Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

General Mills, Inc. (GIS), H.J. Heinz Company (HNZ): Three Food Champions to Analyze

It is a fact that China and India’s appetite for commodities over the last years has pushed up the prices of farm raw materials in a spectacular way. As a consequence, food prices have risen significantly which has benefitted the agrifood industry. As some costs keep on increasing and the American and European economies remain sluggish, agrifood companies will need to find ways to keep increasing sales and maintain their profit margins.

I will take a look at three major food producers in order to evaluate their performance.

Great expectations on emerging markets and new products

General Mills, Inc. (NYSE:GIS)

Through its most popular brands,General Mills, Inc. (NYSE:GIS) holds a significant market share in different growing food categories.

The company posted good results for its fourth quarter. Net sales reached $4.4 billion, increasing 8% year-over-year boosted by volume growth. However, changes in the business mix made underlying gross margins to decline from 37.2% to 34.8%. Overall, fiscal 2013 has been a good year for General Mills, Inc. (NYSE:GIS), with positive increases in net sales (7%), operating profits (6%) and net earnings (18%).

Management plans to enlarge the company’s position in the U.S. through innovation and diversification. Results support the company’s plans, since an extra $1 billion turnover over the past 20 months is explained by new product launches.

General Mills, Inc. (NYSE:GIS) is aiming to boost its international sales as well, focusing on Brazil, Russia, India and China. The turnover in China for fiscal 2013 will be $600 million, and it is expected to reach $900 million by 2015. Presence in India remains small still, but is growing: sales are forecasted to reach $70 million in fiscal 2013.

The company is poised to establish a stronger presence in international markets, and spent $898 million this fiscal year acquiring Yoki Alimentos (Brazil), Yoplait International, Parampara Foods (India), and Immaculate Baking (U.S.). Latin America is a key region for the company, as it will mean a raise of $1 billion in sales for fiscal 2013 through Yoki and will duplicate the preview year’s turnover.

In order to achieve projected earnings, however, the company must reduce its expenses. An ongoing ten-year program that started in 2010 aims to cut $3 billion in costs.

Buffet’s eye does not miss

H.J. Heinz Company (NYSE:HNZ)’s holds a global portfolio of leading brands, focusing its business on three core food categories: ketchup and sauces, meals and snacks, and infant/nutrition.

The company has recently been acquired byBerkshire Hathaway Inc. (NYSE:BRK.A) (the Warren Buffett-led investment group) and 3G Capital Inc. for $28 billion. This shows that there is substantial value in this business. In fact, H.J. Heinz Company (NYSE:HNZ)’s most iconic product (its ketchup) posted a $5 billion turnover, an 8% year-on-year growth in fiscal 2012.

As we know, growing does not always mean top line growth. In order to gain productivity and reduce costs, H.J. Heinz Company (NYSE:HNZ) had to undertake major reforms. Figures speak for themselves: 11 factories were shut down, the workforce was reduced by 3,300 jobs, and inventory levels were brought down to 11%. These initiatives saved pre-tax costs for $224 million in fiscal 2012.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.