Critical Analysis Paper

General Mills, Inc.

General Mills, Inc.- Financial and Strategic Analysis Review

Reference Code: GDCPG40442FSA

Page 1

General Mills, Inc. - Financial and Strategic Analysis Review Publication Date: Jun-2016

Reference Code: GDCPG40442FSA

Company Snapshot Key Information General Mills, Inc., Key Information Web Address www.generalmills.com Financial year-end May Number of Employees 42,000 NYSE GIS Source : GlobalData Key Ratios General Mills, Inc., Key Ratios

P/E NA

EV/EBITDA NA

Return on Equity (%) NA

Debt/Equity NA

Operating profit margin (%) NA

Dividend Yield NA

Source : GlobalData

Share Data General Mills, Inc., Share Data

EPS (USD) NA

Book value per share (USD) NA

Shares Outstanding (in million) 611.90

Source : GlobalData

Performance Chart General Mills, Inc., Performance Chart (2012 - 2016)

Source : GlobalData

Company Overview General Mills, Inc. (General Mills) is a manufacturer and marketer of consumer foods. The company offers a wide range of ready-to-eat cereal, convenient meals, snacks, yogurt and ice cream. General Mills' products are marketed under various brands including Cheerios, Fiber One, Haagen-Dazs, Nature Valley, Yoplait, Betty Crocker, Pillsbury, Green Giant, Old El Paso, Wanchai Ferry and Yoki. The company also supplies baking mixes and ingredients; refrigerated and frozen dough; and frozen and shelf-stable vegetables to North American foodservice and commercial baking industries.

SWOT Analysis General Mills, Inc., SWOT Analysis

Strengths Weaknesses Awards and Recognitions

Broad Product and Brand Portfolio

Wide Geographic Operations

Product Recalls

Declining Financial Performance

High Debt

Opportunities Threats

Increase in Global Food Consumption

Product Innovation

Growing Demand for Organic Food Products

Expansion by Competitors

Foreign Currency Fluctuations

Stringent Regulations

Source : GlobalData

Financial Performance The company reported revenues of (US Dollars) US$17,630.3 million for the fiscal year ended May 2015 (FY2015), a decrease of 1.6% over FY2014. In FY2015, the company’s operating margin was 11.8%, compared to an operating margin of 16.5% in FY2014. In FY2015, the company recorded a net margin of 6.9%, compared to a net margin of 10.2% in FY2014.

General Mills, Inc.

General Mills, Inc.- Financial and Strategic Analysis Review

Reference Code: GDCPG40442FSA

Page 2

Key Information General Mills, Inc., Key Information Corporate Address Number One General Mills Blvd,

Minneapolis, MN, 55426, United States

Ticker Symbol, Stock Exchange

GIS [New York Stock Exchange]

Telephone +1 763 7647600 No. of Employees 42,000 (Estimated) Fax +1 763 7647384 Fiscal Year End May URL www.generalmills.com Revenue (in USD Million) 17,630.3 Industry Consumer Markets, Consumer

Packaged Goods, Pharmaceuticals and Healthcare

Locations Argentina, Australia, Brazil, Canada, France, Germany, Greece, Hong Kong, India, Israel, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Philippines, Portugal, Singapore, South Africa, Spain, Taiwan, United Kingdom, United States, Venezuela

Source : GlobalData Company Overview General Mills, Inc. (General Mills) is a manufacturer and marketer of consumer foods. The company offers a wide range of ready-to-eat cereal, convenient meals, snacks, yogurt and ice cream. General Mills' products are marketed under various brands including Cheerios, Fiber One, Haagen-Dazs, Nature Valley, Yoplait, Betty Crocker, Pillsbury, Green Giant, Old El Paso, Wanchai Ferry and Yoki. The company also supplies baking mixes and ingredients; refrigerated and frozen dough; and frozen and shelf-stable vegetables to North American foodservice and commercial baking industries. The company's operations are spread across Asia Pacific, Europe, North America and Latin America. General Mills is headquartered in Minneapolis, Minnesota, the US.

General Mills, Inc.

