One of the best ways to get insight into a company's operation is to listen to management on a conference call. It's one of the few times investors can hear directly from a CEO about how business is going, where challenges lie, and what they're doing to adapt and grow.
In the case of General Mills, it's a chance to tell investors why revenue is down and what they're doing to right the ship. Here were my biggest takeaways from the fiscal third quarter conference call.
Currency is a big drag on results
This quote lays out the challenge for General Mills at the moment. Sales are down, driven by a strong dollar, and net income is falling due, in part, to restructuring and commodity hedge losses.
On an adjusted basis, earnings per share were up 15% from a year ago, but major cost cuts and share buybacks drove that. General Mills is still generating a lot of cash from selling consumer staples like Cheerios and Yoplait, but it's not growing at a significant rate and that has to be a concern for investors long-term.
International sales are a bright spot
The U.S. market is struggling for General Mills but international sales are doing well. This is partly driven by inflation, but it's also helped by the fact that branded foods are becoming more commonplace items in developing countries, particularly in Latin America. General Mills is able to take advantage of that and develop a distribution network that expands upon its success in the U.S.
Schools are an emerging growth market
Sadly, not enough children in the U.S. get proper nutrition at home, particularly for breakfast. So, schools are taking on some of that responsibility by offering growing breakfast options, which plays right into General Mills' offerings.
In addition to the growth numbers in the quote above, Quam said that 13 million breakfasts are served at K-12 schools each day, so the company is going after a big opportunity.
General Mills is trying to adapt to a changing market
One of the challenges for General Mills has been consumers' move to natural, organic, GMO-free, and no gluten products. Smaller food providers have largely taken up this market, leaving General Mills with a slowly shrinking market.
But they're trying to adapt and change products to serve what the market demands. Other product changes include gluten free Cinnamon Chex, removing artificial colors and flavors from kid yogurts, and reducing sugar by 25% in the Yoplait Original line. The hope is that these moves bring the company more in favor with consumers looking for healthier options.
Capital returns to shareholders remain strong
General Mills has completed three quarters in its fiscal year and has returned nearly $2 billion to shareholders so far. That figure alone should make investors consider the stock at a $32 billion valuation.
At the end of the day, General Mills is still a staple in the world's diet and it's creating cash that keeps going into investors' pockets. Sure, there are challenges for General Mills, but if you stick to companies that generate cash consistently and steadily pay it back to investors, you'll have a good chance at beating the market.
The article 5 Things General Mills, Inc. Management Wants You to Know originally appeared on Fool.com.
Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
Copyright 1995 - 2015 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.