frosted Flakes, Cheez-It, Pop. Tarts, Eggo, Nutri-Grain Kraft Foods 39. 33 B 42. 401 B Kraft, Oscar Meyer, Nabisco, Oreo, Maxwell House Campbell Soup 12. 10 B 7. 586 B Campbell’s, Pepperidge Farm, Prego, Swanson, V 8 HJ Heinz 13. 56 B 10. 148 B Heinz, Bagel Bites, Ore. Ida, Smart Ones General Mills 22. 38 B 14. 691 B Betty Crocker, Bisquick, Cheerios, Yoplait • Intraday 12/1/09
Macroeconomic Overview • Subject to fluctuations in input prices and foreign exchange rates – GIS has done well historically in hedging these risks. • General Mills has the potential to perform well even during recessions – As consumers try to save money during economic downturns, they typically eat out less and buy more products to cook at home • As economy recovers in 2010 and beyond, strong product lines and broad distribution networks allow the company to maintain growth through expansion into international markets such as China • Product categories have historically grown 3 -4% regardless of economic conditions
SWOT Strength Weaknesses Ø Successful international expansion Ø Strong leadership training programs and high employee retention Ø Brand recognition Ø Distribution networks ØOlder product lines can suffer from lack of innovation ØFierce and constant competition in food industry ØHigh marketing costs to retain market share Opportunities Threats ØContinued international expansion ØHealthy food segment ØInnovative internet research techniques ØGluten-free offerings ØConsolidation of retail environment ØDependence on few large customers for sales ØIncreasing commodity prices
Price Movement YTD
S&P and Competitors
Du. Pont Analysis 500. 0% Historical Du. Pont 450. 0% 400. 0% 350. 0% 300. 0% Return on Equity % Net Income Margin % 250. 0% Total Asset Turnover 200. 0% Equity Multiplier 150. 0% 100. 0% 50. 0% 2005 2006 2007 2008 2009
Du. Pont Analysis 450. 0% Forward-Looking Du. Pont 400. 0% 350. 0% 300. 0% Return on Equity % 250. 0% Net Income Margin % Total Asset Turnover 200. 0% Equity Multiplier 150. 0% 100. 0% 50. 0% 2010 2011 2012 2013 2014 2015 2016
Management Evaluation Growth Objectives: How they did: Low single digit growth in annual net sales 2009: 8% 2008: 10% 2007: 6% Mid single digit growth in operating profit 2009: -1% 2008: 8% 2007: 5% High single digit growth in EPS 2009: 2% 2008: 19% 2007: 8%
Relative Valuation
Valuation Summary • DCF – $65. 45 to $79. 99 • Multiples – P/E: $64. 41 to $72. 31 – P/B: $26. 55 to $269. 53 – P/S: $44. 28 to $72. 90 – EBITDA: $39. 34 to $86. 17 • DDM – $39. 47 to $48. 24
Recommendation • Closing price on 12/01/09: $68. 68 • Recommendation: Add to Watch List – GIS is currently fairly valued – Possible Benefits: • • Large dividend Diversification benefits Costs are well managed Growth during all market cycles
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