Behind the Business: 3 Questions for General Mills

Shareholders don't just own stocks. We invest in businesses. Every share we buy purchases a stake in a company -- a sliver of a living, breathing enterprise run by a management team that ultimately determines the fate of the money we invest.

That's why The Motley Fool regularly contacts public companies and executives on our community's behalf, asking them the questions shareholders would find relevant. Because while quantitative measures are important, it's also crucial for investors to assess the less tangible aspects of the businesses they own (or are thinking of owning).

We recently surveyed select companies to gain insights into their business. Today we highlight General Mills (NYSE:GIS):

Following are General Mills' (unedited) answers to our email query about its business.

What steps have you taken to navigate your business through the economic turmoil of the past 12 months?
Commodity cost volatility has been a significant challenge for the food industry. Several years ago, as costs began to rise, General Mills created a business model that is working very well for us today. It starts with Holistic Margin Management (HMM), which is our unique, companywide discipline of leveraging productivity, mix, and price to offset cost inflation, protect our margins, and reinvest the cost savings in growing our brands. By focusing on HMM, we've been able to maintain our margins, despite some of the highest levels of input cost inflation we'd seen in years. 

HMM has also enabled General Mills to reinvest back into our brands. This is especially important in today's economy as consumers are seeking value and added benefits, including health and convenience. We've actually gained product distribution this year by supporting our brands with increased levels of advertising and consumer marketing. Advertising generates news for our products, which drives traffic into grocery stores and, ultimately, sales growth for us and our retail customers.

Product innovation is a key growth driver for us, and we've had some great wins with new introductions such as Fiber One snack bars, Progresso Light soup, Yoplait Delights yogurt parfaits, Macaroni Grill dinner kits, and Pillsbury Savorings frozen appetizers. We also look for innovative ways to keep our brands affordable for today's value-conscious consumer.

The combination of innovation and brand reinvestment is driving sales growth for us around the world. General Mills' net sales grew 8% in fiscal 2009, and our earnings per share (EPS) increased 13%, excluding items affecting comparability from year-to-year. That good momentum is continuing in fiscal 2010 with solid sales and earnings growth in our first quarter.

What are the top two or three metrics to which your business pays the closest attention?
We are focused on the key drivers of net sales growth. We've innovating to develop new products that meet consumer demand for taste, convenience, nutrition, and value. We're building our brands with increased levels of advertising and consumer marketing. We're partnering with all of our customers -- from traditional grocery stores to foodservice operators -- to grow our business and theirs. And we're expanding our international reach by increasing our product distribution in both new and existing markets outside of the U.S.

We also pay close attention to our segment operating profit, which has been growing faster than sales -- a trend we believe can continue. By managing our costs and leveraging the on-going benefits of Holistic Margin Management, we increased our segment operating profit 10% in fiscal 2009. And it was up by double digits again in the first quarter of fiscal 2010.

General Mills is committed to providing solid returns to shareholders. We have a well-established tradition of returning cash to shareholders through dividends. In fact, General Mills and its predecessor firm have paid dividends without interruption or reduction for 111 years. We also return cash to shareholders through share repurchases. We target an average annual net reduction in diluted shares outstanding of 2%. We believe we can deliver double-digit growth in shareholder return over time.

Now that the first decade of the new century is drawing to a close, we'd like to take a moment to reflect on what lies ahead. What excites you most about your business?
Through our 81-year history, we have learned that food is resilient. Our portfolio of leading food brands has proven to be adaptable to changing market conditions and consumer demands and will be a solid foundation for our future growth.

We've also learned that our brands can travel. While we expect our U.S. retail products to generate continuing good growth, we expect our international business to grow even faster. We are excited about our opportunities for more international expansion, building on our four key product platforms of cereal, super-premium ice cream, world cuisine, and healthy snacking. We expect our international operations to become an increasingly larger contributor to our sales and earnings growth in the years ahead.  

In total, we are very excited about our prospects for future growth. General Mills has great brands that compete in growing categories around the world. And we have 30,000 talented employees developing new products and processes that give us confidence that we'll continue to grow and prosper in the years ahead. 

General Mills is rated four stars (out of a possible five) by our Motley Fool CAPS community. Do agree with our community's bullish assessment? Click here to rate the stock and cast your opinion.