GIS – General Mills Is a Brand Worth Holding

Dividend growth helps power a leader in the food sector

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General Mills GISConsumer foods giant General Mills (GIS) is dominating the headlines after it released second-quarter sales and earnings Wednesday morning. Let’s revisit this cereal maker and see if General Mills stock could be a good addition to a well-balanced portfolio.

Company Profile

With roots that go back to 1928, General Mills is one of the largest providers of branded consumer foods in the world. The company is best known for its ready-to-eat breakfast cereals, which include such household staples as Cheerios, Wheaties, Total, and Lucky Charms.

Additionally, the company has branched out into dairy products like Yoplait yogurt and Haagen-Dazs ice cream, baking products like Gold Medal flour and Bisquick, as well as convenient meal kits like Old El Paso and Betty Crocker. The company brought in $17.8 billion in net sales last year and is expected to bring in $18.33 billion in net sales this year.

Value investors may be interested to know that this stock yields 3.0% and the company is looking to expand its share repurchase program.

Earnings Rundown

General Mills reported mixed operating results for the second quarter as flat sales were offset by lower costs and higher margins. The company reported lower sales at its U.S. retail segment but positive international sales growth (despite negative foreign currency exchange rates).

Notably, the company announced 22% constant-currency sales growth in Latin America and 5% growth in Asia-Pacific. Compared with the same quarter last year, net sales edged down 0.1% to $4.875 billion, missing analyst estimates of $4.94 billion in sales. Meanwhile, net earnings climbed 2% year-over-year to $549.9 million, or 83 cents per share, but that missed analyst expectations of 86 cents per share.

Looking Ahead

Management also reaffirmed its fiscal 2014 sales and earnings outlook. The company forecasts adjusted earnings in the range of $2.87 to $2.90 per share, on the lower end of the Street view of $2.90 per share (which would represent 7.8% annual earnings growth). For 2014, General Mills also expects to see low single-digit growth in net sales and mid single-digit growth in segment operating profit.

For such an established company, that kind of growth is to be expected: Competitor Kellogg (K) is headed towards 4.5% annual sales growth this year.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. While this Conservatively-ranked General Mills stock spent much of 2012 at a C-rated hold due to mediocre institutional buying pressure, 2013 was a primarily strong year for GIS.

However, in recent months buying pressure has retreated as the company’s fundamentals have started to break down. Currently, GIS receives a C for its Quantitative Grade, indicating an weakening risk-to-return ratio. Meanwhile, the company could stand to firm up its sales growth and operating margin growth, which are C-rated. And General Mill’s outright fails in terms of earnings growth, momentum and earnings surprises, which are all D-rated.

However, the company scores well on cash flow and return on equity, so it receives a C-rating for its Fundamental Grade.

Bottom Line: As of this posting I consider GIS a C-rated Hold.

Would you like to check the fundamentals backing up one of your stocks? For more stock grades, please visit my Portfolio Grader website!

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