Shares of General Mills (NYSE:GIS) recently rallied after the packaged-foods giant posted its third-quarter earnings. Its revenue rose 8% (10% on a constant currency basis) to $4.2 billion, which narrowly missed estimates by $10 million. Its organic sales grew 1%.

General Mills' adjusted earnings rose 6% annually to $0.83 per share, which cleared expectations by $0.14. On a GAAP basis, which takes into account significant tax reform benefits in the prior-year quarter, EPS declined 54% to $0.74.

A grocery cart in the middle of a supermarket aisle.

Image source: Getty Images.

For the full year, General Mills expects flat to 1% organic sales growth, 9% to 10% constant currency sales growth, and flat to 1% adjusted EPS growth on a constant currency basis. That outlook indicates that General Mills' business is stable, and it allays some of the fears about packaged foods that were stoked by Kraft Heinz's (NASDAQ:KHC) disastrous fourth-quarter report last month.

General Mills' stock still looks fairly cheap at 15 times forward earnings, and it pays a hefty forward dividend yield of 4.1%. Do that low valuation and high yield make it a decent stock for conservative investors?

Check out the latest earnings call transcript for General Mills.

Understanding General Mills' challenges

General Mills, like many other packaged-foods companies, struggled with the rise of private-label brands and shifting consumer tastes. Demand for many of its core brands, like Cheerios, Yoplait, and Haagen-Dazs, peaked as consumers pivoted toward healthier or more differentiated brands.

To counter that slowdown, General Mills acquired more companies like organic food maker Annie's and premium pet food maker Blue Buffalo. The acquisition of Blue Buffalo, which closed last April, boosted General Mills' sales growth over the past three quarters -- but that growth will decelerate after it laps the acquisition. Meanwhile, General Mills' organic growth remains nearly flat.

Metric

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Reported sales growth (YOY)

2%

2%

9%

5%

8%

Organic sales growth (YOY)

1%

1%

0%

(1%)

1%

Data source: General Mills quarterly reports.

General Mills' North American retail sales (60% of its top line) stayed flat compared to the prior-year quarter, but its operating profits climbed 12% as it hiked prices. This strategy propped up its margins, and was arguably smarter than Kraft Heinz's use of price cuts to buoy its organic sales growth.

A bowl of Cheerios.

Image source: Getty Images.

Sales and operating profits at its Convenience Stores and Food Services unit both improved annually on improvements in its "Focus 6" platforms, which include certain frozen meals, snacks, frozen baked goods, and yogurt.

However, General Mills' sales and operating profits fell in Europe and Australia, as soft demand for Yoplait and retail challenges in France offset stronger demand for Haagen-Dazs. Its sales also declined in Asia and Latin America, but the unit's operating profits improved on tighter spending.

Expanding margins and new products

General Mills isn't firing on all cylinders, but its strengths are outweighing its weaknesses. Meanwhile, its gross and operating margins are improving as it hikes prices and cuts costs:

Metric

Q3 2018

Q3 2019

Adjusted gross margin

32.5%

34.2%

Adjusted operating margin

15.1%

17.4%

Data source: General Mills Q3 earnings report.

Granted, General Mills can't raise prices or cut costs forever. However, its new acquisitions can help it grow in new markets, such as organic food and pet products, and it still has ways to reinvigorate older brands.

For example, it refreshed Yoplait with Go-Gurt, Yoplait Whips, Kid Cups, Greek yogurt, Light yogurt, and French-style Oui yogurt in recent years. These new products help General Mills reach new consumers and "premiumize" its classic brands.

General Mills isn't spending its cash on buybacks, which is wise because its current priorities are to expand its business, reduce its $11.6 billion in long-term debt (much of which came from its $8 billion takeover of Blue Buffalo), and keep paying its dividend.

A bear market-friendly stock at a reasonable price

General Mills' stock probably won't rally significantly this year, but its stable organic sales growth, expanding margins, low valuation, and high dividend yield make it a well-balanced investment. Investors who are worried about a recession and bear market taking a bite out of their portfolios should take a closer look at this stock.