something special? Why General Mills Stock Is Rising

Few people consider food manufacturers. general mills (NYSE:GIS) has been riding high, but its stock price soared Wednesday morning after the company reported earnings that topped analysts’ estimates.

The owner of brands such as Cheerios, Betty Crocker, Nature Valley and Blue Buffalo saw its shares rise about 7% on opening day, reaching $73 per share, the highest since last August.

Is the company preparing something special investors should know about?

General Mills rocks when the market rocks.

General Mills’ roots date back to 1866, when Cadwallader Washburn founded a flour mill in Minneapolis. This mill became General Mills in 1928. Today, the company has more than 100 brands that are used in most kitchens in the U.S. and around the world.

As a consumer staple, General Mills has been one of the most steady and consistent stocks on the market for years. Over the past 20 years, the stock has only ended the year in negative territory three times, with one of those years in 2017 being essentially flat, down less than 1% for the year.

General Mills typically zigzags when the market zigzags because consumers tend to flock to its products when the market is down and the economy is struggling. People tend to eat out less and buy discounted food from General Mills during such times.

This has been most evident over the past two years, with General Mills shares surging 28% in 2022 while the S&P 500 fell 19% and the Nasdaq fell 33%. But in 2023, it was quite the opposite. General Mills shares are down 20% in 2023, while the S&P 500 is up 24% and the Nasdaq Composite is up about 43%. General Mills struggled with high inflation last year.

Over the past 20 years as of March 20, the company had returned an average of about 9% per year, including dividends, which is solid, if not amazing.

Margin improvement

Shares of General Mills have been fluctuating this year, up about 6% year to date. The stock rose Wednesday after posting better-than-expected earnings and revenue.

The sales numbers are nothing special, as General Mills reported net sales of $51.1 billion this quarter, down 1% from a year ago. However, over two years, organic net sales grew 7% on a compound annual growth rate. The company likes to use a two-year scale because it compares its fiscal 2024 numbers to its fiscal 2022 results before the historically high inflation rates began.

In the fiscal third quarter, General Mills’ North American foodservice segment reported 3% year-over-year sales growth, while its North American retail business was flat. The Pet and International segments each decreased 3%.

But what investors probably liked most was the company’s bottom line, driven by its overall margin management cost-cutting plan. This initiative reduced costs by 16% and improved revenue and margins.

General Mills’ net income rose 21% year-over-year in the quarter to $670 million, or $1.17 per share. Additionally, gross profit margin increased by 100 basis points to 33.5%, and operating profit margin increased by 370 basis points to 17.9%. Additionally, the company increased its operating cash flow from $2 billion to $2.4 billion in the first nine months of fiscal 2024.

old and reliable

General Mills also reiterated its outlook for fiscal 2024, calling for organic net sales in the range of -1% and constant operating income and adjusted diluted EPS to increase by 4% to 5%. The company also expects free cash flow conversion to be more than 95% of adjusted after-tax profits.

With solid earnings growth ahead, improved efficiencies, and lower inflation, General Mills should be the great, reliable, defensive stock it’s always been. Investors shouldn’t expect much more than that, but for many, it holds a special place in their portfolio for downside protection.