General Mills adopts 'always on' acquisition approach as ‘ongoing part of our accelerate strategy’

By Elizabeth Crawford contact

- Last updated on GMT

Source Getty/ tacar
Source Getty/ tacar

Related tags: General mills, Cereal, acquisition

General Mills continues to hunt aggressively for acquisitions to build out its five core platforms, including cereal, ice cream, snack bars, Mexican food and pet food, and to consider strategic divestitures as part of a broader strategy to reshape its portfolio that is already paying off.

Since fiscal 2018, General Mills has turned over roughly 15% of its net sales base through acquisitions and divestitures, which increased its "growth exposure by a full point" – establishing a promising path for ongoing, steady growth in the coming years, General Mills CEO and chairman Jeff Harmening told investment analysts yesterday during the Consumer Analyst Group of New York’s annual conference.

“We don’t see M&A as an episodic activity, but rather an ongoing part of our accelerate strategy. As a result, [our] new strategy and growth organization has built an always on M&A capability focused on sourcing and executing acquisitions and divestitures and capturing best practices that we can leverage in future transitions,”​ he explained.

In particular, he said, with General Mills’ “balance sheet in a healthy position, we’re actively looking for growth, accretive acquisitions focused in our core markets that play in current or new growth platforms and where we can leverage our capabilities to create value.”

As an example, Harmening pointed to General Mills’ acquisitions in the pet food space, including Blue Buffalo, net sales for which have grown more than 10% to $600m since the acquisition in Spring 2018. This helped the company reach more than 10m households and gain more than 1 point market share and see operating profit climb more than 11%.

General Mills’ other core platforms include cereal, ice cream, snack bars and Mexican food.

The company also is focused on acquisitions in its core markets, with the US being its top growth priority, Harmening said.

Finally, he noted, the company is looking for acquisitions that will be growth accretive.

“In addition, we’re open to divestitures of growth dilutive businesses that have lower returns on investment and where General Mills is not uniquely positioned to win,”​ Harmening said.

Recent examples including the completed or pending divestments of lower growth margin businesses such as yogurt in Europe and Brazil and dough in Europe and Argentina, he said.

The company’s combined acquisitions and divestitures to date have “put our enterprise growth solidly within our long term 2-3% organic net sales growth target,”​ Harmening said, noting, “additional portfolio changes from here will help us move towards the higher end of that range.”

Innovating close to home and in fast-developing areas

General Mills also is committed to growing its business through innovation, ranging from new product development within its core platforms to expanding into white space previously untapped by the business, Dana McNabb, chief strategy and growth officer, said at the CAGNY conference.

“We think of innovation on a spectrum from launching close in new products that provide consumers variety to fostering whitespace exploration to invest in and are fully acquiring new businesses,”​ she said. “Over the past year, we’ve leveraged each of those tools to help us win today.”

For example, she noted the launch of Cheerios Oat Crunch Almond, “which addresses consumers’ feedback that they would love more texture in their Cheerios bowl.”

Likewise, she called out the launch of Old El Paso tortilla pockets, which are an alternative to the round tortilla “that makes it easier to enjoy taco night without the mess.”

As for new areas of development, General Mills is focused on products that positively impact climate change, increase consumer personalization and technology enabled convenience, McNabb said.

“For example, to get after the theme of climate change impact on food, G Works has launched Bold Culture, a next generation cheese alternative made with proteins created through precision fermentation, which replicates dairy proteins without the cow,”​ she said.

In terms of personalization, 301 Inc recently invested in Black-founded plant-based meat company Everything Legendary to better target the Black community, which is leading the way in the US in adopting a vegan diet at almost 8%, McNabb said.

Finally, she said, “we think going big in digital and technology, or DLT, will create value by unlocking insights, growth and efficiency across every aspect of our business. We’ve increased our investment in this area for a third consecutive year, focusing on implementing digital solutions that will support marketing in a digital world, improve connected commerce and customer relationship management and help us get sharper at predicting demand and improving supply.”

A strong year ahead

Through the combination of mergers, acquisitions and innovation, along side other strategic moves, General Mills aims to deliver a 2-3% compound annual growth rate for organic net sales in the coming year over fiscal 2018 with modest margin expansion around the mid-single digits, CFO Kofi Bruce said during the conference.

He also reaffirmed the company’s fiscal 22 guidance of projected organic net sales of 4-5%, and adjusted operation profit growth down 1-4% and adjusted diluted earnings per share growth down 1-2%.

These projections are against a tough macroeconomic environment in which inflation and supply chain constraints, including currently in refrigerated dough, pizza and hot snacks platforms in North America, will constrict the first the half of the year so that earnings are more heavily weighted to the fourth quarter.

“We expect our net sales growth will lag our retail sales performance in Q3 and we expect third quarter adjusted operating profit will be down high-single digits to low double digit versus last year,”​ Bruce said, adding: “We’ve taken actions to address the supply constraints and we expect improved customer service and deliver strong top and bottom-line growth in the fourth quarter.”

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