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General Mills

General Mills: Stay Long, Debt Is Decreasing And Business Is Stabilizing

Much maligned General Mills Inc (GIS) was a stock that suffered due to a declining top line, declining sales for cereal, yogurt and snacks, market perception of overpaying for Blue Buffalo, a large jump in total debt, freezing the dividend, and negative market sentiment for consumer staples stocks. Overall, this was close to a perfect storm for General Mills. The stock price was over $72 per share in mid-2016 and dropped to sub-$37 by late 2018, an almost 50% decline. But with that said, General Mills business is stabilizing. The company has slowly been reducing total debt and improving operational performance. Blue Buffalo looks like it will be a positive for the company over time. In addition, General Mills has stabilized its yogurt business. Market sentiment has improved for consumer staples stocks leading to a recovering stock price. Furthermore, although the dividend was frozen it was not cut like that of Kraft Heinz Company (KHC). The company continues to be profitable and has margins better than most of its competitors. I expect the dividend to return to growth in late FY 2020 or early FY 2021. I view the stock as a long-term buy.

General Mills Is A Market Leader And Business Is Stabilizing

General Mills is a market leader in processed and packaged food in the U.S. and also has a presence overseas. The company produces and sells cereal, yogurt, soup, snacks, dough, baking mixes and ingredients, pet food, ice cream, and other staples. The company’s major brands are well known to most investors including Cheerios, Yoplait, Nature Valley, Old El Paso, Pillsbury, Betty Crocker, Blue Buffalo, Haagen Dazs, Annie’s, Cascadian Farm, and others. Almost three -quarters of revenue is from the U.S., but the company operates globally.

The interesting thing about General Mills is that the company is a market leader in many categories and not just a handful. Furthermore, most of the brands are growing over time although in some cases growth is choppy. It not only competes in categories that are basic necessities but also more discretionary, e.g. ice cream. In cereals, the company has the top two brands and three of the top five brands

Disclosure: I am long GIS.

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