At its investor meeting on July 1, 2010, General Mills Inc (GIS: 35.81 0.00 0.00%) outlined its five-year growth plan of achieving a compounded annual growth rate (CAGR) of 8% in earnings per share driven by 4% CAGR in revenues and 5% in segment operating profit, compared with fiscal 2010 levels.In dollar terms, the food giant estimates net sales to reach $18 billion in 2015, up from $14.8 billion of sales recorded in fiscal 2010. The company’s biggest segment, U.S. Retail operations, is expected to deliver $12 billion by 2015, up from $10.3 billion in 2010.
Segment operating profit is expected to be above $3.6 billion compared with $2.9 billion in fiscal 2010. Earnings per share will increase to $3.38 from $2.30 in fiscal 2010.
General Mills projects its rapidly growing international business, to generate more than $3.7 billion in sales in 2015, up from $2.7 billion in 2010. The company is actively engaging overseas deals, particularly in emerging markets such as Brazil, Russia, India and China. China alone is expected to contribute $900 million, up from its current $350 million.
Introduction of new products such as Pillsbury mini pancakes, Yoplait smoothies and chocolate Cheerios are expected to boost sales for the company.
The company recently reported its fourth-quarter fiscal 2010 results. Adjusted earnings dropped 4.6% to 41 cents per share from 43 cents in the year-ago period. In fiscal 2010, adjusted earnings jumped 16% to $2.30 per share compared with the year-ago earnings of $1.99.
Total revenue in the reported quarter dipped 2% year over year to $3.6 billion. Positive currency translation was offset by flat volume compared with the corresponding period last year, impacted by unfavorable price and product mix. However, total revenue in fiscal 2010 grew 1% annually to $14.8 billion, benefiting from a favorable price and product mix.
General Mills estimates net sales to climb at a low single-digit rate in fiscal 2011. The company provided a fiscal 2011 earnings guidance in the range of $2.46 per share–$2.48 per share, reflecting an annual growth of 7%–8%.
The guidance factors in 4% to 5% inflation in supply-chain costs, higher non-cash pension and post-retirement expenses. Even though costs are projected to increase, the company expects higher growth in segment operating profits versus sales, driven by productivity initiatives and efforts to sell a greater proportion of higher-priced products.
The company has increased its dividend and announced a new buyback program. This depicts the company’s robust balance sheet and strong cash flow.
New product introductions, investment in overseas markets and effective cost management should help General Mills achieve healthy earnings growth in future. Our long-term recommendation for the stock remains Neutral as we prefer to wait until the company starts realizing the benefits of its ongoing productivity initiatives and international expansion plans.Based in Minneapolis, General Mills manufactures and markets branded consumer food in more than 130 countries. It is the second largest domestic manufacturer of cereals, including renowned cereal brands such as Cheerios, Chex, Total, Kix, Wheaties, Golden Grahams, Trix, Cinnamon Toast Crunch and Lucky Charms.
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