General Mills (GIS, Financial) released its latest quarterly report on Wednesday. The company reported declines in revenue and profit, citing declining yogurt sales as the main cause.
The company, which makes Yoplait yogurt, indicated net sales declined 7% to $3.9 billion. The company said this was “due to lower organic net sales, the divestiture of the North American Green Giant business, and the impact of foreign exchange.”
The company reported an expansion of its operating profit margin by 30 basis points to 16.5% of net sales.
Ken Powell, General Mills’ chairman and CEO, said the company’s net sales performance “did not meet our expectations due to the challenging macro environment, a difficult year-over-year comparison and a slower start to the year on certain businesses.”
Powell said the company is taking action to improve net sales going forward.
In regard to yogurt’s performance, organic net sales declined 4%. The company has failed to evolve its brands to appeal to consumers interested in organic products. The company is attempting to remedy that using the Annie’s Homegrown brand, which it acquired in 2014. In recent years, Greek yogurt has been in demand among consumers, which General Mills responded to by releasing a line of Greek yogurt under the Yoplait brand. However, Yoplait faces fierce competition from Chobani, Danone (XPAR:BN, Financial) and Stonyfield Farm among others.
General Mills manufactures and markets branded consumer goods sold in retail stores. The company’s other well-known brands include Cheerios, Haagen-Dazs, Pillsbury, Betty Crocker and Green Giant, among others. The company began operations in 1866 as a flour mill but was incorporated in 1928. It is headquartered in Minneapolis.
The company has a market cap of $38.9 billion with an enterprise value of $47.01 billion. It has a price-earnings (P/E) ratio of 23.6 with a forward P/E of 21.01. Its price-book (P/B) ratio is 7.9, and its price-sales (P/S) ratio is 2.4.
GuruFocus ranked General Mills’ financial strength 5 of 10. The company has a strong Piotroski F-Score of 8, indicating a healthy financial condition. Similarly, the company’s Altman Z-Score of 3.3 places it in the safe zone. Based on its Beneish M-Score of -2.7, the company is not a manipulator of its financial records. The company’s cash-debt ratio is 0.09, well below the industry median of 0.64 and ranking lower than 82% of other companies in the industry.
GuruFocus ranked the company’s profitability and growth 7 of 10. Its operating margin is 16.5%, and its net margin is 10.3%. The company’s return on equity (ROE) is 34.5%, ranking higher than 93% of other companies in the global packaged foods industry. Its return on assets (ROA) is 7.8%, ranking higher than 74% of other companies in that industry.
Gurus invested in General Mills include Louis Moore Bacon (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Hotchkis & Wiley, Manning & Napier Advisors Inc., Mairs and Power (Trades, Portfolio) and Dodge & Cox.
The company reported diluted earnings per share at 78 cents, beating analyst estimates of 75 cents a share.
In the report, Powell reiterated the company’s goals for 2017 and said the company expects their organic net sales to improve over the remainder of the year.
The DCF Calculator gives the stock a fair value of $31.19; it was trading at $65.38 on Thursday.
Disclosure: I do not own stock in any companies mentioned in the article.
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