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Justin Craigwell-GrahamCharles Gambino
Jacob Rapp12/3/2009
General Mills, Inc. General Mills, Inc. (GIS)(GIS)
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IntroductionIntroduction• Company, Industry, Competitor, and Company, Industry, Competitor, and
Macroeconomic AnalysisMacroeconomic Analysis
• Financial Statement AnalysisFinancial Statement Analysis– DuPont AnalysisDuPont Analysis– Pro Forma AnalysisPro Forma Analysis
• ValuationValuation– DCF ValuationDCF Valuation– Multiples ValuationMultiples Valuation– Dividend Discount ModelDividend Discount Model
• RecommendationRecommendation
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Company OverviewCompany Overview
Founded in 1866
Based in Minneapolis, MN
Approximately 30,000 employees
Website: www.generalmills.com
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Famous Products
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Company OverviewCompany Overview
• Three Segments– US Retail (68% of sales)– International (18%)– Bakeries & Food Service (14%)
• Trends– Healthy/Organic– Convenient products
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Industry OverviewIndustry Overview
• Consumer Food & Food Processing Industry– Large & Mature– Stable– Trends
• Divestitures• Consolidations
– Main Competitors• Kellogg, Kraft Foods, Campbell Soup, & HJ Heinz
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CompetitorsCompetitorsCompany 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, Ore-Ida, Smart Ones
General Mills 22.38B 14.691B Betty Crocker, Bisquick, Cheerios, Yoplait
•Intraday 12/1/09
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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
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SWOTSWOTStrengthStrength Weaknesses
Successful international Successful international
expansionexpansion Strong leadership training Strong leadership training
programs and high employee programs and high employee
retentionretention Brand recognitionBrand recognition Distribution networksDistribution networks
Older product lines can suffer Older product lines can suffer from lack of innovationfrom lack of innovationFierce and constant competition Fierce and constant competition
in food industryin food industryHigh marketing costs to retain High marketing costs to retain
market sharemarket share
Opportunities Opportunities ThreatsThreats
Continued international expansionContinued international expansionHealthy food segmentHealthy food segmentInnovative internet research Innovative internet research
techniquestechniquesGluten-free offeringsGluten-free offerings
Consolidation of retail Consolidation of retail environmentenvironmentDependence on few large Dependence on few large customers for salescustomers for salesIncreasing commodity pricesIncreasing commodity prices
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Price Movement YTD
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S&P and Competitors
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DuPont Analysis
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DuPont Analysis
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Management EvaluationGrowth 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%
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Relative ValuationActual Value -5% +5%
General Mills Share Price as of 11/24/09 $68.34 $64.92 71.757
Average Value Min Value
Median Value
Max Value
Trailing P/E $68.96 $64.41 $70.15 $72.31P/B $149.40 $26.55 $152.12 $269.53P/S $61.08 $44.28 $66.07 $72.90TEV/EBITDA $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
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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
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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