General Mills Ripped by CNBC Managing Editor

Aug 07, 2002

Investors should steer clear of investing in General Mills according to Jon Markman, managing editor at CNBC. He says that General Mills acquisition of Pillsbury left the company in debt to the tune of $6 billion and stunted growth of a once healthy business. These factors, writes Markman, “rest like a gut bomb on the 136-year-old company’s balance sheet, threatening its credit rating and net worth.”

The article takes financial analysts and the business media to task for bolstering the image of General Mills without fundamentals to support their conclusions. Markman believes, “General Mills’ shares fails to account for the heap of trouble the company faces. Its plight is sadly emblematic of so many large industrials, as the lack of real growth has led the company to use a variety of additives to make earnings and cash flow appear healthier than they might really be.”

Markman points to an accounting evaluation by Camelback Research Alliance and other analysts that concluded:

  1. General Mills earnings are actually lower than reported when factoring in pension and insurance-settlement gains.

  2. Revenue growth, contrary to the popular view, has come from the Pillsbury acquisition. Sales growth has actually declined in the businesses General Mills held before the deal was struck.

  3. The company has overstated profitability in relation to earnings by emphasizing earnings before unusual items.

  4. General Mills’ credit rating is headed downward. The result is the company will find it harder to refinance its billions of dollars in short-term debt that comes due in 2003. The net result is that earnings will take a hit.

The company has announced that it will be rolling out up to 80 new food products in the near term to help restart flagging sales. Markman isn’t buying it however, “It will take more than Count Chocula-flavored Hamburger Helper or Lucky Charms Pizza Rolls to keep shares of this American corporate icon from souring.”

Moderator’s Comment: Do you agree with Jon Markman’s
assessment of General Mills?

Hindsight is 20-20 so it is easy to say that General Mills
took on too much debt and lost its focus in the Pillsbury deal. Challenges remain
but General Mills has the brands to remake itself and now seems to have the
management focus to act on it.

If we were to offer any criticism of Big G it would be
that, in the past before the Pillsbury deal, some members (not all) of the sales
management organization acted as though they had all the answers. While we were
hearing this from headquarters in Minneapolis, elsewhere we were hearing the
company was more style than substance. [George
Anderson – Moderator

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