General Mills (NYSE:GIS), which owns Cheerios, Häagen-Dazs, Yoplait, and other big packaged food brands, has struggled against competition from healthier alternatives and private label brands in recent years. However, its growth stabilized over the past few quarters as it integrated new acquisitions (like the premium pet food maker Blue Buffalo), refreshed its classic brands with new products, and hiked prices to offset lower shipments.

General Mills isn't out of the woods yet, but it's faring better than rival Kraft Heinz (NASDAQ:KHC), which sacrificed its margins to boost sales. General Mills also might still appeal to income investors, since it trades at just 15 times forward earnings and pays a forward dividend yield of nearly 4%.

A bowl of Cheerios.

Image source: Getty Images.

General Mills recently outlined its top priorities for fiscal 2020, which started at the end of May, at its annual investor day. Let's look at the top four takeaways from that presentation, and whether or not they make General Mills a compelling buy.

1. Evolving and expanding its portfolio

Two years ago General Mills stated that it would expand its four "differential growth" platforms -- Häagen-Dazs, snack bars, Old El Paso Mexican food, and its portfolio of natural and organic brands -- to offset the slower growth of its weaker brands. General Mills reiterated that long-term goal during its presentation.

General Mills also stated that it planned to compete more effectively across "all brands and geographies" with better innovation, marketing, and in-store execution. It also plans to reshape its portfolio with "growth-enhancing acquisitions and divestitures" over the long term, and noted that Blue Buffalo is now the "leading brand" in the growing wholesome natural pet food category in the U.S.

General Mills' strategy is notably more aggressive than Kraft Heinz's approach, which was defined by conservative acquisitions and a lack of aggressive marketing strategies. Kraft Heinz's new CEO, Miguel Patricio, also recently told The Wall Street Journal that the company won't sell any brands or make any acquisitions in the following months.

A grocery cart in a supermarket aisle.

Image source: Getty Images.

2. Boosting its organic sales growth

General Mills' reported sales growth was significantly boosted by its takeover of Blue Buffalo over the past year. But on an organic basis that excludes that impact its growth still looks anemic:

Year-over-year growth

Q4 2018

Q1 2019

Q2 2019

Q3 2019

Q4 2019

Reported sales






Organic sales






Source: General Mills quarterly reports.

General Mills' organic growth was throttled by weak sales in North America, Europe, and Australia, which offset its stronger sales in Asia and Latin America, and its convenience stores and food services segment.

General Mills stated that its organic sales would rise 1% to 2% in fiscal 2020, supported by improvements to its North American business (with its differential growth and portfolio expansion initiatives) and Blue Buffalo's growth.

3. Maintaining strong margins

General Mills' strategies of hiking prices and cutting costs stabilized its gross margin and expanded its operating margin last year.


Fiscal 2017

Fiscal 2018

Fiscal 2019

Adjusted gross margin




Adjusted operating margin




Source: General Mills Q4 2019 report.

The company expects to maintain those margins by using two strategies: "holistic margin management", which reduces supply chain costs with reductions in energy, delivery, and packaging costs; and "strategic revenue management" initiatives, which leverage analytics to optimize its pricing.

General Mills didn't offer exact margin guidance for 2020, but it expects its adjusted constant currency operating profit to rise 2% to 4%, and for its EPS to rise 3% to 5% on the same basis.

4. Reducing its debt load

General Mills accumulated a lot of debt from its $8 billion takeover of Blue Buffalo. However, it reduced its long-term debt by 8% compared to the prior-year period to $11.6 billion during the fourth quarter, giving it a debt-to-adjusted EBITDA ratio of 3.9. It aims to reduce that ratio to 3.5 by the end of 2020.

Can General Mills achieve those goals?

General Mills is better run than many of its packaged foods peers, but it still faces a tough uphill battle. Winning back shoppers in North America could be challenging, and the company needs to carefully balance its spending on investments, marketing, and debt repayment to maintain its stable growth.

General Mills is still a solid defensive stock for a bear market, but it's rallied nearly 40% this year and its P/E ratio is a bit high relative to its earnings growth. Therefore, income investors should probably stick with safer stocks with lower valuations and higher yields for now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.