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General Mills (GIS) Stock Up on Revised View & Business Update

General Mills (GIS) has slightly upped its fiscal 2022 view, as part of the 2021 Barclays Global Consumer Staples Conference. It also offered a busine...

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Shares of General Mills, Inc. GIS gained 4.6% on Sep 8, as the company revised its fiscal 2022 guidance upward at the 2021 Barclays Global Consumer Staples Conference. The company also offered a business review, alongside reaffirming its three core priorities at the conference.



Talking of the three main priorities, General Mills remains focused on competing efficiently through its Accelerate strategy. The company is undertaking efforts to combat the input cost as well as other cost hurdles on the back of its Holistic Margin Management (HMM) productivity program, Strategic Revenue Management (SRM) pricing actions and other endeavors to boost efficiency. Finally, management is committed toward reshaping its portfolio and organization without harming the base business.



With regard to reshaping the portfolio, General Mills concluded the buyout of Tyson Foods’ TSN pet treats portfolio on Jul 6. The company also anticipates closing the sale of its European Yoplait operations by the end of calendar-year 2021. The impact of this divestiture has been, however, excluded from management’s updated fiscal 2022 view.

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Updated Fiscal 2022 View

Given the ongoing operating landscape and the buyout of the pet treats business from Tyson Foods, management revised its guidance for fiscal 2022. General Mills now anticipates organic sales growth toward the higher end of the previously guided range of a 1-3% decline. The updated view reflects the better-than-expected first-quarter sales performance.  



Moving on, adjusted operating profit growth (at constant currency or cc) is now expected toward the higher end of the earlier guided band of a 2-4% decline. Adjusted earnings per share growth at cc is envisioned at the greater end of the previously guided flat to down 2% view. The upward revision in these guidance ranges can be attributed to the impact of the recent pet treats business buyout from Tyson Foods. The buyout is expected to contribute nearly 2 cents to the bottom line in fiscal 2022. Apart from this, the company is focused on battling the elevated cost challenges through additional SRM initiatives as well as cost-efficacy moves.



Free cash flow in fiscal 2022 is still likely to be roughly 95% of the adjusted after-tax earnings.

Business Update

The company is witnessing dynamic conditions in the North America Retail segment, wherein consumer demand is higher than the pre-pandemic period. The U.S. retail sales declined year over year in the first quarter, though the figure increased 4.5% on a two-year compound basis.



However, like many other industry players, General Mills is operating in a tough supply-chain landscape. The overall industry is battling labor shortage and major input cost inflation, which is hurting the overall supply-chain network. That said, General Mills is on track with its HMM cost savings and the SRM pricing initiatives, to fight the input cost inflation. Apart from this, management spoke about connected commerce – which includes establishing brands on digital as well as physical platforms.



Moving to the Pet business, the company is seeing solid household penetration of Blue Buffalo. So far in fiscal 2022, the Nielsen-measured retail sales increased in double digits for Blue Buffalo. The company’s newly-acquired dog treat brands are also performing well — delivering retail sales growth of 20% in the fiscal first quarter. Management is focused on growing its presence in the premium quality natural feeding and treating for cats and dogs. The company is strengthening its Blue Buffalo brand in this regard, through constant innovation and by using General Mills’ impressive scale. While the company is seeing input cost hurdles in the Pet segment as well, it remains focused on its above-mentioned productivity and pricing plans to help offset the cost pressure.



All said, General Mills’ strategic efforts are likely to keep it going. Shares of this Zacks Rank #3 (Hold) company have gained 3.1% in the past six months, against the industry’s decline of 2.8%.

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