General Mills (NYSE:GIS) got a big lift from the COVID-19 pandemic on the way to posting a second straight quarter of double-digit sales growth and surging profits last week. But the packaged foods giant (owner of hit franchises like Cheerios and Pillsbury) also capitalized on that positive selling environment in ways that the competition couldn't match.

Judging by its market share gains over the last six months, investors might want to reconsider their judgments about the growth potential of this consumer staples giant. General Mills is on track to be a much stronger business even after the pandemic threat abates.

A little girl eating a bowl of cereal in a kitchen

Image source: Getty Images.

Let's take a look at three big reasons why.

1. Top brands are outperforming

As expected, organic sales growth slowed from the head-turning 16% expansion pace the company set during peak stay-at-home time in the prior quarter. But General Mills still grew organic revenue by 10%, even as restaurants reopened in July and August.

Slide showing market share performance in several categories.

Image source: General Mills' investor presentation.

Better still, the company estimates that it has gained market share in most of its biggest product niches and across several geographies. In the core U.S. segment, that includes a dominant performance for at-home baking and desserts, prepared meals and soups, and heated snacks.

General Mills didn't have to sacrifice profitability to get its brands into millions of new homes since the start of the year, either. Adjusted gross and operating profit margins both increased this quarter, leading to a 27% spike in adjusted earnings per share.

2. Reinvesting in the business

General Mills told investors to brace for higher costs over the next three quarters, which will keep profitability flat this fiscal year as compared to last year. These investments include major upgrades to its manufacturing chain and marketing support, along with higher input costs that will impact the entire industry.

Metric Change
Net Sales 9%
Organic Sales 10%
Adjusted Operating Profit 22%
Adjusted Earnings Per Share 27%

Source: General Mills' investor presentation.

In other words, General Mills is using most of its excess resources to pad its market share lead in attractive areas through the consumer food and pet food industries. "In an uncertain environment," CEO Jeff Harmening said in a press release, "our job is to stay focused on what we can control."

But he predicted that the company is "positioned to compete and win in our categories this year, regardless of the level of demand."

3. Capital plans

General Mills backed up its bullish outlook comments by boosting the dividend by 4%. That new payout will start lifting investors' returns by early November.

Investor slide showing decrease in debt relative to earnings.

Image source: General Mills' investor presentation.

But that could be just the start of significantly increased capital returns now that the business has pushed its debt ratio back down to three times adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), compared to more than four times immediately after its buyout of the Blue Buffalo pet food business.

This flexibility should allow General Mills to make similarly aggressive growth bets over the next year or so. If management can allocate that capital effectively, as it did with Blue Buffalo, then investors might stand to see significant gains from holding this stock well after the pandemic stops elevating demand for at-home eating products.