After an impressive rally, the shares of General Mills (NYSE 🙂 come under pressure after the fourth quarterly report from the food giant that gave mixed signals about the future growth of the company. And, in our opinion, bulls have a valid reason to get confused.
The challenge for the maker of Cheerios Honey Nut cereals, Yoplait yogurt and Nature Valley granola is quite intimidating: it must accelerate growth in an era where consumers are rapidly changing their eating habits in search of fresher, greener and less. sugary food.
The company's Q4 profit shows that the road ahead is likely to be uneven, despite General Mills' recent efforts to diversify its revenue base. Investors sent away the company's shares by 4.5% on Wednesday after it reported that sales – excluding the effects of currency fluctuations and acquisitions – fell in the fourth quarter of the fiscal year and remained flat during the year. The shares lost some of those losses yesterday and rose 1.8% to $ 52.22.
The company in North America, the largest company, made the largest contribution to the slowness of 4Q, with unit sales falling 2% to $ 2.34 billion. The sale of cereals, yogurt and meals and the baking of items was flat, the company said. The sales of snacks decreased because the bars of Fiber One and the granola bars in Nature Valley lost ground.
Dashed Hopes
Before this poor performance, investors were generally enthusiastic about GM, as evidenced by the 40% increase in share this year, hoping that the acquisition of the maker of Blue Buffalo pet food is the biggest deal in 18 years. , last year would add a new growth path to the company's portfolio at a time when the traditional power supply is under pressure.
General Mills Price Card
CEO Jeff Harmening, who directs the company in this challenging environment for packaged food producers, tried to accelerate growth by rolling out trendy items such as cereals that use a wild cereal related to wheat and new variations on its other popular ones. breakfast cereals. Brands.
But some analysts now believe that the positive impact of these efforts is already ingrained in the stock price, which is close to the 52-week high, and future profit will depend on the company's innovations and the ability to disruptors such as as Amazon.com (NASDAQ :), which invests heavily to obtain the majority of consumer consumption in the supermarket through the Whole Foods brand.
Goldman Sachs analyst Jason English downgraded the shares in May and predicted an inevitable slowdown due to the improvement of the company's core business and the impact of the Blue Buffalo acquisition.
General Mills enters a & # 39; second chapter of growing concern about the slowdown in investors & # 39 ;, said the English in a note to customers, where the first chapter of enthusiasm now & # 39; largely played out & # 39 ; is. He also lowered his price target to $ 41 per share.
For the fiscal year that ended in 2020, the company led investors to achieve organic sales growth of 1-2%, but much of this will come from Blue Buffalo, whose projects will grow by 8-10%. Part of this growth will come from the older categories, helped by an increase in snack bar volumes, the company said
Bottom Line
Even with the powerful 2019 rally, General Mills' stock is about 30% lower than in 2016. There are clear indications that the wave following the Blue Buffalo acquisition is losing momentum and investors are reconnecting with legacy activities of General Mills amid increasing pressure from starting competitors. That being said, the investments that the company has made to accelerate growth have positioned it to outperform its competitors in this downturn in processed food supplies.
For those who monitor the 3.5% dividend yield of the company, there is probably a better way to buy this stock. For the time being we do not find the valuation convincing enough, mainly because the management has not demonstrated any new growth catalysts.
