Why Did General Mills Expand the Recall of Its Products?

General Mills (GIS) has a market cap of $42.8 billion. It rose by 0.66% to close at $71.69 per share on July 25, 2016. The stock’s weekly, monthly, and YTD (year-to-date) price movements were -0.82%, 8.1%, and 27.1%, respectively, on the same day. GIS is trading 1.5% above its 20-day moving average, 7.8% above its 50-day moving average, and 19.5% above its 200-day moving average.

The PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY) invests 1.6% of its holdings in General Mills. The ETF aims to track a yield-weighted index of US companies that have increased their annual dividend for at least ten consecutive years. The YTD price movement of PEY was 21.6% on July 25.

The market caps of General Mills’ competitors are as follows:

• Kellogg (K)—$29.1 billion
• Hershey (HSY)—$23.6 billion
• Post Holdings (POST)—$5.5 billion

In a press release on July 25, 2016, Reuters reported, “General Mills Inc. said it was expanding its flour recall to more batches after the detection of E.coli in its flour samples that led to four new cases of illnesses.”

It added that “General Mills had recalled about 10 million pounds of flour in May and added two flavors of Betty Crocker cake mix in the United States and one in Canada to the recall in July.”

General Mills reported fiscal 4Q16 net sales of $3.9 billion, a fall of 9.3% from its net sales of $4.3 billion in fiscal 4Q15. Sales from the US Retail, International, and Convenience Stores and Foodservice segments fell by 12.2%, 1.5%, and 7.8%, respectively, between fiscal 4Q15 and 4Q16. In fiscal 4Q16, its net income and EPS (earnings per share) rose to $379.6 million and $0.62, respectively, as compared to $186.8 million and $0.30 in fiscal 4Q15.

In fiscal 2016, GIS reported net sales of $16.6 billion, a fall of 5.7% YoY (year-over-year). It reported a gain on divestitures of $148.2 million in fiscal 2016. YoY, the company’s gross profit margin and operating profit rose by 4.5% and 30.3%, respectively, in fiscal 2016.

In fiscal 2016, its net income and EPS rose to $1.7 billion and $2.77, respectively, as compared to $1.2 billion and $1.97 in fiscal 2015. In fiscal 2016, GIS’s cash and cash equivalents rose by 128.5%, and its inventories fell by 8.3%. In fiscal 2016, its current ratio and debt-to-equity ratio rose to 0.79x and 2.93x, respectively, as compared with 0.75x and 2.90x in fiscal 2015.

The company has made the following projections for fiscal 2017:

• organic net sales growth between 0% and -2%
• total segment operating profit growth in the range of 6%–8% on a constant-currency basis
• adjusted operating profit margin growth of ~1.5%
• adjusted EPS growth in the range of 6%–8% on a constant-currency basis

The company has made the following projections for fiscal 2018:

• modest organic net sales growth
• adjusted EPS growth in the low double digits on a constant-currency basis

In the next part of this series, we’ll discuss ConAgra Foods.