General Mills' decision to sell its North American yogurt business for $2.1 billion has sent shockwaves through the industry. On the surface, it seems like a straightforward divestment, but let's dig deeper. What's driving this move, and what does it say about the state of the yogurt market?

First, the numbers. The North American yogurt business contributed around $1.5 billion to General Mills' fiscal 2024 net sales. It's clear that this is a significant chunk of change, but why is the company willing to let it go? As analyst Bryan Spillane pointed out, "yogurt is a challenging category to play in, with margins that are both volatile and typically below the company average." In other words, it's not the most lucrative business to be in.

So, why did General Mills invest in yogurt in the first place? Was it a case of "follow the trend" and then realize it wasn't as lucrative as thought? Analyst Alexia Howard notes that the yogurt business was once the "pride of the portfolio" with rapid growth and high margins, but the company was either late to market or executed poorly around key innovations. This raises questions about innovation and timing – what did General Mills miss the boat on?

The sale will likely be used for share repurchases, as General Mills estimates the transaction to be ~3% dilutive to earnings in the first year following the close. This move has been hailed as a good decision by analysts, but what does it mean for the company's long-term strategy? Are they shifting focus to more profitable areas, or is this just a quick fix to boost margins?

As an investor, it's essential to consider the bigger picture. What does this sale say about the yogurt market as a whole? Is it a sign that the category is declining, or is General Mills just playing it smart by exiting a tough space?

BRYAN SPILLANE

"Yogurt's Sweet Goodbye: General Mills Sells North American Yogurt Business for $2. 1 Billion"

Continue reading...