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General Mills Inc GIS

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Morningstar’s Analysis

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Pandemic Drives General Mills’ Sales Growth, but Inflation Pressures Margins; Shares Fairly Valued

Analyst Note

| Rebecca Scheuneman, CFA |

General Mills’ fiscal third-quarter organic sales grew 7%, fueled by American’s continued turn homeward as a result of the pandemic, and as pet food sales (10% of revenue) grew 14% on the launch of Tastefuls wet cat food, along with ongoing strength in dog food. Per Nielsen, the firm grew market share in all five of its global platforms during the quarter (60 basis points in cereal, 30 in bars, 40 in pet, 30 in ice cream, and 110 in Mexican). But we think it will be difficult for the firm to maintain these gains once the market normalizes after the pandemic, even as we acknowledge that the firm maintains a portfolio of strong, market leading brands (that underpin its narrow-moat rating). During the health crisis, across packaged food categories, the largest brands generally gained share as manufacturers and retailers simplified offerings to maximize efficiency, in order to meet heightened demand. Once the spike in at-home food consumption eases, smaller brands should be reintroduced on shelves, challenging General Mills’ recent gains.

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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 Feb 28, 2021
Fiscal Year End May 31, 2020
Stock Type High Yield
Employees 35,000