General Mills (GIS) is on our Hedgeye Consumer Staples Best Ideas list as a LONG.
The widely rumored sale of Green Giant by General Mills continues to swirl. The latest is that B&G Foods (BGS) is taking a serious look into the asset. Frankly, we don’t care who buys it as long as it is a half way decent price. Our LONG bull call on GIS is partially dependent on them shedding non-core assets and acquiring high growth businesses. We believe this could be the first of multiple divestitures that GIS executes throughout the next couple of years. In our GIS Black Book we highlighted management identified non-core assets that could be up next.
The selling price of Green Giant is expected to be in the range of $600mm-$800mm pre-tax. We are expecting a hefty tax bill given the likely large step up in asset valuation that will need to occur. This will still give them the ability to reinvest further into growing the top line or buy a small snacking business. We have talked a lot about the potential snacking assets out there right now and we think this would be the best use of cash.
Talking with many industry professionals it seems as though sales are starting to stabilize. More specifically, cereal, something that everyone seems to think is all GIS has, (in reality its only 20-25% of net sales in any given year) will start to see growth return. The cereal category has bottomed and we feel that there will be a year-over-year increase in the category as GIS and the competition have invested heavily to revive the category.
At the end of the day, rumors are exactly that, rumors, but this sale seems to be coming to fruition, baring complete disconnect on price. To reiterate, this is the first deal of many that GIS has to execute in order to transform their portfolio for growth into the future.
We continue to view GIS as one of the best large cap companies in the staples space. They just announced that they will be releasing 1Q16 results on September 22nd before the market opens. We expect to see continued sequential improvement as they have cleaned up ingredient decks and streamlined the business.
Please call or e-mail with any questions.
On RTA Live, Hedgeye CEO Keith McCullough responds to a user question on how to incorporate all of Hedgeye's retail products (with a specific emphasis on the Daily Asset Allocation).
Subscribe to Real-Time Alerts today for access to this and all other episodes of RTA Live
Subscribe to Hedgeye on YouTube for all of our free video content.
The total percentage of successful long and short trading signals since the inception of Real-Time Alerts in August of 2008.
Palisade Capital Management CIO Dan Veru, Hedgeye CEO Keith McCullough and FBN’s Dagen McDowell debate the impact of ETF’s on the overall markets on Fox Business.
Hedgeye CEO Keith McCullough will answer your questions about Real-Time Alerts live today at 1:30PM ET.
Hosted by Hedgeye CEO Keith McCullough at 9:00am ET, this special online broadcast offers smart investors and traders of all stripes the sharpest insights and clearest market analysis available on Wall Street.