- General Mills is a value relative to its peers in the consumer staples group
- The company reported $4.72 billion in net revenue for a gain of 4.0% over last year
- General Mills not only delivered solid results for Q3 but also gave very favorable guidanc
General Mills Commands Respect With Q3 Report
General Mill's Q3 report is noteworthy not just for its strength but its strength relative to warnings from FedEx (NYSE: FDX) and Ford (NYSE: F). While FedEx and Ford are unrelated companies compared to General Mills, the mounting headwinds faced by the supply chain (FedEx) and those who are dependent on it (Ford and General Mills) did not show up in the General Mills report as they could have.
The company reported $4.72 billion in net revenue for a gain of 4.0% over last year which was exactly what the analysts were looking for even after recent divestitures and including the FX headwind reported by every other S&P 500 company with international exposure. On an organic basis, the company reported an even stronger 10% gain in sales that was offset by 500 basis points due to divestiture and 100 basis points to FX. Organic sales were also impacted by an ice cream recall and so could have been even stronger.
Moving on to the earnings, the company reported mixed news in regards to margin with gross margins shrinking on a GAAP basis and expanding on an adjusted basis, and the opposite is true at the operating level. The takeaway here is that margin compression was far less than expected on a GAAP and adjusted basis leaving the earnings not only up YOY but growing faster than revenue. The GAAP EPS is up 32% due in large part to divestitures while the adjusted EPS is up a lesser 13% but a full 1000 basis points better than expected.
General Mills not only delivered solid results for Q3 but also gave very favorable guidance relative to the broad market trend. The company upped its range for both revenue and earnings by 200 basis points putting revenue growth in the range of 6% to 7% and adjusted EPS in the range of +2% to +5% which are both better than the Marketbeat.com consensus figures going into the report. Assuming the company continues to execute as it has, there is a strong possibility it will outperform its own outlook for the year.
General Mills Is A Comfortable Play On Consumer Staples
General Mills offers value and yield within the consumer staples group and it comes with a favorable outlook for dividend growth and share repurchases. In regard to value, it trades at roughly 19X its earnings compared to its closest competitor Kellog (NYSE: K) which trades at 17X earnings and 12.7X for Kraft-Heinz (NYSE: KHC) and 25X for Hormel (NYSE: HRL). In terms of the yield, the 2.86% is about double what the broad market is paying and in the middle of the range set by the Consumer Staples group. High-yielding Kraft-Heinz pays about 4.75% while Hormel pays a lesser 2.25% but all come with their own attractions.
The Technical Outlook: General Mills Gives Better Return With Less Volatility
The charts are clear, General Mills has provided superior returns with less volatility since the pandemic bottom compared to KHC and HRL. Based on the post-release action, it looks like the stock will continue to trend higher and may even set another new all-time high. In that scenario, investors might expect to see this stock trend higher over the next few quarters, especially if the analysts start to get on board. 
