Stock Analysis

General Mills Might Provide Calmer Waters for Those Seeking Shelter

  •  Updated
NYSE:GIS
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  • GIS did better than expected in the recent earnings report
  • With 120+ years of dividend payments, the company is in a category of its own
  • Broad market woes make the improving profit margins even more impressive.

When debt becomes expensive, growth stories leave the headlines, and market woes take their place. In that environment, money looks for a safe harbor provided – amongst the others – in the Consumer Staples sector.

Thus, it is not surprising that  General Mills, Inc. ( NYSE: GIS ) has been doing better than expected, providing a stable dividend at a very reasonable valuation compared to its peers.

General Mills Earnings Results

  • EPS: US$1.37 (up from US$1.03 in 1Q 2022).
  • Revenue: US$4.72b (up 3.9% from 1Q 2022).
  • Net income: US$820.0m (up 31% from 1Q 2022).
  • Profit margin: 17% (up from 14% in 1Q 2022).

Revenue was in line with analyst estimates. Earnings per share (EPS) surpassed analyst estimates by 34%.

Over the last 3 years,on average, earnings per share have increased by 9% per year , whereas the company’s share price has increased by 13% per year. The general market conditions likely cause the lead in share price.

Although we’re only one quarter into the fiscal year, the management was comfortable enough to raise the FY 2023 outloo k amidst the organic net sales growth at 10%, adjusted diluted EPS at 13%, and adjusted operating profit at 8%.

General Mills - Revised Outlook 2023, Source: Investors Presentation

Those who believe the management is overly optimistic should consider that the company improved the margins, and the cash flow and spent US$435m in share repurchases.

Examining GIS dividend

With over 120 years of uninterrupted dividend payments , the dividend is as reliable as it gets. Currently, its dividend is 2.8% which might not be impressive, but it is slightly above the industry average.

Looking back at the last 10 years, the dividend grew from US$1.2/year to the current US$2.1/year, giving the compound annual growth rate of around 6%.

With earnings growth, improving margins, and a very reasonable payout ratio of 43% , GIS dividend has plenty of positives.

Dividend Reinvestment vs. Share Return

When looking at investment returns, it is essential to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested.

Looking back at the last 5 years, General Mills would have a total shareholder return (TSR) of 82% , compared to a 37% market return. This significant difference also points out that GIS has been doing better in recent times. Although General Mills has a lot of positives, we’ve still spotted 3 concerning signs that might require further inspection.

If you’re interested in other opportunities, check our free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market-weighted average returns of stocks that currently trade on US exchanges.

Valuation is complex, but we're helping make it simple.

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Simply Wall St analyst Stjepan Kalinic and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Stjepan Kalinic

Stjepan Kalinic

Stjepan is a writer and an analyst covering equity markets. As a former multi-asset analyst, he prefers to look beyond the surface and uncover ideas that might not be on retail investors' radar. You can find his research all over the internet, including Simply Wall St News, Yahoo Finance, Benzinga, Vincent, and Barron's.

About NYSE:GIS

General Mills

General Mills, Inc. manufactures and markets branded consumer foods worldwide.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation5
Future Growth2
Past Performance4
Financial Health3
Dividends5

Read more about these checks in the individual report sections or in our analysis model.

Undervalued established dividend payer.