People eat regardless of what the economy does. Yes, escalating commodity prices squeeze food producers. But those with well-known brands have been able to maintain earnings and sales growth despite an economic slowdown. General Mills (symbol GIS) is a prime example. The maker of Betty Crocker, Hamburger Helper and Pillsbury products has managed to keep its businesses cooking as others wilt.
Pricing power is the key ingredient of Mills' strategy to minimize commodity-price inflation. The company can boost prices on its products, such as Cheerios, because customers are willing to pay more for them than they will for boxes of Brand X. Even as Mills hiked prices on many of its goods, the total number of products sold climbed 3% in the last quarter. "Recent price increases have not dampened consumer demand," says BMO Capital Markets analyst Kenneth Zaslow.
Mills has some protection from the effect of hard-pressed consumers' buying generic products. Known in the industry as private label, generic products threaten brand-name food producers in economic slowdowns, when consumers tend to skimp on food purchases to save money. But Mills is insulated from some of that trading down because of the strength of its brands. "In most categories, Mills has either the number-one or number-two product," says Stifel Nicolaus analyst Chris Growe.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Plus, the company focuses on healthy packaged foods and high-quality products the generic-food companies can't easily replicate. That makes Mills less prone to private-label substitution. (Just try to find a carton of store-brand ice cream that tastes as good as a pint of Häagen-Dazs, which Mills owns. The company licenses the brand to Nestlé to use in the U.S. and Canada.)
The numbers bear that out. In its most recent quarter, Mills increased its market share by 0.9% across its major categories, compared with a 0.3% bump in market share for private-label products, Zaslow says.
New products will help the company continue to generate more sales. It plans to launch 300 products in the 2009 fiscal year, which ends May 2009. Zaslow points to a track record of innovation, such as Fiber One Bars, Oat Clusters Cheerio Crunch and Yo-Plus enriched yogurt, which shows the company can pull off an ambitious expansion.
Growe says two products -- Progresso Light Soups and Fiber One toaster pastries (they're like Pop-Tarts for adults) -- give the company a large opportunity to increase sales in fiscal 2009.
And unlike many of its rivals, Mills has some room to lift prices more. Growe says Mills has not raised its prices as much as competitors because it used gains from cost-cutting to maintain its profitability. "So if Mills is able to price aggressively and capture the cost savings coming through, the company will have a nice margin story to tell in 2009," he says.
The company has posted impressive gains in a dismal market. For fiscal 2008, which ended May 25, sales grew 10%, to $13.7 billion, and earnings rose 13%, to $1.3 billion-the first double-digit advance in sales since Mills bought Pillsbury in 2001, says Value Line analyst Robert Greene.
Mills stock has been on a tear, too. Shares, which closed at an all-time high of $64.91 on July 22, have gained 14% so far this year. Shares trade for 17 times the $3.84 analysts expect the company to earn in the 2009 fiscal year. Growe says Mills stock deserves to sell at a higher price-earnings ratio because of its sales and earnings growth. He rates the stock a "buy" and has a 12-month target price of $69. Zaslow calls the stock his "favorite idea in the U.S. packaged-food industry," gives it a "buy" rating and has a target price of $71.
-
Are T-Mobile's Prepaid Perks a Home Run or a Strikeout?T-Mobile's prepaid lineup promises MLB.TV, T-Mobile Tuesdays and hotspot data. But do the perks make it worth switching?
-
Verizon Home Internet Is Offering Free Tech to New CustomersVerizon’s latest home-internet promotion includes free tech, but the real savings depend on pricing, speed needs and how long you stay.
-
Retirees in These 7 States Could Pay Less Property Taxes Next YearState Taxes Retirement property tax bills could be up to 65% cheaper for some older adults in 2026. Do you qualify?
-
If You'd Put $1,000 Into Coca-Cola Stock 20 Years Ago, Here's What You'd Have TodayEven with its reliable dividend growth and generous stock buybacks, Coca-Cola has underperformed the broad market in the long term.
-
If You Put $1,000 into Qualcomm Stock 20 Years Ago, Here's What You Would Have TodayQualcomm stock has been a big disappointment for truly long-term investors.
-
If You'd Put $1,000 Into Home Depot Stock 20 Years Ago, Here's What You'd Have TodayHome Depot stock has been a buy-and-hold banger for truly long-term investors.
-
What the Rich Know About Investing That You Don'tPeople like Warren Buffett become people like Warren Buffett by following basic rules and being disciplined. Here's how to accumulate real wealth.
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
