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General Mills Inc GIS

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Positive Momentum Continues for Narrow-Moat General Mills in Second Quarter, but Shares Fully Valued

Analyst Note

| Rebecca Scheuneman, CFA |

The shift to at-home eating drove 7% organic sales growth in General Mills’ fiscal second quarter, topping our 6% estimate. Even so, we think the more interesting data points portend how the company will perform once the crisis has passed. We expect an enduring lift for the firm’s pet segment (10% of fiscal 2020 sales), given the 11 million pets adopted during the pandemic, a 6% increase. We also think the market’s accelerated shift to e-commerce (now 10% of company sales) will produce lasting benefits, as the firm’s digital expertise has resulted in online market shares that exceed that of the brick-and-mortar channel. And there is reason to be optimistic that General Mills can maintain higher market share across its brand portfolio after the pandemic, as the firm held or grew share during the first fiscal half in pet food, eight of its top 10 U.S. food categories, and in five of its six largest countries. Further, General Mills’ repeat purchase rates continue to outpace category averages, given strong brands (which underpins its narrow moat), innovation, and marketing. While management opined that at-home food consumption will likely not fully revert to prepandemic levels, as consumers are enjoying spending more time at home, we differ on this view. We expect the normalization will be gradual, particularly as unemployment remains high, but we suspect consumers are growing wary of cooking, and carryout is a more palatable option for those preferring to stay in.

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Company Profile

Business Description

General Mills is a leading global packaged food company that produces snacks, cereal, convenient meals, yogurt, dough, baking mixes and ingredients, pet food, and superpremium ice cream. Its largest brands are Nature Valley, Cheerios, Old El Paso, Yoplait, Pillsbury, Betty Crocker, BLUE, and Haagen-Dazs. In fiscal 2020, 76% of its revenue was derived from the United States, although the company also operates in Canada, Europe, Australia, Asia, and Latin America. While most of General Mills' products are sold through retail stores to consumers, the company also sells products into the food-service channel and the commercial baking industry.

Number One General Mills Boulevard
Minneapolis, MN, 55426
T +1 763 764-7600
Sector Consumer Defensive
Industry Packaged Foods
Most Recent Earnings Nov 30, 2020
Fiscal Year End May 31, 2020
Stock Type High Yield
Employees 35,000