SWOT Analysis - College of Business
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Transcript SWOT Analysis - College of Business
General Mills (NYSE: GIS)
Ruonan Ding
Meiling Liu
Jinglin Pan
Prateek Sharma
Date: 30-Nov-2010
Agenda
Industry Analysis
Company Analysis
SWOT
Financial Analysis
DCF Model
Comparable
Recommendations
Industry Overview
Food Processing Industry
Annual production estimated at around $1tn (2004)
Key drivers
Population growth rate
Per capita disposable income
Price of grains/ raw materials
Health consciousness
Source: U.S. Department of Commerce Industry Report Food Manufacturing NAICS 311 (2008)
www.trade.gov/td/ocg/report08_processedfoods.pdf
Porters Five Forces
SUPPLIER POWER – MEDIUM
- Most suppliers i.e. agricultural/meat producers enter into
long-term contracts with companies
BARRIERS TO ENTRY – HIGH
- High Capital Expenditure
- Difficult to replace existing brands (Brand Loyalty)
- Access to distribution channels
Porters Forces Contd.
THREAT OF SUBSTITUTES – LOW
- Substitutes to processed foods are fresh foods or eating-out. Time
constraint or money constraint
BUYER POWER- HIGH
- Most buyers ( Wal-Mart etc.) make up a large percentage of sales
RIVALRY- HIGH
- Firms compete on innovation, product differentiation and marketing/
advertising
- Compete not only among themselves but also with private labels
Competitor- Kraft Foods Inc.
Kraft Foods Inc. is the largest food and beverage company in
North America and the second largest in the world.
In 2007, Kraft discontinued the cereal production divesture. It
only competes in snack segment with GIS.
Following its January 2010 acquisition of Cadbury, Kraft has had
strong quarterly earnings, both in revenue and operating profit
across all candy and snack segments.
Competitor- Kellogg
The Kellogg Company, headquartered in Michigan,
manufactures and markets ready to eat cereal and
convenience foods.
Kellogg holds 34.2% of the cereal market in the U.S.
Kellogg’s has managed to consistently post increases in sales
revenue and net profits since 2005.
Competitor- PepsiCo
PepsiCo Americas Food is the division most applicable to this
industry. Within this division, is Quaker Foods North
America (QFNA).
QFNA holds about 8.0% of cereal market in the U.S.
QFNA operates four manufacturing plants in the United
States. QFNA grew at an annual rate of 2.2% in the five years
to 2010
The Company
Overview
General Mills is a global food manufacturer and
marketer of consumer foods sold through retail stores.
They are also a supplier of food products to the food
service and commercial baking industries
Manufactures its products in 15 countries and markets them in
more than 100 countries
Their brands include Cheerio's,Yoplait, Nature Valley, Betty
Crocker, Pillsbury, Green Giant, Old El Paso, Progresso,
Cascadian Farm, Muir Glen and more
The Company
Profile
Headquarters in Minneapolis, MN
Global workforce of 33,000
FY2010 Net Sales: $14.8 Billion
Primary Customers
Grocery Stores, mass merchandisers, membership stores, natural food chains,
drug, dollar and discount chains, commercial and non-commercial food service
distributors and operators, restaurants and convenience stores
The Company Brand Portfolio
Major Product Categories
Ready-to-eat cereal, yogurt, super-premium ice cream, ready-to-serve soup, dry
dinners, shelf stable and frozen vegetables, refrigerated and frozen dough
products, dessert and baking mixes, flour, frozen pizza and pizza snacks, grain,
fruit and savory snacks, and a wide variety of organic products like soup granola
bars and cereal.