General Mills, Inc.- Financial and Strategic Analysis Review

Reference Code: GDCPG40442FSA

Page 3

General Mills, Inc. - SWOT Analysis SWOT Analysis - Overview General Mills, Inc. (General Mills) is one of the leading food companies in the world. Awards and recognitions, broad product and brand portfolio and wide geographic operations are the company’s main strengths, whereas product recalls, high debt and declining financial performance remain major areas of concern. In the future, foreign currency fluctuations, expansion by competitors and stringent regulations may affect its growth. However, increasing global food consumption, product innovation and growing demand for organic food products are likely to provide growth opportunities to the company. General Mills, Inc. - Strengths Strength - Awards and Recognitions Awards and recognitions received by the company helps in increasing brand awareness and earn consumer loyalty. In September 2015, General Mills was recognized by Working Mother magazine as one of the top ten 2015 Working Mother 100 best companies. The company was named to the Newsweek's 2015 Green Rankings in June 2015. In April 2015, it was ranked 19th in the Top 50 Companies for Diversity list by DiversityInc. The company was named to FORTUNE’s annual list of the 100 Best Companies to Work For in March 2015. In the same month, General Mills was also recognized as the Best Companies for Multicultural Women in the US, by Working Mother magazine. Awards and recognitions enhance the company’s brand image in the market therefore attract new customers. Strength - Broad Product and Brand Portfolio The company offers a wide choice of food options to attract and retain its customers. General Mills produces and markets over 100 consumer brands in more than 100 countries. It primarily offers ready-to-eat cereals, soup, meal kits, refrigerated yogurt, shelf stable and frozen vegetables, dessert and baking mixes, refrigerated and frozen dough products, frozen pizza and pizza snacks. It also offers grain, fruit and savory snacks, and a wide range of organic products including granola bars, meal kits, and cereal. Its major brands in the cereal products category include Cheerios, Wheaties, Cinnamon Toast Crunch, Lucky Charms and Fiber One; Snacks category includes brands such as Nature Valley, Fiber One, Chex Mix, Annie’s, and Food Should Taste Good; Meals category includes Helper, Old El Paso, Betty Crocker, Green Giant and Progresso soups; Baking Products category include Betty Crocker, Pillsbury, Immaculate, Bisquick and Gold Medal; and Yoghurt and other products include Yoplait, Greek 100 and Go-Gurt. Broad product and brand portfolio enable the company to cater diversified customer base, which in turn increase its revenue flow. Strength - Wide Geographic Operations The company’s operations are diversified in terms of its geographical reach. General Mills markets its products in more than 100 countries. The company has production operations in 16 countries. As of May, 2015, General Mills operated 66 production facilities, of which 34 are located in the US, seven in the Asia/Pacific region, five in Canada, 11 in Europe/Australia, and nine in Latin America and Mexico. The company also operates through two joint ventures: Cereal Partners Worldwide (CPW) and Häagen-Dazs Japan (HDJ). CPW is a 50-50 partnership with Nestle, which manufactures and markets breakfast cereals in over 130 countries outside the US and Canada. CPW also markets cereal bars in various European countries and produces private label cereals for customers in the UK. The company holds 50% equity interest in HDJ, which produces, distributes, and markets Haagen-Dazs ice cream products and frozen novelties. Wide geographic operations diversify the revenue sources and help the company achieve economies of scale. General Mills, Inc. - Weaknesses Weakness - Product Recalls The company’s product recalls may impact its brand image. In October 2015, General Mills recalled several days of production of Cheerios and Honey Nut Cheerios produced at its Lodi, California facility. The recall made due to the presence of an undeclared allergen with potential adverse health effects.. During the same month, the company also recalled a limited quantity of frozen Cascadian Farm Cut Green Beans. The recall made due to the possible presence of Listeria monocytogenes bacteria in the product. Product recalls may increase its operational costs, which may affect its bottom line performance. Weakness - Declining Financial Performance In FY2015, General Mills’ revenue decreased 1.6% to US$ 17630.3 million, as compared to US$ 17909.6 million in FY2014. This was primarily due to integration of costs resulting from the acquisition of Annie’s, and the impact of Venezuela currency devaluation. This was also due to certain restructuring charges, intangible asset impairment charges, tax impact of repatriation of foreign earnings, and losses arising from mark-to-market valuation of certain commodity positions and grain inventories. This resulted 4.1% decline in the company’s gross profit to US$6,112.9 million in FY2015, as compared to US$6,374.7 million in FY2014. The gross margin decreased from 35.6% in FY2014 to 34.7% in FY2014. During the review year, General Mills also registered a decline in its operating and net income. In FY2015, the company

General Mills, Inc.

