After ditching Yoplait, General Mills on the hunt for an acquisition

On the heels of announcing the sale of Yoplait, General Mills is looking to replace the under-performing brand with a grab-and-go acquisition.

The Golden Valley-based maker of Cheerios and Totino’s is seeking possible additions to its pet food, snacking or food-service portfolio, areas of strong growth for a company struggling to expand its sales.

“Where we have a competitive advantage, where we see growth and possible synergies, that’s where we’ll continue to look,” CEO Jeff Harmening said Wednesday. “It’s going to be things that bolt on to existing categories, especially in categories where we have a right to win, which to a large degree are our global businesses.”

Harmening spoke of plans after the company announced that profits for its latest quarter had dipped 14% to $580 million.

While the company had been in the running to buy Twinkies maker Hostess, which went to Smucker’s for $5.6 billion last year, General Mills is not looking for a blockbuster deal of that size, at least in the short term.

“Our near-term focus [is] on bolt-on acquisitions, with the most likely transaction size ranging up to $1 [billion] to $2 billion,” Harmening said, “which would be more similar to our Annie’s or Tyson pet treats acquisitions, as opposed to Blue Buffalo.”

So it’s unlikely the company would buy Unilever’s ice cream business, which includes Ben & Jerry’s that could sell for $20 billion, analysts estimate. Bernstein analyst Alexia Howard wrote that protein bar and shake maker Simply Good Foods may also be a bit too large of a target compared with the “bite-sized deals they seem to be looking for.”

Harmening said there are plenty of smaller opportunities available that could “enhance our growth.”

“We’re always looking for potential candidates to acquire,” he said. “But we’re also disciplined in how we think about making those acquisitions.”

General Mills announced last week it will sell its North American yogurt business, including Yoplait and Go-Gurt, for $2.1 billion after nearly a half-century of pioneering the category in the U.S.

An influx of popular new brands and styles weakened Yoplait over the past decade. Despite attempts to meet demand for Greek, low-sugar and protein-rich varieties, the once-dominant brand never recovered.

Proceeds from the sale also will be returned to investors.

“Our expectation is we can both return that cash to shareholders and still be able to pursue portfolio ambitions in the range of $1 billion to $2 billion without any real change in the company’s leverage,” Chief Financial Officer Kofi Bruce said.

The divestiture is part of General Mills’ “Accelerate” strategy meant to focus on its best-performing brands and shed those that no longer meaningfully contribute.

The company also has sold its Hamburger Helper and European dough businesses in recent years while adding pet treats, a pizza crust manufacturer and a European pet food company. Since buying Blue Buffalo for $8 billion in 2018, the company says 30% of its portfolio has changed.

General Mills met expectations for the fiscal quarter that ended in August, with sales declining 1% to $4.8 billion. Adjusted earnings per share came in at $1.07, just above analyst targets.

Howard said while sales are generally improving, General Mills is facing more intense competition and struggling to hold or grow market share in some of its categories.

“Part of this may simply be a recovery as challenger brands regain share after more intense supply chain pressures in 2022, but we wonder if younger consumer preferences are changing over time,” she wrote.

Piper Sandler analyst Michael Lavery wrote the company still needs to convince financially stretched shoppers to shell out for brand-name products by “improving its branding message to appeal to these consumers.”

The company’s stock price rose less than 1% Wednesday to close near a year-long high, $75.01. General Mills leaders reaffirmed financial guidance for the next year — flat to 1% growth in sales and flat to 2% decline in operating profits.