My definition of heaven is an unending supply of Haagen-Dazs ice cream, so it was a pleasure for me to listen in on General Mills'
Chairman and CEO Steve Sanger kicked things off, providing an overview of the changes General Mills has undergone during the past few years, and outlining the company's specific financial goals and expectations. In a particularly savvy move, he tied his remarks to prior presentations, providing attendees with an element of needed continuity.
"Last year at this meeting," Sanger said, "I told you General Mills had entered a new phase of long-term growth, a phase which reflected some new sources of growth for our business. In the past, we were essentially a U.S. food company. Today, we are a global competitor with an exciting portfolio of international business. In the past, we mostly sold our brands through traditional grocery retailers. Today we are growing sales and distribution in a wide variety of retail outlets. We are a major supplier to the food-service industry as well."
In gauging General Mills' goals, Fools should remember that the company posts $12 billion in revenues. The sort of double-digit percentage growth that many of us expect from our smaller-cap companies simply isn't in the cards for most of this large company's operating areas.
"Fiscal 2006 represented a good year of progress toward our long-term goals," Sanger told attendees. "Net sales for the year ended last May grew 4%. That is slightly ahead of the pace we needed to reach our goal of more than $13 billion in sales by the end of this decade. Operating profits grew faster than sales in 2006, increasing 5% to more than $2.1 billion."
As executives repeatedly pointed out during the presentation, General Mills is very much a part of the worldwide movement toward healthier eating. The company is achieving distribution gains and sales growth in a variety of new retail channels, including club stores and natural and organic food stores, where its top line grew at a mid-single-digit rate.
The General at home
President and COO Ken Powell followed Sanger, focusing on General Mills' domestic businesses. "In total, domestic business generate about $10 billion in net sales," Powell said, "with $8 billion of that in the U.S. retail segment and another $1.7 billion in channels for food eaten away from home."
In many ways, General Mills is a compilation of widely known brands, including Cheerios and Wheaties for the breakfast crowd, along with Green Giant, Yoplait, Betty Crocker, Pillsbury, Progresso, and of course, my beloved Haagen-Dazs. But for my money, Powell's presentation was long on generalities and short on the branded specifics from which I think it would have benefited materially.
Here's one example from Powell: "We compete in an attractive set of U.S. retail food categories. And of equal importance, our brands hold either the No. 1 or the No. 2 market share position in all of our categories. These leading market positions are key. Our products are must-have brands in any good retailers."
While I recognize that most of the other attendees were consumer analysts, already well aware of General Mills' composition, I'd still have liked greater specificity on which brands lead their competition by the largest margins.
On the company's expense side, Powell said that General Mills has been able to offset increases in its raw materials costs: "In 2004 and 2005, profit growth in U.S. retail was pressured by sharp increases in input costs. More recently, we have seen continued inflationary pressure, but we have offset it with net price realization and strong productivity."
Among the company's specific strategies to guard its array of premium brands, General Mills is attempting to focus its advertising on brands where its messages clearly "resonate with consumers." For instance, according to Powell: "We've got great advertising on Yoplait that has driven solid baseline or non-promoted sales growth. We have increased media weights planned for this business in the second half [of the company's May fiscal year], reminding dieters that bikini season is just around the corner." My chubby tummy may particularly need that reminder.
And abroad ...
Chris O'Leary, General Mills' executive vice president and the COO of the company's international segment, provided an overview of the company's expanding business outside the United States. He quickly established General Mills' global presence in both wholly owned and joint business ventures.
As O'Leary pointed out, General Mills' international business boasts sound geographic balance, with Europe representing 35% of non-U.S. sales, followed by Canada at 31%, Asia-Pacific at 22%, and Latin America at 12%. Non-U.S. growth has been impressive, with international operating profits having increased at a compounded rate of more than 20% during the past four years. In China, the company's "all-Chinese management team" supports top-line growth of nearly 30%, while its gross margins have expanded by nearly eight percentage points.
The whole enchilada
General Mills' international efforts have been bolstered by such phenomena as the widespread success of its Old El Paso brand of Mexican food. Old El Paso falls into the company's world cuisine grouping in the international sector, alongside fellow groupings such as super-premium ice cream and healthy snacking.
I was favorably impressed by General Mills' presentation. Like other companies in its category, including Kellogg
In my opinion, this General deserves at least a passing salute from Fools interested in steady growth, expanding global revenues, and a meaningful dividend payout.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned, although he will buy some General Mills shares as soon as the Fool's disclosure policy permits. He welcomes your comments or questions.
