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General Mills Yogurt

General Mills Inc. (NYSE:GISC) reports quarterly earnings Wednesday. Investors will be anxious to hear about yogurt. Like the company’s cereal business which General Mills revamped last year, the yogurt sector is huge but even the company admits in need of a makeover.

The question investors will want to have answered is “How will General Mills compete with the more popular Greek-style yogurts like those produced by Dannon?”


Retooling Results

The company its flagship brand, Yoplait to be more Greek-like in 2013 but with less than stellar results. Sales fell 7% in fiscal 2016 following a 5% jump in 2015.

At a recent investors conference, the company said overall sales fell more than 2%, mostly due to yogurt. Oddly, one of the main problems is that the name of the brand, Yoplait, doesn’t sound Greek so even with a different formula and taste consumers are hesitant to try it.

Going Organic

The company then responded by concentrating on growing excitement about organic yogurt. To that end General Mills has tried to launch more varieties under its Annie’s Homegrown brand, a name it bought two years ago.

A new brand (Go Big) was also introduced to capture kids who like the company’s Go-Gurt yogurt tubes but have outgrown them.

The Smoothie Solution

In addition to everything else, COO Jeff Harmening said in July the company planned to renovate 60% of its yogurt business within a year. This includes adding yogurt smoothies to the product mix.

Drinkable yogurt is another area that is becoming popular and one GIS has not participated in, part of the reason Harmening said the company was “off its game.” Harmening added, “We don’t expect to return to sales growth in 2017.”

Numbers To Watch

Yogurt accounts for $84 billion globally in food sales, making it a significant chunk of the grocery sector. That’s why improving the yogurt space is so important to General Mills, especially given the fact the company is expected to report a 7% decline in quarterly revenue Wednesday.

Thomson Reuters analysts are also calling for a 5% decline in DPS to $0.75. Quarterly revenue is expected to be about $3.91 billion.


How To Deal With Those Numbers

If, as often happens, General Mills beats expectations and a rally of sorts takes place, Jim Cramer’s TheStreet suggests an options position consisting of a synthetic long stock trade.

Others point to factors such as significant debt taken on by the company, no revenue gains since 2012 and historically high P/E levels to opine now is time to short the stock.

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