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General Mills (GIS) Strikes Deal With Sodiaal to Drive Growth

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General Mills, Inc. GIS is committed toward its Accelerate strategy in order to reshape its portfolio and generate profitable growth in the long run. Progressing along these lines, the company entered into a memorandum of understanding to offload 51% controlling interest in Yoplait S.A.S. to a renowned French dairy cooperative — Sodiaal. General Mills will get ownership of the Canadian Yoplait business as well as decreased royalty rate for use of Yoplait and Liberte brands in Canada and the United States, in exchange of the aforementioned transaction. Management expects to conclude the deal by the end of calendar 2021.

Once the transaction closes, Yoplait S.A.S. will run yogurt businesses in the U.K., France and various other markets. It will oversee a network of 28 franchisees that produce and distribute Yoplait branded items across more than 40 countries globally. Further, General Mills will acquire Sodiaal’s 49% ownership interest in Yoplait Canada Holding Co. once the deal concludes. This will make Yoplait Canada a wholly-owned subsidiary of General Mills. Incidentally, the company will wholly own yogurt operations in Canada and the United States. Also, General Mills will distribute branded products from Yoplait and Liberte across these regions, royalty-free.

Well, General Mills anticipates the deal to enhance its growth, improve margins and boost shareholders’ value. Also, it will increase the company’s focus on the brand platforms that have more growth potential. Management also expects to witness enhanced growth in its Europe and Australia segments once the transaction is complete.

Accelerate Strategy Holds Promise

In February, General Mills unveiled its Accelerate strategy to drive growth. The strategy is outlined to aid the company in making choices of how to win and where to play with an aim to boost profitability while enhancing shareholder 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. The newly-unveiled strategy is likely to help General Mills in delivering mid- to high-single-digit adjusted earnings per share growth at constant currency (cc) and driving shareholders’ returns. This is expected to be achieved through generating organic net sales growth between 2-3% and expanding margins. General Mills expects to report mid-single-digit adjusted operating profit growth at cc. Also, converting at least 95% of adjusted net earnings into free cash flow and returning 80-90% of free cash flow to shareholders via dividends as well as share buybacks are expected to contribute to the upside.

All said, we believe that the aforementioned transaction will help the company achieve its objectives in the Accelerate strategy. Shares of this Zacks Rank #3 (Hold) company have moved up 4.1% year to date compared with the industry’s 5.5% growth.

Better-Ranked Food Stocks

The Hain Celestial HAIN, currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medifast, Inc. MED — currently carrying a Zacks Rank #2 — has a trailing four-quarter earnings surprise of 17.4%, on average.

The J. M. Smucker Company SJM, currently carrying a Zacks Rank #2, has a long-term earnings growth rate of 1.7%.

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