In Focus

The Thrills of General Mills

In 1988 I wrote a very emotional letter to General Mills. The letter detailed my intense search for Boo Berry cereal, and my inability to find it at any grocer. I went on to say that friends and relatives in other parts of the country were lucky enough to have the product at their local stores, so why couldn't I? So naive, I was. The response came in a very, very large box. It was an entire case of my childhood favorite cereal, and a note was enclosed. Although sympathetic to my woes, it was explained that regionally my cereal wasn't a big seller. The people who lived near me apparently preferred Frankenberry. Whatever. Anyway, I'm not sure that today I'd get a case of cereal sent my way, but talk about terrific customer relations! I've been sold on the company ever since. Now let's see if I can sell them to the Chicks. Let's run General Mills through the Chicks Dozen mill.

1. Buy What You Know  Cheerios, Wheaties, Total, Lucky Charms, Betty Crocker, Gold Medal Flour, Bisquick, Fruit Roll-ups, Chex, Bugles, Pop Secret, Dunkaroos, Squeezit, Yoplait, Colombo, and Go-gurt, are just a few of the highly recognized products made by General Mills. Do you know of any of those? If not, I'd be curious to see your cupboards. If you even have cupboards.

2. Keep it Simple Sister  This is basic stuff. It's food, it's a necessity. Go-gurt is the new yogurt of choice by kids of all ages. It's the Britney Spears of food fads. So do I think a fourth grader could explain these products to me? Absolutely.

3. Industry  Consumer/Noncyclical Sector, Food Processing. We Chicks always want to be sure we understand an industry. This one, again, is about as comprehensible as it gets. We eat, therefore, we get it.

4. Leader In Its Field  AOL's Market Guide lists General Mills as number two in their comparison of the top "50 companies in the food processing industry listed in order of descending marketing capitalization." It's also listed on the S & P 500, showing it as market leader in the US as well. Be sure to note General Mills latest acquisition detailed under Chicks Dozen #11. It boosts their international status to become the world's fifth-largest food company.

5. Repeat Profitability  My example in the beginning is proof in the pudding. I was so desperate to find my cereal I wrote a letter to the company. While that might be an extreme, people definitely do tend to return to their old favorites. All the brands I listed above are only a representation of what General Mills makes, there ARE more. And most of them are the most popular sellers out there.

NOTE: The following numbers are in millions

6. Gross Margins

(Sales - Cost of Sales) / Sales

(6,700.2 - 2,697.6) / 6,700.2

4002.6 / 6,700.2 = .597 or 59.7%

EXCELLENT!

7. Net Margins

Net Income / Sales

614.4 / 6,700.2 =.092 or 9.2%

FANTASTIC!

8. Cash V. Long Term Debt

Cash / Long Term Debt

25.6 / 1,760.3 = .014

This one isn't exactly Chickish, however, every company won't be perfect, right? And we've come to understand that sometimes these bricks and mortar companies acquire more debt. They need warehouses and plants, all extremely expensive. So can we be forgiving? ABSOLUTELY!

9. Flow Ratio

(Current Assets - Cash) / (Current Liabilities - Short Term Debt)

(1,190.3 - 25.6) / (2,529.1 - 1,085.8)

1,164.7 / 1,443.3 = .81

TERRIFIC!

10. Increasing Growth

(Most Recent Quarter Sales - Last Quarter Sales) / Last Quarter Sales

(Sales Aug 2000 SEC Filing - Sales Apr 2000) / Sales Aug 2000

(6,700.2 - 5,010.4) / 6,700.2

(1689.8) / Aug 2000 (6,700.2) = .25

.25 x 100 = 25%

DING! DING! DING! DING!

11. Strong Management and Operating History  Stephen Sanger, CEO since 1995 has been described as your run of the mill (no pun intended) middle-aged sports guy. Apparently he's a terrible golfer, a decent tennis player, and a big fan of Loyal College Basketball. One time, when trying to determine how to be more efficient and productive in his plants, he sent a group of his technicians to view the pit crews in action at a NASCAR race. They then figured out how to reduce time on a plant line. Not too shabby. Oddly enough Sangers former profession was that of a pop music concert promoter. Seeing what he did for Go-gurt, imagine what he would have done for Britney.

In a report dated December 13, 2000, "General Mills today reported record results for its fiscal 2001 second quarter. Diluted earnings per share totaled 70 cents, up 13 percent from the 62 cents per share earned in the same period last year. Diluted EPS excluding goodwill amortization (often called cash EPS) also grew 13 percent, to 72 cents. Results for the current quarter included income of $4.8 million after tax, or approximately 2 cents per diluted share, representing General Mills' portion of a class-action settlement of alleged price-fixing charges brought against several vitamin manufacturers in 1999. Excluding this income, diluted EPS grew 10 percent in the quarter. For the 13 weeks ended Nov. 26, 2000, earnings before interest and taxes increased 8 percent to $356.4 million. Interest expense for the quarter was higher, as anticipated, due to increased debt levels associated with prior year acquisitions and share repurchase activity. As a result, earnings after tax grew 5 percent to $202.7 million. Sales grew 4 percent, in line with domestic unit volume growth."

Now on to this most exciting acquisition. Pillsbury, a division of Diago (NYSE: DEO), is being bought by General Mills. On December 8, 2000 it was approved at a General Mills special stockholders' meeting. Can you think of a better fit than that? Pillsbury, the maker of Jeno's and Totino's pizzas, Green Giant, Haagen Daz, Progresso and Old El Paso products, is a fabulous business in and of itself. This dynamic duo should become official sometime in the early part of Calendar year 2001. .

12. Buy on Sale Currently trading at 41.65, GIS had a 52-week high of 45.31 and 52-week low of 29.37. I think that's a great deal, considering this new acquisition and the strength and growth they've shown as of late.

In retrospect, General Mills is a household name with which everyone is familiar. Their numbers are quite good, actually pretty darn great, and with the addition of that cute little Doughboy we'll most likely see this company showing great returns in the near future. And in case you were wondering, I still care deeply about Boo berry's, but I've since graduated to Lucky Charms. Like this company's potential, they're magically delicious!