Buy High-Yield General Mills (GIS) Stock Before Earnings?
General Mills GIS stock has lagged the market for years, as investors worry about the packaged food industry amid changing consumer habits. Yet GIS shares have outpaced the S&P 500 in 2020, and the coronavirus has highlighted that General Mills and its wide array of brands still have appeal.
Flying Off the Shelves…
General Mills boasts a portfolio that includes everything from Cheerios and Totino’s to Progresso and Yoplait, as well as pet food standout Blue Buffalo. The company topped our Q4 FY20 estimates on July 1 for the period ended on May 31. GIS quarterly revenue jumped 21%, with organic sales up 16%. This growth helped its adjusted earnings surge 33% in the fourth quarter.
Meanwhile, General Mills saw its full-year revenue climb around 5%, which came on top of FY19’s 7% expansion. Clearly, the firm’s fourth quarter was boosted by pandemic stockpiling that also benefitted the likes of Target TGT, Walmart WMT, and other major retailers.
GIS also worked on improving its balance sheet, and its free cash flow expanded by 42% in FY20 to $3.2 billion. More recently, the company updated investors on September 8 at the 2020 Barclays Global Consumer Staples Conference.
GIS noted that it plans to continue to reduce its leverage. That said, the company wrote in prepared remarks that “Year to date in fiscal 2021, at-home food demand has remained elevated relative to pre-pandemic levels, though it has moderated from the fourth quarter of fiscal 2020 in most of the company’s key markets around the world.”
Zacks estimates call for General Mills adjusted Q1 earnings to jump 10% on 4.4% higher sales. This obviously represents a big slow down from last quarter and indicates that consumers have returned to more normal shopping habits, which is part of the reason that GIS shares have lagged the S&P 500 and its industry over the last several months.
GIS stock has slipped over 10% in the last month, while the consumer staples market is up slightly despite the broader tech-driven selloff. Shares of General Mills closed regular trading Thursday at $57.58 a share, or about 12% off its mid-July highs. Investors should also note that GIS trades in-line with its peer group—that includes Kellogg K, Conagra CAG, Kraft Heinz KHC, and others—at 16.5X forward earnings.
The firm pays a $0.49 per share dividend at the moment, which is good enough for a solid 3.42% yield that tops CAG’s 2.44% and the S&P 500’s 1.70% average.
GIS is currently a Zacks Rank #3 (Hold) ahead of its upcoming Q1 financial release that’s due out on September 23. The company does have a solid history of quarterly earnings beats, and it might be attractive to investors looking for yield amid the current interest rate environment.
However, GIS just recently fell below its 200-day moving average and there might be better dividend-paying options out there, as the pandemic-based boost to demand is likely already in the rearview.
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