One of the great challenges for a veteran business is staying relevant through the years. General Mills, anchored by a clutch of familiar food brands like Cheerios and Chex cereals and Häagen-Dazs ice cream, is a bit out of tune with current consumer tastes. That's affecting the company's results and, relatedly, investor sentiment.
In September, an earnings report showing declines in key fundamentals, and a CEO appointment that some took as a discouraging, don't-rock-the-boat move, exacerbated the situation. General Mills' stock price fell by almost 22% that month.
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Not very tasty
General Mills unveiled its first quarter of fiscal 2027 results on the morning of Sept. 23, and they fell into the good news/bad news category. The good was that the company notched a double beat on analyst estimates, with net sales of $4.4 billion and net income not under generally accepted accounting principles (non-GAAP, or adjusted) of $0.75 per share.
The bad news is that both core fundamentals were down year over year, not least because each of the company's three U.S. business units posted sales declines. On top of that, it reaffirmed its full-year 2027 guidance: net sales are likely to slip again, with management forecasting a 1.5% decline to a 0.5% increase over the 2026 result. As for the bottom-line estimate, adjusted earnings per share (EPS) are predicted to land at $3 to $3.20. That compares unfavorably with fiscal 2026's $3.55.
Several analysts adjusted their takes on General Mills after earnings. Apparently, the ones investors took to heart were those featuring price target cuts. This was the case with the prominent Bank of America (BAC +0.04%) Securities, whose analyst Peter Galbo reduced his fair value assessment to $40 per share from $43. He also maintained his lukewarm neutral rating on the stock. Bernstein SocGen's Alexia Howard shaved $1 off her price target to land at $30 per share while keeping her underperform (sell, in other words) recommendation intact.
NYSE: GIS
Key Data Points
New boss, same old worries
On the last day of the month, General Mills announced it had selected a new CEO to succeed outgoing chief Jeff Harmening. The new boss will be Dana McNabb, a 27-year veteran of the company who currently serves as COO; she'll take up the position on Jan. 1 of next year.
In a well-performing company, investors often take such a promotion from within as a comforting sign that management doesn't want to mess with success. The perception is different in a struggling business, as few people are eager to see more of the same. We won't know if McNabb will be different and/or innovative as a leader until she starts leading, so those worries are understandable.
As is that month's sell-off. After all these years, with the healthy-eating trend in force, General Mills still seems reluctant to lean into it meaningfully. Its current strategy of focusing on its eight "core brands," such as Pillsbury, indicates a continuing resistance to change, in my view. As an investor, if I were looking at food industry stocks, I'd probably wouldn't pick this one as a buy.
