General Mills, Inc. GIS has been enjoying gains from its strategic portfolio reshaping, cost-saving initiatives and focus on innovation. The company’s shares have rallied 17.8% in the past three months, crushing the industry’s growth of 7.2%. The branded consumer foods company has also fared better than the broader Zacks Consumer Staples sector and the S&P 500’s respective gains of 6.5% and 2.4% in the same time frame.
GIS Price Performance vs. Industry, S&P 500 & Sector
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General Mills closed the trading session at $73.61 on Friday, just 3% below its 52-week high of $75.90, scaled on Sept. 10. Technical indicators also support the stock, which is trading above both its 50-day and 200-day moving averages. Trading above these averages signals bullish sentiments.
Baking in Strength: General Mills' Winning Strategy
General Mills’ robust portfolio of well-established brands and continued efforts to strengthen and evolve its product offerings have fortified its position as a global leader in the packaged food industry. GIS’ brands enjoy high levels of brand equity and consumer trust, making them household names in key categories such as cereals, snacks, yogurt and baking. Notable brands like Cheerios, Nature Valley, Betty Crocker, Pillsbury, Yoplait and Old El Paso are among the company’s crown jewels, providing a strong foundation for revenue generation and brand loyalty.
The company’s strategy revolves around leveraging the strength of its iconic brands while enhancing its portfolio to meet changing consumer preferences and capitalize on growth opportunities. General Mills has made strategic moves to diversify its portfolio by expanding into higher-growth categories such as natural and organic foods, plant-based products and premium indulgence offerings.
One of the most notable steps General Mills has taken to diversify its portfolio was its 2018 acquisition of Blue Buffalo, a premium pet food brand. This acquisition allowed the company to enter the fast-growing pet food market, which has proven to be a resilient category with strong consumer demand, even during economic downturns. Pet owners are increasingly spending on premium, health-focused pet products, and Blue Buffalo's strong positioning in this space has been a growth driver for General Mills.
General Mills has been committed to innovation as a means to reinvigorate its core product categories. The company continually develops new product varieties, flavors and formulations to stay relevant and cater to evolving consumer preferences. Innovation is particularly important in mature categories like breakfast cereals, where growth may be slower, but differentiation can help capture consumer attention. Continuous innovation in the cereal category, particularly with Cheerios, has helped GIS maintain its leadership position.
General Mills has a proven track record of managing costs effectively, with its Holistic Margin Management (“HMM”) strategy playing a pivotal role. In fiscal 2025, the company expects to achieve 4-5% cost savings in the cost of goods sold through HMM, which is ahead of its long-term trend. These savings provide additional flexibility to reinvest in growth initiatives and innovation.
General Mills’ Reign as a Dividend Giant
General Mills maintains a disciplined approach to capital allocation, prioritizing investment in growth initiatives and shareholder returns. The company has a long history of delivering value to shareholders through consistent dividend payments. General Mills' dividend yield of 3.3% and payout ratio of 53.3% suggest a stable dividend policy.
General Mills generated $624 million in cash from operating activities in the first quarter of fiscal 2025. During the same period, the company paid out dividends worth $338 million and bought nearly 4.5 million shares for $300 million. GIS also recently increased its quarterly dividend by 2%, demonstrating its commitment to returning capital to shareholders. We believe that General Mills’ solid position in the food industry, coupled with the potential for incremental revenue growth, supports the likelihood of dividend increases over time.
Has the Recent Jump in Stock Price Made GIS Expensive?
General Mills’ current market valuation is stretched compared to its industry peers like Conagra Brands CAG, Campbell Soup CPB and The J. M. Smucker Company SJM. GIS’ forward 12-month price-to-sales (P/S) ratio is 2.06, surpassing the industry average of 1.42. This higher ratio implies that investors are potentially paying a premium for General Mills’ stock relative to its anticipated sales performance. The company’s lofty valuation is concerning in light of the near-term challenges.
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Challenges Stirring Trouble for General Mills
A tough consumer environment presents broad-based challenges for General Mills, spanning from increased price sensitivity and competitive pressures from private labels to soft volume trends. Broader economic pressures such as inflation are squeezing household budgets, prompting consumers to re-evaluate their purchasing decisions and opt for smaller pack sizes. As consumers focus more on value and affordability, General Mills faces significant headwinds in maintaining its pricing power and driving volumes.
As inflation erodes purchasing power, consumers are becoming more selective, prioritizing essential goods or seeking cheaper alternatives, often turning to private-label brands. This shift toward more value-conscious behavior puts General Mills at a disadvantage, particularly as the company operates in categories like cereals, snacks and convenience foods, where competition from private labels is intense.
As consumers tighten their budgets, spending on premium products such as gourmet snacks, high-end baking mixes or indulgent frozen foods is often the first to be cut. This again is problematic for General Mills, which has invested heavily in premium product lines and innovation.
Apart from this, General Mills remains vulnerable to the broader industry-wide inflationary pressures. The company expects input cost inflation of 3-4% in fiscal 2025, though its HMM initiatives are expected to aid in mitigating these challenges.
General Mills’ near-term profits are also likely to be affected by the proposed divestiture of its North America Yogurt business. GIS recently reached definitive agreements to sell its North American Yogurt business to French dairy leaders Lactalis and Sodiaal, anticipated to close in 2025. Although aimed at boosting long-term growth, the combined transactions are expected to reduce General Mills' adjusted diluted EPS by about 3% within the first 12 months post closing.
Analyst Projections for GIS: A Closer Look
While the Zacks Consensus Estimate for the current fiscal year earnings per share (EPS) has risen over the past 30 days, the consensus mark for the next fiscal year EPS has declined in the same time frame. This downward revision indicates that analysts are likely reassessing their expectations in light of the proposed divestiture.
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Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Investor Playbook for General Mills Stock
General Mills is strategically positioned within the packaged food industry, benefiting from a strong portfolio of established brands and ongoing innovation efforts. The company’s disciplined approach to capital allocation, highlighted by its consistent dividend payments, showcases its commitment to returning value to shareholders. However, challenges remain, including a tough consumer environment and short-term impacts from the proposed divestiture of its North America Yogurt business. A balanced approach, weighing both growth potential and concerns, may be prudent for those evaluating an investment in General Mills. The company currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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