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General Mills Recalled Its Betty Crocker Cake Mix: Here’s Why

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Price movement

General Mills (GIS) has a market cap of $43.0 billion. It fell by 0.90% to close at $71.81 per share on July 11, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.48%, 10.6%, and 27.3%, respectively, that day. GIS is trading 6.6% above its 20-day moving average, 11.3% above its 50-day moving average, and 21.4% above its 200-day moving average.

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Related ETF and peers

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 19.3% on July 11.

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

  • Kellogg (K): $28.5 billion
  • The Hershey Company (HSY): $23.4 billion
  • Post Holdings (POST): $6.0 billion

General Mills recalls products

General Mills has recalled two flavors of Betty Crocker cake mix sold in the United States and one flavor sold in Canada. The company reported that “a General Mills supplier used Wondra flour implicated in the July 1, 2016 recall to manufacture the flavor chips (or bits) used in these two recalled cake mix flavors.  General Mills continues to collaborate with health officials to investigate a multistate outbreak of E. coli O121 connected to several brands of flour.”

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General Mills’ performance in fiscal 4Q16 and fiscal 2016

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

Quarterly dividend

General Mills has declared a quarterly dividend of $0.48 per share on its common stock. The dividend will be paid on August 1, 2016, to shareholders of record at the close of business on July 11, 2016.

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Fiscal 2016 results

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, compared with $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, compared with 0.75x and 2.90x in fiscal 2015.

Projections

The company has made the following projections for fiscal 2017:

  • organic net sales growth in the range of 0% to -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 Lululemon Athletica.

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