Freedom Broker analysts maintained a “Hold” rating on General Mills (GIS) shares and set a target price of $38. At the current price of $34, the upside potential is almost 12%. The company is showing early signs of a sales recovery; however, a high debt load, inflation, and expensive borrowing costs limit the scope for a re-rating.
What kind of company is General Mills
General Mills is an American producer of food and pet food. The company’s portfolio includes the brands Cheerios, Pillsbury, Häagen-Dazs, Nature Valley, Old El Paso, and Blue Buffalo. The largest business line remains North America Retail, which accounts for 56% of total revenue.
The company has paid dividends continuously for 127 years. Analysts cite General Mills’ high dividend yield and low valuation multiples as key factors behind its short-term investment appeal.
Rates constrained the stock’s valuation
Freedom Broker cut its valuation for General Mills to $38 but kept its “Hold” recommendation. Analysts emphasize that the revision is driven primarily by a higher discount rate, rather than deterioration in revenue and operating profit forecasts.
The discount rate is used to convert future cash flows into their present value. The higher interest rates and the cost of capital are, the less today the profits a company is expected to earn in a few years are valued.
In our view, the earnings call results were more positive than in recent quarters, with management paying less attention to resolving pricing issues and more to accelerating growth, Freedom Broker analysts note.
Revenue fell by 2.7%
In the first quarter of fiscal 2027, General Mills’ revenue declined 2.7% year over year to $4.39 billion, but exceeded Freedom Broker’s consensus estimate of $4.34 billion. The figure was affected by lower comparable sales in North America Retail and the sale of the U.S. yogurt business.
Organic sales for the whole company were unchanged versus last year. Price increases and a shift in the sales mix offset a decline in volume.
Net income fell 67%, from $1.2 billion to $397 million, and diluted EPS dropped from $2.22 to $0.74. The sharp decline is partly due to a high base last year, when General Mills recorded a $1.05 billion gain from asset sales, mainly the U.S. yogurt business.
Adjusted diluted EPS came in at $0.75, down 13% in constant currency. Adjusted gross profit decreased 5.3% year over year to $1.46 billion. Adjusted gross margin fell 90 basis points to 33.3% due to higher raw material costs.
Retail segment remains the weak link
Organic sales in the North America Retail segment fell 3% year over year. Organic volumes declined by 2 percentage points, while pricing had a negative impact of 1 percentage point. The sale of the yogurt business reduced reported sales by another 4 percentage points.
Segment revenue declined 7% to $2.4 billion. Operating profit fell 15% to $479 million due to lower volumes and higher manufacturing costs. Other business lines showed stronger momentum. Organic sales at North America Foodservice rose 4%, and segment operating profit increased 12% to $79 million. The unit increased or maintained market share across all priority categories.
Organic sales in the international business also rose 4%. Segment revenue increased 4% to $794 million, and operating profit climbed 14% to $75 million. In constant currency, operating profit growth was 15%.
Sales in the North America Pet segment were flat year over year at $613 million. Operating profit declined 12% to $100 million due to expensive raw materials, lower volumes, and higher selling, general and administrative expenses.
Savings should offset inflation
General Mills’ management estimated supply chain inflation in the first quarter at 4%. By the end of fiscal 2027, the figure could accelerate to 6% year over year. The company’s main response is a $3 billion efficiency program. In the current fiscal year, General Mills plans to save $750 million. The freed-up funds may be directed toward debt reduction and production investment.
Freedom Broker analysts expect productivity gains and business transformation to largely offset inflationary pressures. Additional drivers should include innovation, product refreshes, digital marketing, and e-commerce.
General Mills reaffirmed its guidance
The company reaffirmed its fiscal 2027 outlook. Organic sales may change in a range from a 1.5% decline to 0.5% growth. Adjusted operating profit is expected to decrease 8–13% in constant currency. Adjusted EPS is projected at $3.00–3.20 versus $3.55 in the prior fiscal year. Conversion of adjusted earnings into free cash flow is forecast at approximately 95%.
Freedom Broker expects General Mills revenue of $17.962 billion in fiscal 2027, $18.169 billion in 2028, and $18.389 billion in 2029. Adjusted EPS is forecast at $3.07, $3.23, and $3.40, respectively.
Dividends support the investment thesis
In the fourth quarter of fiscal 2026, General Mills posted a net loss of $3.01 billion, or $3.74 per share, due to asset revaluations and write-downs. Adjusted EPS was $0.95 versus $0.74 a year earlier, and revenue increased from $4.56 billion to $4.61 billion. The board of directors declared quarterly dividends of $0.61 per share.
This is not an individual investment recommendation.