In Focus

Winning the War with General Mills

NOTE: June was a month for buying. So for the whole month, we will be going into detail on the companies that we recently considered for our quarterly Chick "buy." We ended up purchasing stock in Medtronic (MDT) on June 3, 2001, but there were many, many great companies that didn't get our majority vote. We wanted to highlight them as it was a close call and they are still up for consideration for our next buy in September. For more on the companies that were considered, and what we'll be featuring all month, check out our summary.

A few months back my daughter Lexy was responsible for snacks for the Kindergarten class. So funny -- it was just as important to me that she have something "cool" to bring as it was to her. (Think I need a life?) We moseyed down aisle after aisle at our local Kroger and happened upon a terrific looking treat that was sure to impress even the fussiest of five-year-olds. These delectables, called Dunkaroos, are made by the one and only General Mills (GIS:NYSE). They're a wonderful little cookie with the most incredible frosting on one side you've ever had. We brought them home and since there were a few extras, I decided not to let them go to waste. I became consumed with consuming these tasty treasures. I found myself frustrated when my kids finished their entire serving. I was scolded several times for being the one to eat the last Dunkaroo in the pantry. Then, when I hovered behind the laundry room door making sure there wasn't a lick of frosting left on the plastic, I rediscovered that this product was made by a company I recently researched. That was when I knew I had to go back for more. Noooo silly, not more cookies... more INFO.

Firing up the computer I reread my article, The Thrills of General Mills. I had put the company through the Chicks' Dozen and determined them to be quite a find. Although it may not be considered a "sexy" acquisition for your portfolio, it is definitely a safe and stable one. From their management to their gross margins, this company continues to grow and remain a leader. While much of Wall Street has been earnestly making excuses, GIS is consistently making money. How often have you heard that lately?

Check out their last two quarters. General Mills is still producing some outstanding numbers:

Numbers from Marketguide.com

But even more impressive is their ability historically to consistently produce. In good times and in bad, they've found the right formula to keep on beating the odds. Over the past five years the company has had an annual growth rate of 12%. Keep in mind, this isn't true for all food companies. They haven't all been able to win the war quite like the General.

The strategies utilized by GIS have kept them winning the battle or at the very least, remaining a top contender. Although this isn't a tech stock, Steve Sanger, CEO, knows that proper use of the Internet gives his company a clear edge over his competitors. From conducting surveys online about customer preferences to controlling shipping costs by 7% with various trucking services online, the General's e-business operations are truly innovative. Furthermore, Mr. Sanger has created a way to make a profit from online marketing. He has formed a joint venture with a California based market research firm and has brought 3M, Nestle, and PepsiCo in as clients to sell these services. These guys think of everything.

Unless you've been living in a cave you have probably heard about the Good General being in cahoots with the doughboy. The Pillsbury Doughboy, that is. Although the Federal Trade Commission has not yet approved this acquisition, it is expected that once it is finalized, it will boost the company's customer base by delving into new areas such as frozen foods and salty snacks. This will eliminate some of the burden of the cereal business, which actually generates lower margins for the company. It will also improve their international status by more than doubling sales overseas.

Not that they really needed to (okay, you can never be big enough, right?), but the Pillsbury deal will also greatly increase their brand recognition. A whopping 85% of their combined products will be ranked either number one or two in their categories. This is, by the way, a growing trend with many of these food services companies; Kellogg's and Keebler, Pepsi and Quaker Oats, and Procter & Gamble, all major leaguers trying to whip the General.

GIS's fiscal year, which ended May 27th, 2001 and will be reported on Wednesday, June 27, 2001, is expected to reveal double-digit growth in reported earnings per share. Compared to the first nine months of fiscal 2000, for the same time period ending fiscal 2001, there has been an increase of 10%. And ya know what, Chicks? That is completely sans the Doughboy. Not too shabby.

We've talked a lot lately about downers and we've talked a lot about "safer" investments. Nothing is set in stone in the stock market but it's always nice to have a portfolio balanced with some character stocks. It's like having your trusty old hand-held can opener for when your electric one goes on the blink. Or the comfort you have in knowing that when no one else in the world understands you, your dog will. It's the pure pleasure of a Dunkaroo in the middle of the night when no one else is watching (not that I've ever done that.). A company like General Mills keeps you in that comfort zone. And it ain't too bad in the war zone either.