General Mills Is a Generational Opportunity for Income Investors
General Mills' (NYSE: GIS) stock sell-off, warranted or not, has aligned its market with long-term trends and presents a generational opportunity for investors. At mid-September levels, the stock is trading at historically low valuations and yielding nearly 5%, a fascinating figure given the outlook for interest rates.
With interest rates on track to decline over the next few years, high-yielding consumer staples stocks like General Mills will become ever more favorable, and those with a history of distribution increases will be even more so.
The takeaway for investors is that General Mills has not only technical factors in its favor but fundamental and secular factors as well, sufficient to sustain the uptrend and push its stock price back to the high end of its historical range.
The chart, specifically the chart of long-term monthly price action, reveals an uptrend that has been in force for over 40 years. The trend is driven by growth, profitability, and capital returns, compounded by a healthy financial position and ability to withstand economic, consumer, and market downturns.
The action in 2025 includes a retreat to the critical trend line and indicators that align with an outlook for rebounding. The stochastic shows that this market is historically oversold, while the MACD, the momentum indicator, reveals a market bottom.
The divergence between the histogram’s recent peak and the market highlights the bottom. It signals that sellers are losing control of the market, and the bulls could soon take over.
General Mills Revitalization Efforts Begin to Bear Fruit
General Mills did not have a fantastic fiscal first quarter and continues to forecast a tepid year, but there were signs of improvement within the report. Although the $4.5 billion in revenue was down 7% compared to last year, falling slightly short of MarketBeat’s consensus, the decline is due primarily to divestiture, and organic sales were much better.
Organically, sales fell by only 3% as price and mix (impacted by turnaround efforts) cut into the top line. Segmentally, North American Retail was weakest with a 13% decline offset by a smaller 4% decline in North American Foodservice and 6% increase in North American Pet Food and International.
Margin news is equally tepid, with reinvestment and brand awareness efforts cutting into the bottom line. The critical factor is that repositioning efforts improved the gross margin; improvements are expected to stick, and the increased operating expenses, aimed at strengthening pound growth and market share, will fade over time.
The takeaway is that earnings were sufficient to sustain the company’s financial health, and the divestiture of its yogurt business improved it.
The guidance is favorable in that no bad news emerged. The company reaffirmed its targets for the year, which include flattish revenue compared to 2025 and margin pressure tied to its repositioning effort. The good news is that sales are expected to improve as the quarters progress, and year-over-year growth will likely resume by year’s end.
General Mills Capital Return Is Safe
General Mills' capital return is safe. The primary risk is that share buybacks will slow, but they will provide a tailwind for the market even then.
As it is, selling the yogurt business provided sufficient capital to accelerate buybacks in Q1 and reduce the count by a 4% average.
The balance sheet reflects the divestiture, including increased cash and flat assets, as well as the business's inherent strength, with liabilities down compared to last year and low leverage.
The long-term debt is about 1.3x the equity and the cash, leaving the company in a fortress-like condition capable of executing its plans.
Shareholder equity saw a boost of over 3%, despite a significant share count reduction.
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