General Mills, Inc.- Financial and Strategic Analysis Review

Reference Code: GDCPG40442FSA

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registered 29.8% decline in its operating income to US$2,077.3 million, as compared to US$2,957.4 million in FY2014. The company’s net income decreased 33.1% to US$1,221.3 million in FY2015, as compared to US$1,824.4 million in FY2014. Declining financial performance indicates lower potential of the company to pursue its growth and expansion plans. Weakness - High Debt High debt remains a major concern for the company. At the end of FY2015, the company had a total long term debt of US$7607.7 million. In FY2015 the total debt of the company reached US$9,223.9 million from US$8,785.8 million in FY2014. The company reported an increase of 5% in its total debt in FY2015, over previous year, whereas its total revenue decreased 1.6% during the same period. This increase in debt levels indicates that General Mills will incur higher interest expense in future, which affects profitability. At the end of FY2015, its interest expenses stood at US$335.5 million. The company’s business operations may be affected, if it is unable to generate sufficient cash flow for such high debt servicing. This high debt also limits the expansion plans, as it becomes difficult to raise funds from the debt market at favorable terms. General Mills, Inc. - Opportunities Opportunity - Increase in Global Food Consumption The company may benefit from increase in global food consumption. According to the estimates of Food and Agriculture Organization of the United Nations, global per capita food consumption is expected to increase from 2,803 kcal per capita per day during 1997-99 to 2,940 kcal per capita per day in 2015 and 3,050 kcal per capita per day in 2030. Per capita food consumption in developing countries is estimated to increase from 2,681 kcal per capita per day during 1997-99 to 2,850 kcal per capita per day in 2015 and 2,980 kcal per capita per day in 2030. To focus on food market, in January 2016, General Mills acquired EPIC Provisions, a meat snacks company in Austin, Texas, the US. The company also offers a number of products to the food industry. Thus, increase in global food consumption may increase demand for the company’s offerings. Opportunity - Product Innovation The company may benefit from its product innovations activities and new product launches made during the review year. In July 2015, General Mills, launched several new products to align with the growing consumer interest in wellness. The company introduced products made from simple ingredients, foods free from gluten, natural and organic foods, foods that deliver more fiber, more protein and more whole grain, and foods free from artificial ingredients to address the consumers focus on wellness. In this line, General Mills launched Nature Valley Toasted Oats Muesli, Yoplait Plenti, Annie’s organic soups, Food Should Taste Good Real Good Bars, Nature Valley Simple Nut Bars, Cheerios Plus, and Yoplait O’Fruit. During review period, the company launched several products offering contemporary food solutions to save time in the kitchen. These products include Progresso Cooking Stock, Green Giant Fire Roasted Vegetables, Old El Paso Mini Taco Boats, and Latina Fresh Gluten Free Pasta. It also launched several sweet treats including Cinnabon Mini Pull-Aparts, Häagen-Dazs Stick Bars, FiberOne Cheesecake Bars, and Betty Crocker Mug Cake. In June 2015, the company launched Yoplait yogurt brand in China in three variants of Perle de lait, a thick and creamy French-style yogurt, Panier de fruits, yoghurt with fruits, and O’Fruit, a drinkable yogurt with fruit pieces. Product innovations and new product launches may enable the company to retain its market share. Opportunity - Growing Demand for Organic Food Products The growing demand for organic food worldwide could open new growth avenues for the company. In today’s world, consumers are looking for food choices that offer great taste and convenience, besides wellness benefits. According to a report from the Organic Trade Association (OTA), the global demand for organic products has been growing. Rising health consciousness has made organic foods one of the fastest growing segments in the food retailing industry. The global organic food market is expected to grow from US$57.2 billion in 2010 to US$104.5 billion in 2015 at an estimated CAGR of 12.8%. As per the World of Organic Agriculture report, consumer demand for organic products is concentrated in North America and Europe; these two regions comprise 97% of global revenues. The European organic market is estimated at US$5.3 billion. In October 2014, General Mills acquired Annie’s, Inc., (Annie’s). Annie’s is a producer of branded organic and natural food products based in the US. The acquisition adds Annie’s’ natural and organic products range to the company’s product portfolio, which include the brands LÄRABAR, Muir Glen, Cascadian Farm, and Food Should Taste Good. This acquisition may enable the company to strengthen its presence in the US branded organic and natural foods market. Since General Mills offers organic food products, therefore growing demand for organic food products may increase the demand for company’s products. General Mills, Inc. - Threats Threat - Expansion by Competitors General Mills faces stiff competition in the consumer foods industry, which is primarily based on product quality, product

General Mills, Inc.

