General Mills Inc. (GIS) recently announced that it has signed a definitive agreement to acquire private Brazilian food maker Yoki Alimentos for approximately 1.75 billion Brazilian reals.

Yoki, headquartered in Sao Bernardo do Campo, makes basic foods, popcorn, snack nuts, convenient meals, soups and seasonings and other fast growing food categories under nine brands, including the popular Yoki and Kitano brands.

Yoki, which employs 5,000 people, is expected to expand General Mills’ business in Brazil beyond its current Haagen-Dazs and Nature Valley endeavors. The transaction is expected to close in the first half of fiscal 2013.

General Mills, an industry leader in cereals, is dedicated to expanding its presence outside the U.S. due to the low disposable income of consumers and near saturation in the U.S. market. Expansion into international markets has become an important part of the company’s growth story. In fiscal 2011, 19% of consolidated net sales were generated outside the U.S.

The international segment is on track to generate another year of good revenue and profit growth in fiscal 2012 with sales expected to exceed $4 billion. This includes benefits from the July 2011 acquisition of Yoplait International business which introduced General Mills to the fast-growing food category of yogurt.

It has boosted revenue and operating earnings growth of the international segment in the subsequent quarters. With the addition of Yoki, management believes annual sales in Latin America will more than double to $1 billion.

Our Recommendation

We currently have a Neutral recommendation on General Millls. The stock carries a Zacks #4 Rank in the near term (Sell rating).

We are encouraged by the company’s strong brand positioning. Further, the company’s continuous effort to introduce new products in fast growing food categories can drive long-term growth. We also like the performance of the company’s international segment.

However, we prefer to remain on the sidelines until U.S. retail volumes improve, margin pressures subside and the macroeconomic environment recovers. We thus maintain a Neutral rating on the stock.

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