Though cereal manufacturers may not represent the most exciting investment thesis, the new normal is forcing a rethink as General Mills (NYSE:GIS) leads the charge. Following a strong earnings beat for the company’s fiscal fourth quarter of 2022, beaten-down investors piled into GIS stock, shooting its price up over 6% during the late-morning hours.
Against a consensus estimate of $1.01 for adjusted earnings per share, General Mills posted $1.12, translating to a nearly 11% positive earnings surprise. In the year-ago quarter, the company delivered adjusted EPS of 91 cents.
Just as encouragingly, in the prior sequential quarter, analysts expected the consumer staples giant to post earnings of 77 cents per share. The company also positively surprised back then with earnings of 84 cents. In the last four quarters, General Mills beat consensus EPS estimates three times.
On the revenue front, the popular cereal and snacks maker rang up $4.89 billion, beating the consensus target of $4.81 billion. Also, the most recent tally exceeded the year-ago level’s result of $4.52 billion. Naturally, with strong results across the board, GIS stock soared.
What Is Happening With GIS Stock
Of course, any company will take robust earnings performance no matter what the circumstance. However, the latest disclosure for General Mills is particularly important to cement GIS stock as an inflation-friendly investment.
First, behind the positive print was the fact that the company raised its quarterly dividend by 6% to 54 cents per share, which is payable on Aug. 1, 2022 to shareholders of record as of July 8, 2022. With inflation causing a worrying decline in the purchasing power of the dollar, any lift in passive income will be a welcome development for investors.
Second, General Mills’ products – which feature brands like Nature Valley and Pillsbury – tend to have a long shelf life. Therefore, consumers are better able to purchase these items in bulk, which is one of the most practical ways to fight inflation.
While no one knows for certain what the future may hold, the rising price of energy would mean higher costs throughout the food supply chain. Logically, this increase has to be distributed to customers, implying that whatever purchases can be made now should command a discount against later purchases of the same items.
Transition to the Pet Market
Finally, General Mills may have made smart decisions for the future market value of GIS stock with its move into the pet treats market. In fact, its pet segment is what had some analysts watching General Mills ahead of its quarterly report.
According to the American Pet Products Association, the pet products and services sector saw total revenue hit $123.6 billion in 2021, the highest level in history.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