General Mills, Inc.- Financial and Strategic Analysis Review

Reference Code: GDCPG40442FSA

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innovation, price, effectiveness of marketing, brand recognition and loyalty, promotional activity, and the ability to identify and satisfy consumer preferences. The company’s principal strategies for competing in each of its segments include effective customer relationships, unique consumer insights, superior product quality, product promotion, innovative advertising, product innovation aligned with consumers’ needs, an efficient supply chain, and price. It faces competition from both branded and private label products. General Mills’ key competitors include Danone SA, McCormick & Company, Incorporated, Seneca Foods Corporation, Post Holdings, Inc., and The Hain Celestial Group, Inc., among others. While major competitors have undertaken expansion programs to match the growth rate, the market also registered consolidation involving mergers and acquisitions. In March 2015, McCormick & Company, Incorporated (McCormick) acquired Brand Aromatics Inc., a supplier of natural savory flavors, marinades, and broth and stock concentrates. This acquisition may broaden its portfolio of marinades and other savory products. In February 2015, the company signed an agreement to acquire Drogheria & Alimentari, a leader in spices and seasonings in Italy. This acquisition complements McCormick's strong brands across EMEA and expands McCormick's portfolio of spice and seasoning products. Such expansion initiatives by competitors may put pressure on the company’s pricing strategy and market position. Threat - Foreign Currency Fluctuations General Mills operates in many parts of the world and is exposed to fluctuations in foreign exchange rates. The company reports financials in the US dollar and therefore its revenue is exposed to volatility of the US dollar against other functional currencies, as it conducts business operations in more than 100 countries. Significant part of its revenue is also denominated in other currencies such as Australian dollar, British pound sterling, Brazilian real, Canadian dollar, euro, Chinese renminbi, Mexican peso, Japanese yen, and Swiss franc. Major elements exposed to exchange rate risks include the company’s investments in overseas subsidiaries and affiliates and monetary assets and liabilities arising from business transactions in foreign currencies. As of May 2015, General Mills had deferred net foreign currency transaction gains of US$10.7 million, as compared to deferred net foreign currency transaction losses of US$104.3 million in the previous year. To minimize risks from currency fluctuations, the company involves in foreign exchange hedging activities by entering into foreign exchange forward contracts. However, there may be no assurance that such hedging activities or measures may limit the impact of movements in exchange rates on the company’s results of operations. Threat - Stringent Regulations The company is subject to local, regional and global laws and regulations in the diverse areas of trademarks, product safety, patents, product claims, copyright, competition, employee health and safety, listing and disclosure, the environment, corporate governance, employment and taxes. In the US, General Mills’ business is subject to regulation by several federal government agencies, including the Department of Agriculture, Food and Drug Administration, Department of Commerce, Federal Trade Commission, and Environmental Protection Agency. The company’s business is also subject to regulation by several state and local agencies. These agencies oversee compliance with the regulations outlined in the act. For instance, in the US, the food, drug and cosmetics industry is regulated by the Federal Food, Drug and Cosmetic Act. The FDA oversees compliance with the regulations outlined in the act. The FDA may conduct investigations and examinations of products. It may also inspect establishments in which products are manufactured or held, and may seize adulterated or misbranded products. The FDA regulates products worth US$1 trillion per year and ensures the safety of all drugs, biological products, medical devices, animal drugs, feed and all food. General Mills’ business is also subject to several federal, provincial, state, and local laws and regulations in the US in relation to the protection of environment. These laws and regulations include the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Comprehensive Environmental Response, Compensation, and Liability Act, and the Federal Insecticide, Fungicide, and Rodenticide Act. The company’s products are sold in over 100 countries worldwide. Failure to comply with any of the laws and regulations could expose the company to civil and/or criminal actions leading to fines, damages and criminal sanctions. Also changes in laws and regulations could adversely affect the company’s business. For instance, regulations related to tax and their interpretation changes regularly, which may lead the company to the risk of unexpected tax exposure. The company has to incur significant cost to comply with the regulations, which increase its operating costs. NOTE: The above strategic analysis is based on in-house research and reflects the publishers opinion only