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.