General Mills, Inc. (GIS): Rising Treasury Yield Threatens Low Growth Companies

General Mills, Inc. (NYSE:GIS)The processed and packaged foods industry is one of the major ones in the U.S. retail market. The food processing industry comprises 18.6% of total spending in United States, which represents a major constituent of any household’s spending.

The rising trend in food price inflation has outpaced overall inflation during the past few years.

Company analysis

This post centers on scrutinizing the stocks in processed and packaging industry. I have picked up General Mills, Inc. (NYSE:GIS) based on its P/E undervaluation against the industry. For comparison purposes, I chose three of its peers, namely Kellogg Company (NYSE:K)Campbell Soup Company (NYSE:CPB), and Seneca Foods Corp (NASDAQ:SENEA).

Financial performance analysis

Source: Morningstar

General Mills, Inc. (NYSE:GIS) was able to outclass Kellogg Company (NYSE:K), Seneca Foods Corp (NASDAQ:SENEA), and Campbell Soup Company (NYSE:CPB) by registering higher positive revenue growth and net margin growth. The company aims to deliver low single digit annual growth in conjunction with high single digit growth in EPS. The growth was primarily driven by contributions from the Yoplait acquisition, volume gains in the international segment, and net price realization and sales mix.

The company was able to post net profit growth in spite of the high levels of input cost inflation. The company focuses on holistic margin management (HMM) program, which covers cost-savings initiatives, marketing spending efficiencies, and profitable sales mix strategies.

Cash operating cycle represents the efficacy with which a company manages its working capital. Kellogg has the shortest cash operating cycle, which places the company in a better position as its cash is locked up for a relatively smaller period of time, followed by Campbell. Cash operating cycle for General Mills, Inc. (NYSE:GIS) is higher at 43 days, which apparently exhibits that the entity takes more time to convert inventory into sales and then, collect payments from customers.

Nonetheless, analyzing the individual components reveals that Kellogg Company (NYSE:K)’s cash conversion is lower mainly due to its higher payable days, which could impair its reputation in the marketplace in the long run. The same reasons apply for Campbell Soup Company (NYSE:CPB) along with the higher inventory days.

Seneca Foods Corp (NASDAQ:SENEA)’s cash operating cycle is way above the other players operating in the industry, which shows that the company is not able to efficiently manage its working capital resources. The inventory days, in particular, is the area where the problem lies as Seneca has major issues in converting inventory into sales. This could be of particular concern in the food packaging industry.