As of 2023, of General Mills (NYSE: GIS) Equities have followed a broad decline, along with the broader market and average consumer goods stocks. Vanguard Consumer Staples ETF as a proxy. But if General Mills’ third-quarter earnings results are any indication, the company is doing quite well in the face of wider adversity. Even if investors are likely to pay full price for the stock, it could be a safe haven in the storm.
some impressive numbers
In the third quarter of fiscal 2023, General Mills’ organic sales increased significantly by 16% compared to the same stanza in fiscal 2022. In the first nine months of fiscal 2023, organic sales increased his 12%. These are very strong numbers considering the company has dealt with inflation, with rising costs of materials, salaries and transportation among others.
A cynic would argue that organic sales growth was driven by price increases, as the company tries to pass on rising costs to consumers. While this is absolutely true, this is the usual path for consumer goods manufacturers when dealing with inflation (cost cutting is another important part of their strategy). Highlighting General Mills’ performance was third-quarter sales volume that remained flat year-over-year.
In other words, consumers were willing to continue paying for the product even though the company raised the price. This shows incredible pricing power given that food manufacturers across the industry have been raising prices aggressively for many quarters at this time.
As a point of comparison, Hormel In the first quarter of 2023, the company’s most recent quarterly results, volume fell 12%.
General Mills reported a 17% increase in adjusted earnings per share for the third quarter of 2023. Adjusted earnings per share increased 14% in the first nine months of the fiscal year. Notice that the numbers for the third quarter of the fiscal year are all higher than the year-to-date numbers. This means that General Mills’ performance has improved as the fiscal year progressed.
At this point, management is raising its full-year guidance for organic sales and adjusted earnings per share. The change in each number is fairly modest, essentially up to 1% better than previous guidance, but direction is more important. General Mills appears to be coping with the current headwinds, which are expected to continue, and is coping better than expected.
Investors concerned about the economic environment should probably look at these results with a glass half full. Yes, things are tough today, but at the same time this particular food maker has weathered the storm well. But is it worth buying?
This is a difficult question to answer. General Mills has a dividend yield of about 2.7%. Perhaps you can find a Bank CD that can get you more than that. S&P 500 Index ETFs only yield around 1.6%.
If you’re really worried about the market, General Mills isn’t the place to temporarily store your cash. Notably, yields here are about mid-range or slightly lower compared to the company’s own yield history. Using yield as a rough guide for valuation, General Mills looks perfectly priced today.
Looking at the more traditional metrics of price-to-sales ratio, price-to-profit ratio, and price-to-book ratio, the company looks on the expensive side. All three of these metrics are above their five-year averages. If you’re a worthy investor, you probably aren’t interested in General Mills at this point.
It’s not a scream buy, but…
After all, General Mills appears to be doing well in a tough environment. And, just as importantly, Wall Street seems to recognize its success. While it would be difficult to suggest that investors should buy stocks in a hurry, market and economic uncertainties may prompt conservative dividend investors to buy all or more to own a company. It might be worth paying a little more too…it’s running at the top of the game.
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Reuben Gregg Brewer works for General Mills and Hormel Foods. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.
The views and opinions expressed herein are those of the authors and do not necessarily reflect those of Nasdaq, Inc.