Updated cost-saving target
General Mills (GIS) mentioned its updated cost-saving targets in its fiscal 2Q16 earnings press release. In the first half of fiscal 2016, the company announced additional actions related to Project Century in North America and Europe. The company is now targeting $450 million in cumulative cost savings by fiscal 2017 and $500 million by fiscal 2018. These cost savings will include the combination of Project Century, Project Catalyst, Project Compass, and the company’s policies and practices update, including zero-based budgeting.
International segment performance
In its fiscal 2Q16 earnings call, management mentioned that the International segment has been growing at compound rate of 14% over the past five years. It has generated more than $5 billion in net sales. General Mill’s acquisitions and its Consumer First product innovation and renovation have contributed to the segment’s performance. The segment’s operating profit grew at a compound rate of 20% over the five-year period, and its operating profit margin increased by 250 basis points, which included the impact of foreign exchange. The developed markets contributed 60% to the segment’s sales.
Project Compass is an initiative by the company to restructure its International segment to increase organizational effectiveness and reduce administrative expenses. The company is in the process of folding Yoplait’s international operations into its European regions to improve efficiency and optimize resources. This project is on track and is anticipated to be completed by early fiscal 2017. It is expected to deliver $45 million–$50 million in cost savings.
Project Century is an initiative of General Mills’ North American manufacturing and distribution network. This project’s intention is to streamline operations and recognize potential capacity reductions. In the fiscal 2Q16 earnings call, General Mills mentioned it has expanded the scope of this project beyond North America. General Mills expects this project to be completed by the end of fiscal 2018. In the first half of fiscal 2016, the company announced plans to close four additional factories as part of this project.
General Mills’ peer Bunge (BG) reported a YTD (year-to-date) return of -27.2%. However, GIS, J.M. Smucker (SJM), and Flowers Foods (FLO) reported positive YTD returns of 6.8%, 20.3%, and 14.2%, respectively. The PowerShares S&P 500 High Dividend Low Volatility Portfolio (SPHD) invests 1.5% of its holdings in GIS.