So far in 2023, General Mills' (GIS 1.12%) stock has roughly tracked lower along with the broader market and the average consumer staples stock, using Vanguard Consumer Staples ETF as a proxy. But if General Mills' fiscal third-quarter earnings results are any indication, it is performing quite well in the face of broader adversity. It could be a safe haven in a storm, even though investors will likely be paying full price for the stock.
Some impressive numbers
In the fiscal third quarter of 2023, General Mills saw organic sales increase by a huge 16% compared to the same stanza of fiscal 2022. Through the first nine months of fiscal 2023 organic sales are up 12%. These are very strong numbers, given that the company has been dealing with inflation, which has increased the costs of ingredients, salaries, and transportation, among many other things.
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A cynic would argue that the organic sales growth has been driven by price increases as the company looks to pass on to consumers its own rising costs. That's absolutely true, though this is the normal path for consumer staples makers when dealing with inflation (cost-cutting is another key piece of the playbook). What makes General Mills' results stand out is that in the fiscal third quarter, volume was flat year over year.
In other words, despite the company increasing its prices, consumers were willing to keep paying for its products. That shows incredible pricing strength, given that food makers across the industry have been aggressively increasing prices for many quarters at this point.
As a comparison point, Hormel witnessed a 12% volume decline in its most recent quarterly results, the first quarter of 2023, which more than offset the price increases management put in place.
General Mills reported a fiscal third-quarter 2023 adjusted earnings per share increase of 17%. Through the first nine months of the fiscal year, adjusted earnings per share were higher by 14%. Notice that all the fiscal third-quarter numbers noted were larger than the year-to-date figures, meaning that General Mills' results are improving as the fiscal year progresses.
At this point, management is increasing its full-year guidance for organic sales and adjusted earnings per share. The change is fairly modest for each figure, basically up to a one percentage point improvement over previous guidance, but the direction is the bigger takeaway. General Mills appears to be handling the current headwinds, which it expects to continue, even better than it had believed it would.
Not exactly cheap
Investors worried about the economic environment should probably view these results with a glass-half-full attitude. Yes, conditions are tough today, and at the same time this particular food maker is adeptly weathering the storm. But does that make it worth buying?
This is a tougher question to answer. General Mills' dividend yield is roughly 2.7%. You could probably find a bank CD that would get you more than that, though an S&P 500 index ETF would only net you a 1.6% or so yield.
If you are truly worried about the market, General Mills probably isn't the place to temporarily park some cash. Notably, the yield here is roughly middle of the road, or slightly lower, compared to the company's own yield history. Using yield as a rough gauge of valuation, General Mills looks fully priced today.
GIS PE Ratio data by YCharts
Looking at the more traditional valuation metrics of the price-to-sales ratio, price-to-earnings ratio, and price-to-book value ratio, the company looks on the expensive side. All three of these metrics are above their five-year averages. If you are a value investor, General Mills probably won't interest you at this point.
Not a screaming buy, but...
At the end of the day, General Mills appears to be performing well in a tough environment. And, just as importantly, Wall Street seems to recognize that success. It would be hard to suggest that investors should rush in to buy the stock, but for a conservative dividend investor looking at the uncertainty in the market and economy, it might be worth paying full price, or even a little more, to own a company that's executing at the top of its game.
