Foolish Forecast: General Mills Still in Charge

Cereal maker General Mills (NYSE:GIS) will grind out fourth-quarter 2007 financial results on Thursday, June 28. Let's see if there are any lucky charms to be found in the forecasts.

What analysts say:

• Buy, sell, or waffle? There are 20 analysts baking up predictions about the General, and 13 of them say hold, six say buy, and only one has burned the cookies with a sell rating.
• Revenue. Sales are expected to puff up by 5%, rising to $2.99 billion.
• Earnings. Profits are also expected to grow, up 3.3% to $0.63 per share.

What management says:
With cereal being the grist for the company's profit mill, General Mills has embarked on a risky strategy to boost earnings by churning out a higher volume of the breakfast product with lower prices. It's a dicey maneuver, because there are many players who might not cooperate.

As wheat prices reached a 10-year high of $6 a bushel, competitors such as Kellogg's (NYSE:K) were forced to raise prices some 5% as far back as April. General Mills held off on raising its own prices, hoping to capture market share, but it hasn't worked out that way. Consumers tend to view the General's shelf prices as higher than the competition because of their larger box sizes. The new plan is to reduce the size of the box, which will appear to lower the price, even though it actually increases it. That should put it on a more competitive footing, but it may be too late to help, as Kellogg's has reported it still gained market share.

Grocery stores like Kroger (NYSE:KR) or Safeway (NYSE:SWY) may not want to lower prices and keep the profit for themselves as they continue to be squeezed by the likes of Wal-Mart (NYSE:WMT).

What management does:
While the battle of the breakfast cereals may have made it look like General Mills wasn't eating its Wheaties, much of the rest of the business was running strong. International sales, for example, have risen 15% with operating margins up 7% for the first nine months of the year. Cash flows are also robust, with basic free cash flows at more than $900 million, and the company has once again increased its dividend.

One Fool says:
General Mills is more than just cereals; it also competes with Kraft (NYSE:KFT) and Unilever (NYSE:UL), for example, in cookies and snacks, soups, and even canned vegetables. The broad-based portfolio of brands makes General Mills a steady performer, and the recent drop in price makes it appear far more attractive as an investment.

Related Foolishness:

• General Mills Grinds Higher
• Three Cheerios for General Mills?
• Foolish Fundamentals: Margins

General Mills has earned a three-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock-rating service by joining today. It's free!

Kraft and Unilever are recommendations of Motley Fool Income Investor. Wal-Mart is a recommendation of Motley Fool Inside Value. Whatever your investing style, the Motley Fool has a service to get your day started right.

Fool contributor Rich Duprey owns shares of Wal-Mart but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.