Is General Mills a Safe Investment?

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With shares of General Mills (NYSE:GIS) trading around $52, is GIS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

General Mills supplies branded and unbranded food products to the food service 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 food service distributors and operators, restaurants, and convenience stores, as well as to drug, dollar, and discount chains.

General Mills today reported results for the fourth-quarter and full fiscal year ended May 25, 2014. General Mills Chair and Chief Executive Officer Ken Powell said, “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.”

Fourth-quarter net sales declined 3 percent to $4.3 billion. Lower pound volume subtracted 2 points of net sales growth, while net price realization and mix added 1 point. Foreign currency exchange reduced net sales growth by 2 points in the quarter. Adjusted gross margin was 10 basis points below the year-ago level. Adjusted segment operating profit of $733 million essentially matched year-ago results. Net earnings attributable to General Mills totaled $405 million and diluted EPS totaled 65 cents. These results include a 6-cent per share gain on the sale of several Idaho grain elevators and a 9-cent per share charge associated with Venezuelan currency devaluation. Adjusted diluted EPS, which excludes these and certain other items affecting comparability, totaled 67 cents for the fourth quarter, up 24 percent from 54 cents a year earlier.

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