General Mills execs downplay rumors of major acquisition, focus inward for growth

General Mills executives made the rounds of New York investors and media Wednesday, reiterating the company's growth strategy and dispelling rumors that they are eyeing a large acquisition.

Moments after company representatives rang the opening bell on the New York Stock Exchange, CEO Ken Powell told interviewers on CNBC that General Mills is "kicking the tires on a lot of things constantly" but that it has to see a "clear path to value" in any acquisition that would give shareholders a return on their investment.

"If you want to talk about [mergers and acquisitions] for General Mills, look at what we've done the last five years, extending scale in snacking and organic," Powell said. "We are building on businesses we already have, and that's kind of likely what you'll see from us in the future."

For instance, at the company's annual Investor Day meeting later in the day, Powell pointed to its integration of Annie's Homegrown, a California-based organic brand that General Mills purchased in 2014 for $820 million.

"We're very disciplined when it comes to M&A, and we have to see return on value. Annie's has been a terrific acquisition in that regard for us," Powell said. "Clearly, it's going to be a $1 billion business very soon, and I think it could go to $2 billion."

Powell brushed aside speculation that General Mills may bid for WhiteWave Foods Co., a Denver-based organic foodmaker that last week received a $10 billion purchase offer from Paris-based Danone, a major competitor to General Mills in the yogurt category.

General Mills' yogurt business just closed out a tough fiscal year, losing market share as it struggled to keep up with consumers' changing tastes. In yogurt, "admittedly, we were off our game in 2016," Jeff Harmening, General Mills president, told investors in a largely upbeat presentation.

But both Harmening and Powell elaborated on new yogurt products for this year, the plans for which were unveiled Tuesday. The company will convert its super-premium Liberte yogurt to USDA-certified organic, expand its Annie's organic yogurt from single-serving cartons to larger tubs and portable tubes and introduce a higher-fat version of its Greek whipped product that will be called Yoplait Greek 2% Whips.

"We are going to a lot of innovation in yogurt and press hard there," Powell said on CNBC.

Shares of WhiteWave surged in the days after the Danone news based on speculation that General Mills or another food company might make a counter-offer. Rather than regaining its footing in the yogurt market through a major acquisition, like WhiteWave, Powell said the company is focused on renovating and creating new products internally and through "bolt-on acquisitions where they make sense."

Speaking to investors, Powell and his team restated their delineation between segments with high-growth potential — cereal, natural and organic brands, yogurt, Totino's and Old El Paso — and its foundational, or low-growth, products, such as soup, refrigerated dough and baking mixes.

Executives trumpeted the cereal rebound, driven by a positive consumer response to gluten-free Cheerios. General Mills maintained its aggressive profit margin growth projections from 16.8 percent to just over 18 percent this year. The company has several new snack products hitting shelves this year as well.

"Doubling down in snacks seems to make sense. They've clearly out-innovated Kellogg in snack bars, and if you think about other acquisitions like Larabar and Food [Should] Taste Good," said Alexia Howard, a senior analyst with Bernstein Research.

By separating the products into high- and low-growth silos, the leadership is signaling which products it is willing to spend money supporting. The low-growth products, Powell said, are still getting makeovers, like Progresso soup, which will soon transition all of its chicken soups to meat raised without any treatment by antibiotics.

"These foundation brands are very important to us," he said, but added that the company will spend less to market them.

The company predicts the combination of many of these "surgical" cost cuts and some organic growth will result in per-share profit gains of about 6 percent to 8 percent.

Kristen Leigh Painter • 612-673-4767