The Company
Sales Segments
Their sales can be categorized into 4 segments: U.S Retail
$10.3 Billion business
International
$2.7 Billion business
Wholly-owned companies
Joint-ventures
o Cereal Partners Worldwide (CPW): 50-50 partnership with Nestle that markets
breakfast cereals in 130 countries outside of U.S
o Haagen-Dazs Japan: Operates their ice cream business in Japan
Bakeries & Foodservice
$1.8 Billion business
Source: General Mills Inc. Corporate Brochure 2010
http://www.generalmills.com/~/media/Files/CorporateBrochure_090110_LowRez.ashx
The Company
Sales Breakdown
Source: General Mills Inc, Annual Report 2010
http://generalmills.com/~/media/Files/annual_report_2010.ashx
The Company
Growth Model
5 Key Business Drivers:
Innovation
Brand Building
Customer Growth
International Expansion
Margin Expansion
Executed through:
Holistic Margin Management
(HMM)
Cost cutting measure which ranges
from consolidating purchases to give
them more bargaining power to
change of packaging for more
efficient loading and unloading
Increased media and
multicultural advertising
Recognizes the growing Hispanic
population and the sales potential
R&D and Product innovations
New products like chocolate and
multigrain varieties of Cheerio's
The Company
Growth Opportunities
Economic conditions favoring At-home Meals
Aligning products with growing US consumer groups
Baby boomers, millenials, and multicultural population
Emerging market expansion
Expanding operations in China, Brazil, India
The Company
The Future
Increase CapEx to ~$700 million in FY2011
Increase manufacturing capacity for cereals and Yoplait yogurt
Expand International production capacity for Wanchai and
Haagen Daz products
Continue HMM throughout supply chain
Targeting $1 Billion in savings through HMM in the next 3 years
Expects increase in energy and commodity prices
Makes use of hedging instruments to manage the fluctuation in
input costs
Expects cost savings from HMM to offset rising COGS
Share repurchase program
Reduce outstanding shares by 2% every year
Recent Events
PAI is selling its 50% stake in Yoplait and GIS is the front
runner
GIS has had franchise agreements with Yoplait since 1977 which is one
of their top businesses
General Mills buys Mountain High Yogurt
Faces the risk of losing Yoplait because French Dairy Sodima (50%
owner of Yoplait) wants to severe their licensing by 2012
Rising food costs are pressuring food makers and retailers to
pass on the costs to consumers
GIS expects input costs to rise 4%-5% in FY2011
Recently raised prices on some cereal brands and baking products
The Company
Management Assessment
Regular dividends without reduction for 112 years
Dividend rate has been growing
at 9% compound rate over past
4 years
• Strength in efficiency and productivity
– HMM discipline helps to keep COGS down even in times of
inflation
50.0%
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
F2006
F2007
F2008
F2009
Input Cost Inflation
F2010
F2011
Gross Margin
*Figures from General Mills Inc. 10-K FY 2010
Source: (1) General Mills Inc, Corporate Fact Sheet
http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9NjA4NzN8Q2hpbGRJRD0tMXxUeXBlPTM=&t=1
SWOT Analysis
Strength:
Strong brand equity on key brands
Growing international operations
Product development skills
Innovators
Brand management skills
Weakness:
Dependent on the US market for revenue
Rising SG&A expenses
SWOT Analysis
Opportunities:
Growing health consciousness
Higher penetration with smaller retailer customers in the U.S.
Rising demand for cereals
Threats:
Commodity price increases
Competitive market
Private label growth
STOCK PRICE CHART
Source: Yahoo Finance
Key Ratios
For the Fiscal Period Ending
Profitability
Return on Assets %
Return on Equity %
Margin Analysis
Gross Margin %
EBITDA Margin %
EBITA Margin %
Asset Turnover
Accounts Receivable Turnover
Inventory Turnover
Short Term Liquidity
Quick Ratio
12 months
May-28-2006
12 months
May-27-2007
12 months
May-25-2008
12 months
May-31-2009
12 months
May-30-2010
6.9%
19.0%
7.2%
20.6%
7.6%
22.4%
7.6%
22.9%
9.3%
28.9%
35.6%
20.6%
17.0%
36.1%
20.2%
16.9%
35.8%
20.0%
16.6%
35.6%
18.3%
15.2%
39.7%
20.9%
17.8%
13.0x
7.2x
13.3x
7.1x
13.4x
6.9x
14.4x
7.0x
14.8x
6.6x
0.3x
0.3x
0.4x
0.5x
0.5x
Source: Capital IQ Company Financials
DuPont Analysis
Discount Rate
Weighted Average Cost of Capital
Adjusted
Rate of Return on Equity
22.80%
19.50%
5.58%
4.50%
Equity/Total capital
48.17%
50.77%
Debt/ Total Capital
51.83%
49.2%
12.86%
11.34%
Rate of Return on Debt
WACC
2010
Return on average total capital ◊
Return on Equity %
◦
2009
2008
2007
2006
13.80% 12.30% 11.70% 11.00% 10.40%
28.95% 22.91% 22.45% 20.63% 19.05%
Source: ◊ General Mills Inc. 10-K ; ◦ Capital IQ Company Financials
Discounted Cash Flows
Sensitivity Chart
Terminal Growth Rate
Discount Rate
####
10.00%
11.00%
11.34%
11.50%
12.00%
2%
40.44
34.29
32.51
31.71
29.39
2.50%
42.82
36.06
34.12
33.25
30.74
3%
45.55
38.06
35.93
34.98
32.25
3.50%
48.70
40.32
37.97
36.92
33.93
4%
52.37
42.90
40.28
39.12
35.82
Comparable Analysis
Estimated Value Per Share Based on Multiples
Trailing P/E
P/S
P/EBITDA
Minimum
$22.10
$9.96
$32.45
Median
$23.90
$32.05
$36.05
Maximum
$26.18
$46.13
$36.41
Average
$24.06
$29.88
$34.96
Price Per
Share
Low
$21.50
Median
$30.67
High
$36.24
Mean
$29.63
*Figures of comparables obtained from competing firms previously mentioned, and data is obtained from
Capital IQ.
Recommendation Basis
Current Price: $35.45 (Nov-29-2010)
DCF Valuation: $26.17 (Negative)
$35.93 (Base)
$41.29 (Positive)
Relative Valuation: $21.50 - $36.24
On Watch-List Since Dec 2009
- Underperformed both DJIA and S&P 500
- Underperformed relative to peers
Recommendation
We DO NOT recommend investing at this time
Keep in watch list. Look for other companies within the
sector that match our investment policy
It’s a good company but not a great stock.