General Mills Inc

Key Reasons for Buy

Second Quarter Performance Overview: General Mills reported that second-quarter results were influenced by favorable timing factors, such as an increase in retailer inventory in North America due to the shift of the Thanksgiving holiday from the second quarter of fiscal 2024 to the third quarter of fiscal 2025. These timing benefits contributed approximately a 1.5-point increase to net sales and a 6-point boost to operating profit. Net sales rose by 2 percent to $5.2 billion, driven by higher pound volume, although partially offset by unfavorable net price realization and mix. Organic net sales increased by 1 percent. Gross margin improved by 250 basis points to 36.9 percent of net sales, primarily due to cost savings from the Holistic Margin Management (HMM) initiative and favorable mark-to-market effects, despite inflationary input costs.

Profitability and Earnings Growth: Operating profit for the quarter reached $1.1 billion, reflecting a 33 percent increase, primarily due to higher gross profit and the absence of a prior-year goodwill impairment charge. However, the rise in selling, general, and administrative (SG&A) expenses partially offset these gains. The operating profit margin improved by 480 basis points to 20.6 percent. Adjusted operating profit grew by 7 percent in constant currency, while adjusted operating profit margin increased by 100 basis points to 20.3 percent. Net earnings attributable to General Mills rose by 34 percent to $796 million, and diluted earnings per share (EPS) increased by 39 percent to $1.42. Adjusted diluted EPS rose by 12 percent in constant currency, driven by higher operating profit, lower share count, and a reduced adjusted effective tax rate.

Six-Month Financial Summary: For the first six months of fiscal 2025, net sales remained flat at $10.1 billion, as higher pound volume was offset by unfavorable net price realization and mix. Organic net sales also remained unchanged from the prior-year period. Gross margin improved by 70 basis points to 35.9 percent, attributed to HMM cost savings despite persistent input cost inflation. Operating profit increased by 10 percent to $1.9 billion, benefiting from a prior-year goodwill impairment charge and improved gross profit. The operating profit margin expanded by 160 basis points to 18.9 percent. Adjusted operating profit rose by 2 percent in constant currency, while adjusted operating profit margin improved by 30 basis points to 19.1 percent. Net earnings increased by 8 percent to $1.4 billion, while diluted EPS grew by 13 percent to $2.45.

Segment Performance and Market Trends: The North America Retail segment reported second-quarter net sales of $3.3 billion, remaining relatively unchanged from the prior year, with favorable price realization and mix offset by lower volume. Organic net sales increased by 1 percent. North America Pet segment net sales rose by 5 percent to $596 million, driven by higher volume despite unfavorable pricing and mix. North America Foodservice segment net sales increased by 8 percent to $630 million, supported by higher sales in breads, cereals, and frozen meals. The International segment reported a 1 percent increase in net sales to $691 million, benefiting from a 4-point contribution from the Edgard & Cooper acquisition. However, organic net sales declined by 3 percent due to weaker demand in China and Brazil.

Cash Flow, Investments, and Capital Allocation: General Mills generated $1.8 billion in operating cash flow during the first six months of fiscal 2025, a 19 percent increase from the previous year, largely due to changes in accounts payable. Capital investments amounted to $301 million. Dividend payments of $676 million declined by 2 percent, reflecting a lower average share count. The company repurchased approximately 9 million shares for $600 million in the first half of fiscal 2025, significantly lower than the $1.3 billion in share repurchases during the previous year. Average diluted shares outstanding decreased by 4 percent to 562 million.

Outlook and Strategic Focus for Fiscal 2025: Amid ongoing macroeconomic uncertainties, General Mills remains committed to delivering strong consumer experiences across its key brands, supporting sustainable volume growth and market share expansion. The company reported a 1 percent increase in organic pound volume for the first six months of fiscal 2025, representing a 4-point improvement from the prior year. Additionally, it maintained or increased dollar market share in 38 percent of its priority businesses during the second quarter. To further enhance competitiveness, General Mills has increased promotional investments beyond its initial plans in select priority categories, while continuing to invest in brand-building initiatives at levels exceeding fiscal 2024 expenditures.

Considering recent key business, financial updates, current trading levels, and key business risks, a ‘Buy’ recommendation has been given on General Mills, Inc. (NYSE: GIS) at the current market price of USD 58.91, as on February 27,2025 at 07:10 AM PST.