General Mills (NYSE:GIS) is one of America’s best known companies. Founded more than 90 years ago, the multinational food conglomerate owns dozens of iconic brands, including Cheerios and Pillsbury. While the novel coronavirus pandemic has slammed many stocks, General Mills has been on a tear. Even accounting for the March market selloff, GIS stock is up 19% so far this year. With anxious consumers snapping up “comfort” food, the sales boost for General Mills is turning into a long-term one.
In mid-March, General Mills reported third-quarter 2020 earnings. Revenue was essentially flat. The impact of the coronavirus wasn’t clear. Consumers were stocking up, but was that a one-time event? In its fiscal 2020 guidance, the company noted:
“The impact of the recent COVID-19 virus outbreak on the company’s full-year fiscal 2020 results is still uncertain … The most significant element of uncertainty in the company’s full-year outlook is the intensity and duration of increased demand for food at home across all its major markets.”
GIS stock slid on those third-quarter results, and then plummeted as the market selloff took hold. However, reports of consumers buying up cereal during the lockdown helped General Mills to quickly bounce back.
Rival Kellogg Company (NYSE:K) saw a similar pattern, but where K leveled off, GIS went beyond recovery into gains for 2020. On May 11, General Mills updated its fiscal 2020 outlook, with good news for investors. It turned out that consumers were snapping up its products:
“In March, the company experienced an unprecedented increase in consumer demand for food at home, particularly impacting its North America Retail and Europe & Australia segments, as consumers stocked up in response to local shelter-in-place restrictions. While the magnitude of increased at-home food demand moderated in April, it remained significantly elevated compared to pre-COVID-19 levels. Notably, General Mills’ Nielsen-measured U.S. retail sales increased 45 percent and 32 percent in March and April, respectively, versus the prior year.”
Better yet, although the sales spikes were slowing, the company still expects to see double-digit revenue growth in the fourth quarter.
Blue Buffalo: A Pet Food Investment Pays Off
In 2018, General Mills made a big move, acquiring premium pet food brand Blue Buffalo for $8 billion. Blue Buffalo gave General Mills a huge presence in the American pet food market, which was worth $30.32 billion in 2018. With millennial pet owners willing to pay extra for premium brands over generic pet food, Blue Buffalo is in a good position.
In its third-quarter earnings, General Mills reported that its Pet division was the big growth star, notching an 11% year-over-year revenue increase. In its fiscal 2020 outlook update, General Mills noted the strong growth in its Pet sales were a big part of increased guidance for the year.
Clearly Blue Buffalo was the right call, and will continue to pay off for the company.
The Power of Nostalgia
This year has proven to be a year unlike any other. And consumers are feeling the stress. The coronavirus pandemic, lockdowns, layoffs and scenes of protest all add to the feeling of stress. When consumers are feeling anxious, they get nostalgic.
Gregory Carpenter is a Marketing Strategy professor at Kellogg School of Management. He told Forbes:
“People become especially nostalgic when they are anxious about the present and, especially, the future. The past is safe because it is completely predictable. Connecting with the past through familiar, loved brands transports people to another time by evoking the same feelings they experienced so long ago.”
The time is ripe for the nostalgia factor to kick in for General Mills. Its cereals — Cheerios, Lucky Charms, Trix and many others — have been on consumer breakfast tables for decades. Some (especially those of the sugary variety) have fallen out of favor as consumers adopted healthier eating habits, but they are iconic. Given the tumultuous year, it’s no wonder that sales are up. People may have started off by stockpiling, but now they’re buying General Mills products because they are familiar.
Expect that nostalgia halo to have a lasting effect.
Bottom Line on GIS Stock
General Mills stock peaked in value in 2016. After several years of decline, it was in recovery mode through the early months of 2019. That stalled later in the year, but the coronavirus pandemic resulted in skyrocketing demand for the company’s products. Add in a climate of uncertainty that’s making consumers wax nostalgic for familiar brands, and a smart investment in pet food, and GIS stock, is well positioned for continued growth. That puts it firmly in A-rating territory.
Now trading at $62 for 19% growth so far in 2020, a return to 2016 levels when GIS stock topped $72 is a distinct possibility.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system — with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
