General Mills Rose by Just 0.01% on August 11: Why?

General Mills (GIS) has a market cap of $42.7 billion. It rose by 0.01% to close at $71.07 per share on August 11, 2016. The stock’s weekly, monthly, and year-to-date (or YTD) price movements were 0.82%, -1.2%, and 26.0%, respectively, on the same day. GIS is trading 0.32% below its 20-day moving average, 3.5% above its 50-day moving average, and 16.5% above its 200-day moving average.

The PowerShares High Yield Equity Dividend Achievers Portfolio ETF (PEY) invests 1.6% of its holdings in General Mills. The ETF aims to track a yield-weighted index of US companies that have increased their annual dividend for at least ten consecutive years. The YTD price movement of PEY was 21.1% on August 11.

The market caps of General Mills’ competitors are as follows:

• Kellogg (K) — $29.3 billion
• Hershey (HSY) — $24.2 billion
• Post Holdings (POST) — $5.3 billion

In a press release on August 11, 2016, Reuters reported, “A federal judge has ruled that General Mills Inc must face a lawsuit claiming it tricked consumers by marketing Cheerios Protein as a high-protein alternative to regular Cheerios, when the main difference was that it contained 17 times more sugar per serving. In a decision on Wednesday, U.S. District Judge Thelton Henderson in San Francisco said consumers may pursue a claim that General Mills violated the federal Nutrition Labeling and Education Act since it ‘misbranded’ Cheerios Protein, which is sold in Oats & Honey and Cinnamon Almond flavors.”

It added that “Though ‘skeptical’ it would succeed, Henderson also refused to dismiss the plaintiffs’ claim that reasonable consumers would likely be deceived by packaging for the cereal, noting that text mentioning its sugar content and being “sweetened” appeared in small print on the boxes.”

General Mills reported fiscal 4Q16 net sales of $3.9 billion, a fall of 9.3% from its net sales of $4.3 billion in fiscal 4Q15. Sales from the US Retail, International, and Convenience Stores and Foodservice segments fell by 12.2%, 1.5%, and 7.8%, respectively, between fiscals 4Q15 and 4Q16. In fiscal 4Q16, its net income and EPS (earnings per share) rose to $379.6 million and $0.62, respectively, compared with $186.8 million and $0.30 in fiscal 4Q15.

In fiscal 2016, GIS reported net sales of $16.6 billion, a fall of 5.7% YoY (year-over-year). It reported a gain on divestitures of $148.2 million in fiscal 2016. YoY, the company’s gross profit margin and operating profit rose by 4.5% and 30.3%, respectively, in fiscal 2016.

In fiscal 2016, its net income and EPS rose to $1.7 billion and $2.77, respectively, compared with $1.2 billion and $1.97 in fiscal 2015. In fiscal 2016, GIS’s cash and cash equivalents rose by 128.5% and its inventories fell by 8.3%. In fiscal 2016, its current ratio and debt-to-equity ratio rose to 0.79x and 2.93x, respectively, compared with 0.75x and 2.90x in fiscal 2015.

The company has made the following projections for fiscal 2017:

• organic net sales growth between 0% and -2%
• total segment operating profit growth in the range of 6%–8% on a constant-currency basis
• adjusted operating profit margin growth of ~1.5%
• adjusted EPS growth in the range of 6%–8% on a constant-currency basis

The company has made the following projections for fiscal 2018:

• modest organic net sales growth
• adjusted EPS growth in the low double digits on a constant-currency basis

In the next part of this series, we’ll discuss Blue Buffalo Pet Products.