Remain Loyal To The General

General Mills, Inc. (NYSE:GIS) is definitely a household name. Chances are, there are General Mills products in your pantry or kitchen cabinets right now. For those may know the company’s products, but who are unfamiliar with the company itself, you should know that it produces and markets branded consumer foods both in the United States and internationally. What you may not know is that it also supplies branded and unbranded food products to the foodservice and commercial baking industries. The company’s products include ready-to-eat cereals, refrigerated yogurt, ready-to-serve soups, dry dinners, shelf stable and frozen vegetables, ice creams and frozen desserts, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, grains, fruit and savory snacks, and various organic products, including granola bars, cereals, and soups. General Mills, Inc. sells its products directly, as well as through broker and distribution arrangements to grocery stores, mass merchandisers, membership stores, natural food chains, commercial and noncommercial foodservice distributors and operators, restaurants, and convenience stores, as well as to drug, dollar, and discount chains. Now that we have a foundation in the company lets turn to the stock.

General Mills stock has long been a company that you could have as a dividend leader in your portfolio. The stock is down this morning and I will discuss why momentarily. The stock is stable, that is, it trades with little volatility. The current share price is $52.10 and at this level yields 3.15 percent, a hefty dividend. The stock has also had some growth rising 30 percent in two years. Trading at a 19 price-to-earnings multiple, the stock is rather fairly valued for its earnings projections. But is the stock worth hanging on too after the company’s rough quarter? The company missed both earnings and revenues estimates. Is it time to find a new dividend leader and abandon General Mills?

General Mills missed analyst estimates on the top and bottom lines. Net sales for the fourth quarter totaled $4.3 billion, which was 3 percent below year-ago results. The adjusted segment operating profit of $733 million essentially matched year-ago levels. This led to diluted earnings per share that totaled 65 cents per share. Adjusted diluted earnings per share were 67 cents was up 24 percent from 54 cents in last year's fourth quarter, which was a large plus. Now, to be fair, the company had a little growth as net sales grew 1 percent to $17.9 billion. When we examine the adjusted segment operating profit, it totaled $3.2 billion, down 2 percent from year-ago results. This led to diluted earnings per share that totaled $2.83, which were up 1 percent from $2.79 a year ago. Adjusted diluted earnings per share, which excludes certain items affecting comparability of results, totaled $2.82. This was up 4 percent from $2.72 a year ago. So the company did deliver some growth here. Adjusted gross margin, which excludes mark-to-market effects and the impact of Venezuela currency devaluation, declined 80 basis points. This reflected the impact of increased promotional spending that generated less volume than planned, along with change in business mix. Further, the company reduced advertising and media expenses, as they declined 3 percent for the year. However, other consumer marketing investment rose 2 percent. General Mills Chairman and Chief Executive Officer Ken Powell stated:

"Our plans for 2014 called for sales and earnings growth consistent with our long-term business model, along with increased cash returns to shareholders. We made good progress building our worldwide food businesses, and we returned more than $2.7 billion in cash to shareholders through a 17 percent dividend increase and significant share repurchase activity. But our sales and operating profit results were disappointing. In the fourth quarter, promotional spending in developed markets was less effective than we planned and input cost inflation was a bit above our forecast. Net sales and adjusted gross margin fell short of our targets. Our Number One objective in the new fiscal year is to accelerate our topline growth. "

So what should you do with the stock? I think you should remain loyal to General Mills. It has provided share appreciation and is a serial (pun intended) dividend raiser. Its cash provided by operating activities totaled $2.5 billion in 2014 and the company has made capital investments totaling $664 million, including growth capacity for Greek yogurt and grain snacks. Dividends paid increased to $983 million. General Mills also repurchased approximately 36 million shares of common stock in 2014 for a total of $1.7 billion. Looking ahead the company plans for 2015 include a strong new-product lineup, compelling news or renovation on many existing brands, and a full slate of consumer-focused marketing initiatives The company has started work on several new cost-reduction initiatives designed to boost its efficiency and sharpen business focus behind its key growth strategies. General Mills fiscal 2015 net sales are expected to grow at a mid single-digit rate in constant currency. Adjusted segment operating profit also is expected to grow at a mid single-digit rate in constant currency. Adjusted diluted earnings per share is expected to grow at a high single digit rate in constant currency. So, the company will continue its slow path forward. I recommend sticking with General Mills, despite the lackluster quarter. I recommend a hold and assign a $55 price target.