General Mills Inc. (NYSE:GIS - News) is reportedly coming back to Brazil after four long years. Its return to the land of Samba beats was spurred by its decision to buy Yoki, a local family-owned food manufacturer, for around R$2 billion (US$1.16 billion).
Yoki has nine manufacturing plants in six Brazilian states and sells around 600 products across the Latin American country. According to sources, Yoki – that produces cereals, popcorn, juice mixes, snacks, flour as well as packaged tea – has annual revenues of more than R$1.0 billion.
Of late, several American retail giants have been looking beyond their homeland, as it has become saturated. The recession, depleting disposable income and widespread unemployment in the country has added to the woes of the companies.
General Mills is also following the trend. Its international sales have risen from a meager 10% in 2002 to 19% in 2011.
General Mills had stopped production in Brazil after its Frescarini pasta factory was destroyed by fire in 2007. The factory used to produce pasta and bread locally and it was marketed under the name Forno de Minas.
After the fire, General Mills had sold the brand to local dairy firm Laticínios Condessa. General Mills is still selling global brands like Haagen-Dazs ice cream and Nature Valley snack bars in Brazil, but now they are imported into Brazil.
International food and beverages giant PepsiCo International (NYSE:PEP - News) has also utilized the huge untapped consumer market in Latin America. In a move to strengthen its foothold in Brazil, U.S. beverage major PepsiCo acquired Brazilian cookie company, Grupo Mabel in November, 2011.
In January 2012, it revealed its plans to purchase local cookie maker Marilan Alimentos. In September 2011, it opened a new manufacturing plant in Feira de Santana, in the Northeast of Brazil that is expected to generate about 400 direct and indirect jobs in the region. It also acquired Dilexis, a traditional manufacturer of cookies and crackers in Argentina.
The proposed buyout of Yoki by General Mills will be of great benefit to the company as there are several growth opportunities that General Mills can exploit. Moreover, resurgence of middle class in Brazil will boost the demand that is necessary for the absorption of supply by the retail giants.
Currently, we prefer to be Neutral on General Mills’ stock. However, General Mills holds a Zacks #3 Rank, which translates into a short-term Hold rating.
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