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General Mills (GIS) Buys Pet Treats Business, Reshapes Portfolio

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As part of the Accelerate strategy, General Mills, Inc. GIS is on track to reshape its portfolio to drive growth. Keeping along this line, the company concluded the previously-announced (on May 14, 2021) acquisition of Tyson Foods, Inc.’s TSN pet treats business. The transaction— which includes the Nudges, Top Chews and True Chews brands — was priced at $1.2 billion on a cash basis. Per the deal, General Mills also took over Tyson Foods’ production unit located in Independence, IA.

The acquired business is a pioneer in natural meat treats for pets. The pet treats portfolio generated net sales of more than $240 million in 12 months ended Apr 3, 2021. General Mills had earlier noted that the acquisition bodes well amid growing pet-food category trends stemming from humanization of pets especially in the pandemic. All being said, the deal is likely to reshape General Mills’ portfolio, by adding another leaf to its impressive Pet platform that already includes BLUE — a leader in natural pet food.

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General Mills acquired Blue Buffalo Pet Products, Inc. in fiscal 2018, which is part of the company’s Pet segment. Following this acquisition, the company became one of the leading players in the pet food arena. Blue Buffalo manufactures and markets wholesome natural pet food items and is contributing to General Mills’ top line. BLUE retail sales increased in the mid-teens range in measured channels in fourth-quarter fiscal 2021 — which reflects on General Mills’ underlying strength. In fiscal 2021, Pet segment sales rose 2%. Also, management expects segment sales to increase year over year in fiscal 2022.

What Else Should You Know?

General Mills is focused on its Accelerate strategy (unveiled in February 2021), which aids the company in making choices of how to win and where to play to boost profitability. It also enables the company to enhance shareholders’ returns in the long run. Under how to win, General Mills is focused on four pillars that are designed to provide competitive advantage. These include brand building, undertaking innovations, unleashing scale and maintaining business strength. Where to play principle is outlined to enhance the company’s capabilities to generate profitability through geographic as well as product prioritization along with portfolio restructuring. This includes prioritizing investment, investing in five Global Platforms, driving growth in Local Gem brands and reshaping portfolio.

Apart from this, General Mills’ three core priorities for fiscal 2021 yielded positively. These included competing efficiently, operating with efficacy to fuel investments in brands and capabilities, as well as reducing leverage. With regard to its competing efficiently priority, the company saw broad-based net sales improvement across its largest markets in fiscal 2021. As part of the second priority, the company is on track with its Holistic Margin Management (HMM) and Strategic Revenue Management (SRM) initiatives. Also, management is focused on investing in digital, e-commerce as well as data and analytics, which appear to be promising areas. Finally, General Mills progressed well with reducing its debt leverage, ending fiscal 2021 with net debt to adjusted EBITDA ratio of 2.9 times.

For fiscal 2022, General Mills reaffirmed its three key priorities, which are in line with the Accelerate strategy. The company plans to continue competing effectively — which includes prioritizing core markets; local gem brands and global platforms as well as utilizing its innovation and brand-building capacities. Next, the company is focused on undertaking cost-control moves including HMM productivity program, SRM pricing initiatives among other endeavors to counter input cost inflation and other cost woes. Thirdly, General Mills is focused on actions related to reshaping the portfolio and the organization, as evidenced by the aforementioned deal with Tyson Foods.

Notably, shares of this Zacks Rank #3 (Hold) company have moved up 6.1% in the past six months compared with the industry’s 6.7% growth.

Better-Ranked Food Picks

Darling Ingredients Inc. DAR, currently sporting a Zacks Rank #1 (Strong Buy), has a trailing four-quarter earnings surprise of 29.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

Medifast, Inc. MED, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 12.7%, on average.

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