The “tremendous momentum” of General Mills’ domestic business can help the US food group withstand fierce competition in its home market, the Cheerios maker has insisted.
General Mills yesterday (30 June) published its full-year and fourth-quarter results, which included flat gross margins for the last three months of its fiscal year due in part to the company’s “tactical” promotions amid a competitive US market.
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Discussing the company’s results with analysts, General Mills CFO Don Mulligan acknowledged the “very competitive” trading conditions in the US but talked up the group’s ability to withstand that competition.
“We are in a very competitive environment. So, every year you go into as a CFO I always have some concerns about how the year is going to unfold. But what I can tell you is, coming out of what is three to four years now a very strong performance, we have tremendous momentum,” Mulligan said.
The General Mills finance chief also explained the company’s flat fourth-quarter gross margins by pointing the impact of higher prices on margins in the corresponding period a year earlier.
Mulligan said General Mills’ efficiency programme, dubbed Holistic Margin Management (HMM), had boosted margins over the last two years.
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By GlobalData“I think the important thing also … is that, as we look at our price mix over an extended period of time, we have been pretty restrained in that and we’ve been able to because of HMM. In the past year our gross margin has improved by 330 basis points. Over two years that’s over 400, almost 450 basis points,” Mulligan said.
However, looking to the current financial year, General Mills set out a cautious forecast for earnings. It is targeting full-year earnings per share of $2.46-2.48 – below analysts’ consensus of $2.49.
In a note to clients, Sanford Bernstein analyst Alexia Howard warned that competition in the US could continue to weigh on General Mills’ margins in the year ahead, despite the HMM programme.
“Altogether, while we believe that the company’s Holistic Margin Management programme should allow General Mills to see modest margin improvement despite the uptick in commodity pressures and pricing pressures, as we enter FY11, we believe that investors should keep an eye on evolving competitive dynamics in the US retail segment, which could pressure both the top line and margins despite easier comparables,” Howard said.
“We are forecasting FY11 EPS of $2.46, and rate General Mills ‘marketperform’ with a target price of $36.”
