Despite strong earnings, General Mills can’t rely on Cheerios for growth

Cheerios doesn’t translate overseas
Cheerios doesn’t translate overseas
Image: AP Photo/David Duprey
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General Mills is among a slew of consumer product companies that are increasingly relying on overseas markets to make up for its US business. Although General Mills’s earnings today beat Wall Street estimates as the American economy improves, the real growth for the company’s future will be found elsewhere. One of General Mills’ main products, breakfast cereals like Cheerios, aren’t as popular in overseas markets, forcing it to branch out.

The company’s recent M&A strategy reflects that sentiment. In the last two years, General Mills acquired Brazilian snack maker Yoki Alimentos, a majority stake in France’s Yoplait, and India’s Parampara Foods, which produces spice mixes and sauces.

Kellogg also found that reliance on cereal wasn’t going to cut it for growth, so the company acquired Pringles in 2012. The deal nearly tripled the size of Kellogg’s overseas snacks business.

Kraft Foods acquired Cadbury as part of its emerging markets play, and more than a year later, it announced a split of its two main businesses in 2011 to further enhance its focus on non-US markets. The company spun off its grocery business, which is mainly US-based and has low growth, to separate it from its growing snacks businesses that has more potential in emerging markets.

Success overseas can also boost a company’s value. Heinz’s stock had been steadily rising as it expanded its presence in emerging markets, making it attractive enough to draw Warren Buffet and Brazil’s 3G Capital, which acquired the ketchup maker earlier this year.

Although General Mills executives say that, given the pace of their recent deals, M&A won’t be as active in the next year. But the desire to expand in emerging markets is expected to increase the pace of acquisitions for consumer products companies. With competitors on the hunt, General Mills may have to think about pulling out its wallet again.