General Mills High-Yield Value: A Good Buy for Risk-Off Investors

Key Points

• General Mills' Q3 results left some to be desired, but fundamentals are sound, and capital return is safe.
• Guidance for Q4 was lowered due to an end-market reset unexpected to last long.
• Trading near $60, GIS is a deep value relative to historical averages and pays a 4% yield. 

General Mills NYSE: GIS isn’t an exciting stock, and its business faces headwinds, but it is fundamentally sound, investing in a turnaround and trading at historically low valuations. The stock is valued at only 14x earnings in early 2025, well below the 18x 10-year average while offering an above-average yield.

The stock is yielding about 4% with shares near $59, on par with the 10-year treasury yield, providing comparable safety with potential for capital gains over time. It may take time for General Mills' price action to regain traction, but the odds are high that it will, and the multi-decade uptrend in its share price will continue.

Unlike the TNX yield, General Mills Distribution is expected to grow over time, providing investors with leverage not found with bonds. Although the company has only recently made three consecutive annual increases, its long record of increases unmarred by pauses or suspensions dates back to the late ‘80s and is likely to extend into the future.

The company’s revenue and earnings are under pressure in 2025 but still sufficient to sustain financial health while paying and increasing capital returns. 

Among the critical details for consumer staples investors is that share repurchases are part of the capital return, shaving about 4% off the share count in the first nine months of the fiscal year. The takeaway is that buybacks and dividend distribution increases are balanced, leaving the company’s dividend burden flat on a year-over-year basis in Q3 F2025, not increasing.

That is sustainable until earnings revert to growth. Although the timing of revenue growth is uncertain, General Mills is expected to revert to earnings growth in F2026 and improve its distribution health. 

General Mills Falls Short as End-Market Resets

General Mills' Q3 results were mixed. Revenue declined by 5.1% to $4.84 billion and fell short of MarketBeat’s consensus, while earnings outperformed. Revenue weakness is due to a slowdown in North American snacking compounded by inventory reduction among many end-market retailers.

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The bad news is that end-market rationalization is impacting the near-term outlook but sets the business up for an accelerated rebound in 2026.

The margin news is better. The company’s Accelerate strategy is producing results and offsetting cost pressures to a degree, improving the gross margin by 40 bps and leaving the adjusted operating margin in better condition than expected. The net result is a 15% contraction in adjusted earnings, but the $1.00 is 500 bps above forecast and cost savings are expected to continue. 

The company's guidance is a possible sticking point for the market. It lowered its guidance, expecting revenue to fall as much as 2% versus a prior forecast for flat results. However, the market response suggests that some participants were expecting the bad news and that it was already priced into the stock. 

Analysts Identify a Potential Bottom for General Mills Stock

The analysts' 2025 price target reset helped pressure GIS stock price to its current lows, but lower prices may not come. The stock trades at the low end of the analysts’ target range in mid-March, a likely floor given the capital return and outlook and the post-release action suggests the same. An early sell-off was met by buyers who were not able to hold their advance.

The net result is a doji candle, indicating uncertainty but showing support at levels aligning with a market reversal. The question now is if GIS stock will make a complete reversal and begin to advance in 2025 or if it will make a partial reversal from a downtrend to range-bound and then move sideways until a catalyst emerges.