Annual reports, investor presentations, and conference calls are equally important events. And that's because they offer us a rare opportunity to plug into some pretty smart management teams. With conference calls, four times a year, we get tremendous color on the business of our favorite stocks.
(GIS -0.54%)
No. 1: Fiscal 2014 was a good year
From CFO Don Mulligan:
Fiscal 2014 was a good year for General Mills' shareholders. A combination of share price appreciation and dividends resulted in a 13% total return for the year. That (matches) some of the very tough returns generated by our peer group, and it's consistent with our goal of delivering double-digit shareholder returns.
We have a strong track record of returning cash to shareholders. In recent years, our dividends per share have increased at a 13% compound rate, and our average shares outstanding have declined 1% per year, that's despite pausing briefly on share repurchases to fund the strategic acquisitions of Yoplait and Yoki.
For the full year, sales were up 1% to $17.9 billion, while operating profit fell 2%. But with brands like Cheerios, Yoplait, Pillsbury, Progresso, and Green Giant, General Mills generates plenty of loot. Cash flow from operations was $2.5 billion last year. The company spent $1.7 billion repurchasing shares of common stock in 2014, reducing average diluted shares outstanding by 3%. It also paid $983 million in dividends to shareholders. General Mills is a brand acquirer and that massive amount of cash flow also allows it to add more brands to its product portfolio.
No. 2: Priority platforms are doing well
Mulligan said:
Net sales for our convenience stores and food service segment grew 1% overall in the quarter, with pound volume essentially matching year-ago levels. However, looking at just our six priority platforms, which are snacks, cereal, yogurt, mixes, biscuits and frozen breakfast, combined net sales grew 5%.
An early image of Betty Crocker. Source: generalmills.com.
The performance of these six platforms is very important to this business. While flat pound volume is nothing to write home about, a 5% pop in products like cereal and snacks is solid. Product innovation continues to power these categories. New products added more than 5% to General Mills' U.S retail shipment volume. As consumers become more comfortable with these offerings, they will replace some of the older (more tired) products in a customer's basket.
No. 3: Cereal is a big deal
CEO Ken Powell had this to say:
I know many of you are anxious to see renewed cereal category growth and frankly we are too. We are confident it will happen. This is a category consumers love. In fact, U.S. consumers rank cereal as a top 10 food and beverage choice in the same list as sandwiches, fruit, coffee, and juice. We are very focused on doing our part for the cereal category and growing sales for our cereal brands in 2015.
I bet some of you weren't aware of the power of cereal, but clearly, it's a big-time category. Fortunately, it's right in General Mills' wheelhouse. With new product spinoffs of the Cheerios, Chex, and Big G brands (with whole grains), management seems to have it figured out.
No. 4: China is key
From Powell again:
So let's shift to emerging markets, where our focus on the growing middle-class consumer is driving strong growth for our businesses. Fiscal 2014 was another year of double-digit growth for us in China and we intend to keep our foot on the gas in 2015. We're expanding the Haagen-Dazs retail line with new flavors like blueberries and cream. We'll reinforce the super premium equity with increased media investment in existing geographies and we'll continue to expand the brand with new shops and retail outlets in new cities across the country.
With a developed American market, most food companies are turning their sights to emerging markets and particularly China. Excluding currency effects, General Mills' international business was up 8% last year. That includes a 38% pop in Latin America and a 9% increase in the Asia-Pacific region. Foreign revenue is a $5.5 billion chunk, which is around 30% of General Mills' top line.
No. 5: General Mills is targeting these consumer groups
Powell also stated:
As we move into fiscal 2015, our No. 1 priority is to accelerate top-line growth. We'll do that by sharpening our "consumer first" mind-set with particular focus on four growing consumer groups: the growing middle class in emerging markets, U.S. multicultural families, millennials, and consumers over age 55. With these growing consumer groups and our broad portfolio there are plenty of growth opportunities and our plan is to go out and get them.
Source: generalmills.com.
This statement is key, as it's the blueprint for all consumer food companies, not just General Mills. Here Powell tells us who his key customers are and how they will help the business achieve its goals. By focusing its marketing spend and product innovation on these groups, General Mills is setting itself up for success.
Foolish final words
The conference call is a powerful tool that will give you color on not just one business, but an entire industry. General Mills does a nice job breaking it all down by product category, consumer group, and geographic region. Investors should be excited about its targeted marketing spend and its new-product innovations. The 5% increase in its six priority platforms is a good sign and should power the business going forward.
Editor's note: A previous version of this article referred to CFO Don Mulligan as "Bob Mulligan" in one instance. The Fool regrets the error.
