In this segment from Market Foolery, the team breaks down the latest quarterly results from General Mills (GIS 3.23%). Though it may not be a flashy, high-growth stock, the company's broad portfolio of popular brands has made it a winner for many investors.
Will changing consumer preferences hurt the long-term story for this company?
A full transcript follows the video.
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This video was recorded on March 21, 2017.
Chris Hill: Let's move on to General Mills. Third quarter revenue falling ... I should probably add yet again. This is the seventh quarter in a row of falling sales for General Mills, the parent company of Cheerios and other delicious cereals, but Cheerios is probably with they're best known for.
Bill Barker: One of the many things. Chex, of course. They've got a lot of different brands --
Hill: Wait, do you eat Chex? Have you ever eaten Chex cereal?
Hill: I just can't get around Chex as a cereal. As a mix, that's fine. And it's only fine there.
Barker: Do you eat Cheerios?
Hill: Sure, yeah.
Barker: Do you eat Rice Krispies?
Barker: What about Chex seems so objectionable? It's not like you're restricting yourself to the sugary cereal category. Chex is as much of a classic as those two.
Hill: I'm not debating that. I'm just saying it's not as good as those two.
Barker: I think you're wrong. I think most of the listeners agree with me.
Hill: [laughs] Not on that one.
Barker: You know, unless they're four years old or two years old, and they're eating Cheerios out of the little baggie that their parent --
Hill: This is a large, stalwart company. I'll give you a week. Go back and find me the conference call. At any point in history, when the management of General Mills came out and said, "We crushed it this quarter, and you know what was doing it? You know what was the big mover for us? Chex. Chex is getting it done. We can't make Chex fast enough. That's how much people love it."
Barker: They don't have "the big mover". That's not with General Mills is about. It's about doing virtually the same thing over and over again. And that has shown up in the stock, and that has shown up in the numbers, and when you say that it's down seven quarters in a row, true. On the other hand, it's continued to deliver as a stock. The earnings are pretty much where they've been for the last couple of years. It is a very stable company which, at the moment, is down a little bit for the year. If that continues to be the case, that'll be the first time in over a decade that shareholders have not had positive returns from this stock.
Hill: I was going to say, you had sent me something this morning before we were taping -- all kidding aside -- this really was one of those stocks that was a compounding machine over decades.
Barker: Yes. I wrote about this in 2005, an article called "High Percentage Bets on the Future," and one thing it did was talk about some quotes from movies as a hook for saying, the future ends up being a lot more similar to the present than you think over long periods of time, and part of the proof of that is that among the best-performing stocks over 40 years, going into the time that Jeremy Siegel wrote his book The Future for Investors: Why the Tried and the True Triumph Over the Bold and the New, General Mills was one of the top performers of the S&P over a 40 year period. And it's been 12 years since then, and it's continued to outperform the market over that time period. I have the 10-year and the 15-year data in front of me, and General Mills has outperformed the market by about 2.2% over the last 10 years, and about 1% over the last 15 years. Actually, packaged foods as a group have done much better than that. It has underperformed the packaged foods group over that time period by about 2%. Why is that? One, they were a little bit late to organic foods, and that's been something that has made inroads, and they're also fighting off private label. So, packaged foods as a group have done very well. Think, the last 10 to 15 years must have been dominated by tech. Still, food -- good thing to invest in.
Hill: They seem to have managed their brand portfolio pretty well --
Barker: With the exception of Chex, apparently, which you think of as a dead brand that nobody's ever eaten.
Hill: I'm just saying it's an "Oh yes, we also have this, for the very tiny group of people who rank Chex as their No. 1 favorite cereal. We're there for you. But we know you're a small and dwindling number." But, you don't hear much about General Mills looking to sell off major brands in their portfolio. They've done a good job of just managing -- because yes, it's cereal, but it's also, as you said, it's packaged foods, it's pizza, it's soup, it's different snacks, they have an organic chain. So, they've done a very good job with that and managing the shelf space within grocery stores.