The prospect of a recession weighed heavily on financial markets in 2022. S&P 500 The index fell 19% last year. But amid the market crash, consumer goods stocks performed exceptionally well. for example, General Mills (GIS 1.84%) By 2022, it will surge by 28%.
This raises the question: Did investors miss the stock’s boat? To get the answer, let’s take a closer look at General Mills’ fundamentals and valuations.
Iconic brands boost revenue and profits
With its roots dating back to 1866, General Mills is one of the world’s most established consumer goods companies. Over the years, product launches and acquisitions have expanded the company’s portfolio to over 100 of his brands, sold in over 100 countries worldwide. Some of General Mills’ most iconic brands include Blue Buffalo pet food, Chex Mix snack mixes and Cocoa Puffs cereals.
Recent performance has been solid. Net sales for the second quarter (ending Nov. 27) were $5.2 billion, up 3.9% year over year. What variables contributed to this solid growth?
General Mills organic net sales increased 11%. To compensate for the inflationary environment, the company implemented price increases across its businesses. Organic net sales increased 17 percent, coupled with improved sales mix in the high-margin North American foodservice segment. And with consumers loyal to General Mills products, organic matter declined by just 6% in the quarter.
There were also challenges. The company faced his 1% headwind from currency translation as a result of the US dollar’s strong performance against foreign currencies. Net sales also declined 5% due to the sale of the European yogurt business and the sale of the Ikinari salad and delicatessen business.
These factors explain why General Mills’ second quarter net sales growth was slightly below 4%. The company increased non-GAAP (adjusted) diluted earnings per share (EPS) for the quarter by $1.10, an increase of 11.1% from the year-ago quarter. Thanks to strong cost controls, General Mills’ non-GAAP net profit margin increased nearly 60 basis points year-over-year to 12.7%. Combined with a 1.8% decline in the company’s shares outstanding, this resulted in adjusted diluted EPS growth exceeding net sales growth during the quarter.
Given General Mills’ well-known brand and ability to execute successful bolt-on acquisitions, analysts believe adjusted diluted EPS will grow at an annual rate of 6.5% over the next five years.

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Dividends are built to last
General Mills’ 2.6% dividend yield isn’t flashy. But compared to his 1.8% yield on the S&P 500 index, it works well enough. And even if the above-average earnings weren’t enough to convince income investors, the dividend is well covered and still has room to grow.
This argument is supported by a dividend payout ratio of around 52% for the current fiscal year, which is scheduled to end in May. This will give General Mills the flexibility to buy back stock, reduce its debt burden and complete acquisitions to strengthen its business. Because of this, we are confident that further dividend increases, like his recent 5.9% dividend increase, will bring in shareholders.
High quality inventory at discounted ratings
After General Mills’ massive rally in 2022, it makes sense for investors to think they missed the chance to buy shares. But a closer look at General Mills’ ratings doesn’t seem to be the case.
The 20.3 price/earnings ratio is just below the 20.9 average for the S&P 500 consumer staples sector. It’s certainly not a total bargain, but discounts on blue chip stocks like General Mills shouldn’t be taken for granted. This is what makes the stock so attractive at current levels.
Kody Kester works for General Mills. The Motley Fool has no positions in any of the companies mentioned. The Motley Fool’s U.S. headquarters has a disclosure policy.