Justin Craigwell-Graham Charles Gambino Jacob Rapp 12/3/2009 General Mills, Inc. (GIS)

Justin Craigwell-GrahamCharles Gambino

Jacob Rapp12/3/2009

General Mills, Inc. General Mills, Inc. (GIS)(GIS)

IntroductionIntroduction• Company, Industry, Competitor, and Company, Industry, Competitor, and

Macroeconomic AnalysisMacroeconomic Analysis

• Financial Statement AnalysisFinancial Statement Analysis– DuPont AnalysisDuPont Analysis– Pro Forma AnalysisPro Forma Analysis

• ValuationValuation– DCF ValuationDCF Valuation– Multiples ValuationMultiples Valuation– Dividend Discount ModelDividend Discount Model

• RecommendationRecommendation

Company OverviewCompany Overview

Founded in 1866

Based in Minneapolis, MN

Approximately 30,000 employees

Website: www.generalmills.com

Famous Products

Company OverviewCompany Overview

• Three Segments– US Retail (68% of sales)– International (18%)– Bakeries & Food Service (14%)

• Trends– Healthy/Organic– Convenient products

Industry OverviewIndustry Overview

• Consumer Food & Food Processing Industry– Large & Mature– Stable– Trends

• Divestitures• Consolidations

– Main Competitors• Kellogg, Kraft Foods, Campbell Soup, & HJ Heinz

CompetitorsCompetitorsCompany Market Cap* Annual Sales Brands

Kellogg $20.10B $12.822B Rice Krispies, Frosted Flakes, Cheez-It, Pop-Tarts, Eggo, Nutri-Grain

Kraft Foods 39.33B 42.401B Kraft, Oscar Meyer, Nabisco, Oreo, Maxwell House

Campbell Soup 12.10B 7.586B Campbell’s, Pepperidge Farm, Prego, Swanson, V8

HJ Heinz 13.56B 10.148B Heinz, Bagel Bites, Ore-Ida, Smart Ones

General Mills 22.38B 14.691B Betty Crocker, Bisquick, Cheerios, Yoplait

•Intraday 12/1/09

Macroeconomic Overview

• Subject to fluctuations in input prices and foreign exchange rates– GIS has done well historically in hedging these risks.

• General Mills has the potential to perform well even during recessions– As consumers try to save money during economic downturns, they

typically eat out less and buy more products to cook at home• As economy recovers in 2010 and beyond, strong product lines and broad

distribution networks allow the company to maintain growth through expansion into international markets such as China

• Product categories have historically grown 3-4% regardless of economic conditions

SWOTSWOTStrengthStrength Weaknesses

Successful international Successful international

expansionexpansion Strong leadership training Strong leadership training

programs and high employee programs and high employee

retentionretention Brand recognitionBrand recognition Distribution networksDistribution networks

Older product lines can suffer Older product lines can suffer from lack of innovationfrom lack of innovationFierce and constant competition Fierce and constant competition

in food industryin food industryHigh marketing costs to retain High marketing costs to retain

market sharemarket share

Opportunities Opportunities ThreatsThreats

Continued international expansionContinued international expansionHealthy food segmentHealthy food segmentInnovative internet research Innovative internet research

techniquestechniquesGluten-free offeringsGluten-free offerings

Consolidation of retail Consolidation of retail environmentenvironmentDependence on few large Dependence on few large customers for salescustomers for salesIncreasing commodity pricesIncreasing commodity prices

Price Movement YTD

S&P and Competitors

DuPont Analysis

DuPont Analysis

Management EvaluationGrowth Objectives: How they did:

Low single digit growth in annual net sales 2009: 8%2008: 10%2007: 6%

Mid single digit growth in operating profit 2009: -1% 2008: 8%2007: 5%

High single digit growth in EPS 2009: 2%2008: 19%2007: 8%

Relative ValuationActual Value -5% +5%

General Mills Share Price as of 11/24/09 $68.34 $64.92 71.757

Average Value Min Value

Median Value

Max Value

Trailing P/E $68.96 $64.41 $70.15 $72.31P/B $149.40 $26.55 $152.12 $269.53P/S $61.08 $44.28 $66.07 $72.90TEV/EBITDA $61.58 $39.34 $59.22 $86.17

Green = Above +5% of Current Stock Price

Yellow = Between -5% and +5% of Current Stock Price

Red = Below -5% of Current Stock Price

Valuation Summary• DCF

– $65.45 to $79.99

• Multiples– P/E: $64.41 to $72.31– P/B: $26.55 to $269.53– P/S: $44.28 to $72.90– EBITDA: $39.34 to $86.17

• DDM– $39.47 to $48.24

Recommendation

• Closing price on 12/01/09: $68.68

• Recommendation: Add to Watch List– GIS is currently fairly valued– Possible Benefits:

• Large dividend• Diversification benefits• Costs are well managed• Growth during all market cycles