Transcript General Mills, Inc. (GIS) - College of Business at Illinois

General Mills, Inc.
(GIS)
Justin Craigwell-Graham
Charles Gambino
Jacob Rapp
12/3/2009
Introduction
• Company, Industry, Competitor, and
Macroeconomic Analysis
• Financial Statement Analysis
– DuPont Analysis
– Pro Forma Analysis
• Valuation
– DCF Valuation
– Multiples Valuation
– Dividend Discount Model
• Recommendation
Company Overview
Founded in 1866
Based in Minneapolis, MN
Approximately 30,000 employees
Website: www.generalmills.com
Famous Products
Company Overview
• Three Segments
– US Retail (68% of sales)
– International (18%)
– Bakeries & Food Service (14%)
• Trends
– Healthy/Organic
– Convenient products
Industry Overview
• Consumer Food & Food Processing Industry
– Large & Mature
– Stable
– Trends
• Divestitures
• Consolidations
– Main Competitors
• Kellogg, Kraft Foods, Campbell Soup, & HJ Heinz
Competitors
Company
Market Cap*
Annual Sales
Brands
Kellogg
$20.10B
$12.822B
Rice Krispies, Frosted
Flakes, Cheez-It, Pop-Tarts,
Eggo, Nutri-Grain
Kraft Foods
39.33B
42.401B
Kraft, Oscar Meyer,
Nabisco, Oreo, Maxwell
House
Campbell Soup
12.10B
7.586B
Campbell’s, Pepperidge
Farm, Prego, Swanson, V8
HJ Heinz
13.56B
10.148B
Heinz, Bagel Bites, OreIda, Smart Ones
General Mills
22.38B
14.691B
Betty Crocker, Bisquick,
Cheerios, Yoplait
•Intraday 12/1/09
Macroeconomic Overview
• Subject to fluctuations in input prices and foreign exchange rates
– GIS has done well historically in hedging these risks.
• General Mills has the potential to perform well even during recessions
– As consumers try to save money during economic downturns, they
typically eat out less and buy more products to cook at home
• As economy recovers in 2010 and beyond, strong product lines and broad
distribution networks allow the company to maintain growth through
expansion into international markets such as China
• Product categories have historically grown 3-4% regardless of economic
conditions
SWOT
Strength
Weaknesses
 Successful international
expansion
 Strong leadership training
programs and high employee
retention
 Brand recognition
 Distribution networks
Older product lines can suffer
from lack of innovation
Fierce and constant
competition in food industry
High marketing costs to retain
market share
Opportunities
Threats
Continued international
expansion
Healthy food segment
Innovative internet research
techniques
Gluten-free offerings
Consolidation of retail
environment
Dependence on few large
customers for sales
Increasing commodity prices
Price Movement YTD
S&P and Competitors
DuPont Analysis
Historical DuPont
500.0%
450.0%
400.0%
350.0%
300.0%
Equity Multiplier
Total Asset Turnover
250.0%
Net Income Margin %
200.0%
Return on Equity %
150.0%
100.0%
50.0%
0.0%
2005
2006
2007
2008
2009
DuPont Analysis
Forward-Looking DuPont
450.0%
400.0%
350.0%
300.0%
Equity Multiplier
250.0%
Total Asset Turnover
Net Income Margin %
200.0%
Return on Equity %
150.0%
100.0%
50.0%
0.0%
2010
2011
2012
2013
2014
2015
2016
Management Evaluation
Growth Objectives:
How they did:
Low single digit growth in annual net sales
2009: 8%
2008: 10%
2007: 6%
Mid single digit growth in operating profit
2009: -1%
2008: 8%
2007: 5%
High single digit growth in EPS
2009: 2%
2008: 19%
2007: 8%
Relative Valuation
Actual Value
General Mills Share
Price as of 11/24/09
Trailing P/E
P/B
P/S
TEV/EBITDA
$68.34
-5%
+5%
$64.92
71.757
Average
Median
Max
Value
Min Value
Value
Value
$68.96
$64.41
$70.15
$72.31
$149.40
$26.55
$152.12 $269.53
$61.08
$44.28
$66.07
$72.90
$61.58
$39.34
$59.22
$86.17
Green = Above +5% of Current Stock Price
Yellow = Between -5% and +5% of Current Stock Price
Red = Below -5% of Current Stock Price
Valuation Summary
• DCF
– $65.45 to $79.99
• Multiples
– P/E: $64.41 to $72.31
– P/B: $26.55 to $269.53
– P/S: $44.28 to $72.90
– EBITDA: $39.34 to $86.17
• DDM
– $39.47 to $48.24
Recommendation
• Closing price on 12/01/09: $68.68
• Recommendation: Add to Watch List
– GIS is currently fairly valued
– Possible Benefits:
•
•
•
•
Large dividend
Diversification benefits
Costs are well managed
Growth during all market cycles