Industry Trend Analysis - Major Investment Shift Needed For General Mills - OCT 2017
BMI View: General Mills ' investment decisions from three years ago are still having adverse effects in 2017, putting it behind the curve compared with other more innovative companies. W e believe more emphasis needs to be placed in the recipes of its core brands and advertising them as innovative and healthy in order to recapture growth. Its acquisition of Annie's could be its key to future success, as it promises to be a key bra nd in our view.
Despite revenue growth declining over the past three years, General Mills' share price performed well up until July 2016, hitting a high of USD71.89. It has since retreated to about USD56 as of the start of August 2017, but maintained strong momentum even with falling revenues. This is because the company was spending on share buybacks and cash returns to shareholders, ensuring the dividends increased each year. Its share price increase didn't really reflect the performance of the company, until midway through 2016. Results for its most recent financial year ending May 28 2017 have also spooked investors, leading to further downwards trajectory.
As it was splurging on cash returns, the company was cutting back on expenditure in media, advertising and research and development. Combined with the changing consumer preferences and healthification trends, its investment decisions from three years ago are still having adverse effects in 2017, putting it behind the curve compared with other more innovative companies. Cutbacks to media & advertising and R&D were going on even before revenues started to decline, implying that the company believed it could keep growing with the same product portfolio while it looked to address margins and shareholders through cutting costs.
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|Source: General Mills|