Please ensure Javascript is enabled for purposes of website accessibility

Why General Mills Stock Rallied 11.5% in March

By Reuben Gregg Brewer - Apr 5, 2021 at 10:27AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the diversified food maker rose along with those of peers, and we saw why as the month drew to a close.

What happened

Shares of consumer staples company General Mills (GIS 1.96%) rose steadily throughout March, gaining 11.5%, according to data from S&P Global Market Intelligence. It wasn't an unusual performance, with some of the company's closest peers also seeing gains in the 10% space. That said, toward the end of the month, General Mills showed why investors have been so upbeat.

So what

Food makers like General Mills benefited from increased eating at home thanks to the economic closures and work-from-home trends that went along with the coronavirus pandemic. These trends boosted sales above what would normally have been expected. To put some numbers on that, the company's March 24 earnings release showed that fiscal third-quarter 2021 (which ended in February) organic sales were up 7% year over year, and adjusted earnings were up 6%. Both are strong numbers for a food maker.

A person pushing a shopping cart through a store.

Image source: Getty Images.

That's great news, and the first nine months of fiscal 2021 were even better. Organic sales were up 8% over that span, and adjusted earnings advanced an incredible 14%. So the past nine months or so have been pretty good to General Mills, and investors are reacting accordingly.

But that is the past, and investors always look to the future, noting that the fiscal third quarter wasn't as good as the full nine-month period. In fact, with just one quarter to go, General Mills is projecting that its organic sales growth will come in at just 3.5% in 2021. That hints that the final fiscal quarter of the year will see a material organic sales decline year over year. The company is starting to lap the sales gains witnessed during the early days of the pandemic, so this isn't shocking.

So why would investors be upbeat? Management actually expects the declines to be slower than initially projected by some industry watchers. Investors appear to like the idea that the pandemic benefit, while not what it was, could linger a while longer.

Now what

Sales and earnings numbers are likely to be difficult for consumer staples companies like General Mills as the pandemic impact wanes. However, it is important for investors to watch closely, because the big issue is how much business the company can retain after things get back to normal. At this point, it seems as if the retention is still going to be fairly solid in the near term, even though results will be weak, comparatively speaking. That's actually pretty good news.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

General Mills, Inc. Stock Quote
General Mills, Inc.
$68.80 (1.96%) $1.32

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.