Few would consider food maker General Mills (NYSE:GIS) a high-flier, but its stock price was soaring Wednesday morning after it reported earnings that topped analysts’ estimates.
The owner of brands like Cheerios, Betty Crocker, Nature Valley, and Blue Buffalo, to call a couple of, saw its stock price rise some 7% on the opening bell, reaching $73 per share, the best it has been since last August.
Is the corporate cooking up something special investors should learn about?
General Mills zigs when the market zags
The roots of General Mills date back to 1866, when Cadwallader Washburn built a flour mill in Minneapolis that eventually became General Mills in 1928. The corporate now encompasses greater than 100 brands which are probably in most kitchens within the U.S. and all over the world.
As a consumer staple, General Mills has been certainly one of the steadiest, most consistent stocks available on the market through the years. Over the past 20 years, the stock has finished the yr in negative territory only thrice, and in certainly one of those years, 2017, it was down lower than 1% for the yr, making it essentially flat.
General Mills typically zigs when the market zags, as consumers are likely to flock to its products when the markets are down and the economy is struggling. People are likely to dine out less during such periods and look to replenish on General Mills’ discount food products.
This has never been clearer than previously two years, as General Mills stock soared 28% in 2022 — when the S&P 500 was down 19% and the Nasdaq plummeted 33%. Nevertheless, it was just the other in 2023, as General Mills stock tumbled 20% in 2023, when the S&P 500 was up 24% and the Nasdaq Composite jumped about 43%. General Mills mainly suffered from high inflation last yr.
Over the past 20 years as of March 20, the corporate has posted a median annual return of about 9%, including its dividend — a solid, if not spectacular number.
Improving margins
This yr, General Mills’ stock price is chugging along, rising about 6% yr to this point. It received a lift on Wednesday when it posted earnings and revenue that beat estimates.
The revenue number was nothing special, as General Mills posted net sales of $5l.1 billion within the quarter, down 1% yr over yr. Nevertheless, over a two-year period, organic net sales were up 7% on a compound annual growth basis. The corporate likes to make use of the two-year metric since it compares its fiscal-2024 numbers to its fiscal-2022 results, which got here before the historically high inflation rates kicked in.
Within the fiscal third quarter, General Mills’ North American Foodservice segment saw 3% year-over-year sales growth, while its North American Retail business was flat. The Pet and International segments were each down 3%.
Nevertheless, what investors probably liked probably the most was the corporate’s bottom-line results, which were buoyed by its Holistic Margin Management cost-savings initiative. That initiative resulted in a 16% reduction in expenses and improved earnings and margins.
General Mills’ net earnings climbed 21% yr over yr within the quarter to $670 million, or $1.17 per share. Further, its gross profit margin improved 100 basis points to 33.5% while its operating profit margin expanded 370 basis points to 17.9%. The corporate also boosted its operating money flow through the primary nine months of fiscal 2024 to $2.4 billion from $2 billion.
Old reliable
General Mills also reiterated its outlook for fiscal 2024, calling for organic net sales in a spread between -1% and flat and adjusted operating profit and adjusted diluted EPS up by 4% to five%. The corporate also expects free-cash-flow conversion to be not less than 95% of adjusted after-tax earnings.
With solid earnings growth ahead, improved efficiency, and inflation trending lower, General Mills must be what it at all times has been — , reliable, defensive stock. Investors shouldn’t expect anything greater than that, but to many, it holds a special place of their portfolios for its downside protection.