Thursday, March 22, 2018

Sometimes This Investing Thing Seems Easy: Consumer Packaged Goods Edition (GIS)

But first, a bit-o memento mori:
We're all victims of our own hubris at times. 
—Kevin Spacey
Hubris is one of the great renewable resources. 
—P. J. O'Rourke
Every time I get accustomed to low volatility, like we were towards the end of the Greenspan era, and we think we have all the levers under the control... something erupts to remind us that the idea that anybody is in control of everything is hubris. 
—Lloyd Blankfein 
All via BrainyQuote

We've been talking for a while now about what a lousy business consumer packaged goods (ex-Nestlé) has become, some links after the jump.

Yesterday one of the poster boys, General Mills - Kellogg Co, is the other one we use as a proxy for the business - yesterday GIS reported earnings and management's view of the future which elicited a negative reaction in the stock:

GIS General Mills, Inc. daily Stock Chart

The stock price is down there in the lower right of the chart. They teach us in chart reading school "upper right good, lower right bad". It was the worst performer in the S&P yesterday, down 8.9%.
From MarketWatch this morning:

General Mills price target cut at least three times as analysts express surprise, concern after earnings 
General Mills Inc. GIS, +0.71% shares saw its price target cut at least three times with analysts expressing surprise and concern after third-quarter earnings were announced. RBC Capital Markets analysts cut their price target to $52 from $60 "primarily due to an unexpected increase in supply chain and commodity costs." They continue to rate General Mills shares sector perform. Analysts think General Mills will be "disproportionately impacted" by freight costs compared with other companies in the food sector because of volume growth and more "facility-to-facility shipments." Stifel cut General Mills' price target to $48 from $57 after a "surprisingly weak" third quarter. They maintain their hold stock rating. And J.P. Morgan lowered its price target to $44 from $54 because they don't think General Mills management gave investors enough information to rule out that some of the problems in the third quarter were non-recurring....MORE
Roger that, not enough information, over.
The stock is at  $45.85 down from $59.00 a year ago, during one of the bigger equity bull markets in history.
The risk of course was that some private equity group or Warren Buffett (do I repeat myself?) would swoop (see below) and wreck our fun in the short term but maybe set up a bigger and better opportunity down the road, sort of an intertemporal no-lose deal,

October, 23, 2017
Trouble In Packaged Food Land (K; GIS; MDLZ; NESN)
This is becoming a series, more after the jump.... 
October 3, 2017
The David Says Eat More Packaged Food (and short the stocks)
Note: that's The David, not some guy named Dave:

He's lonely and wants more people to look like him.
The big guy was last seen in "If You Want To Be Happy, Listen Up. Now! alternative title: The FT's Izabella Kaminska Is..." wherein Ms. K interviewed Robert Lustig, a pediatric endocrinologist at UCSF on neurotransmitters and the difference between happiness and pleasure and metabolic pathways and all kinds of stuff. And that's the hook for this quick post....
May 25, 2017
Nine of the World's Biggest Packaged Food Companies Have Launched Venture Capital Units
March 7, 2017
M&A In European Food
I'm not sure that consumer packaged goods is the area to be in, at least not in the U.S. and not based on names like Kellogg or General Mills.
For a quarter-century those manufacturers ratcheted prices as though they were tobacco companies but people find it easier to give up their Cheerios than their cigarettes.

The managements milked that approach for pretty much all it was worth so, as operating entities, they aren't all that attractive but someone will decide the only thing left to do is to asset strip or dividend recap the life out of the former cash cows.

Top o'the market to ya....