Citi Speculates On General Mills' Ability To Reach 20% Margins

At its Analyst Day, General Mills, Inc. GIS provided greater detail of its plan to boost operating margins to at least 20 percent over the next could of years. Citi’s David Driscoll commented in a report that this margin target may prove too low. He reiterated a Buy rating on the company, while raising the price target from $76 to $83.

Apart from providing details of its bold plan to enhance operating margins, General Mills also outlined plans to better position its brands for growth, “although the company readily admits that the overall environment for revenue growth in food is fundamentally difficult,” analyst David Driscoll wrote.

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Take On Operating Margin Prospects

Some investors have been skeptical about General Mills being able to achieve the operating margin target of 20 percent, Driscoll noted. He expressed his optimism, however, regarding the company being able to surpass the margin target.

There appears to be further HMM-related cost saving opportunities, which would likely be significantly above inflation. While the company’s forecast assumes an increase in inflation to ~4 percent in FY18, the backdrop of significant agricultural crop overproduction suggests low inflation, the analyst noted.

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