Minneapolis-based General Mills Inc. (GIS, Financial) has hiked its quarterly dividend to 7% as it tries to reinvent itself. The new dividend of 44 cents per share will be paid on May 1.
After the announcement of the dividend on Tuesday, General Mills’ shares rose 80% on moderate volumes.
The Drive
The rapidly changing consumer eating habits in America are forcing processed food companies like General Mills to get out of its comfort zone and adapt accordingly. Americans are moving away from packaged and processed foods and beginning to eat natural and organic food. Taking a cue from this trend, the company started making changes in the portfolio last year. It acquired organic brand Annie’s Homegrown for $820 million last year.
As an extension of its portfolio re-alignment strategy, the company has been working with New York-based Rothschild investment bank to lookout for a buyer for its Green Giant frozen food division amid struggling returns from its other segments. The Green Giant division has a range of 160 different frozen products which includes frozen vegetables to hummus. It generates $700 million in annual revenues for General Mills. The company has retrenched 1300 employees in the last 30 months as a part of its realignment strategy.
It should also be noted that last December, General Mills broke up two major segments of its retail wing, the frozen foods and its natural and organic division, Small Planet Foods. The brands held by these divisions were subsumed into other parts of the company.
Financial equations
For the first time in the last five quarters, General Mills managed to beat the street earning expectations. It announced earnings of 80 cents per diluted share in the latest quarter results against the estimated 77 cents street consensus. But at the same time, it reported a drop of 33.3% in its earnings for the quarter compared to the corresponding in the previous year. The company cited volatile market situation as a cause of this. The books reflect a gross profit margin of 37.73% which is considered pretty strong across board. The net profit margin trails the industry average at 7.34%. Despite an overall unfavourable market scenario, the stock is performing better than its peers. But for the fiscal year General Mills witnessed an increase in its bottom line when it announced earnings of $2.83 billion against $2.79 billion in the previous year. And also due to the stock price rising in the past one year, analysts feel that it still has more fire power left to shoot the price further up this year.
General Mills is all set to announce its third quarter results next week and analysts are expecting the earnings figure to be somewhere around 67 cents per share and a revenue to be roughly around $4.4 Billion.
The market expects the earnings of the upcoming fiscal year to contract by 0.5% at $2.82 billion against last fiscal year’s $2.83 billion.
Conclusion
General Mills has seen struggles in the past few quarters due to the changes affecting the overall processed and packaged food industry, but the company has been appreciated for its willingness to take a note of the changing trends at the right time and adapt to the changes in the best of its capacities. The corrective measures taken by the company to combat the tough times reflects in the rise of the share price, expanding profit margins and returns on equity investment showcased in past year. All these factors has lead to a market consensus categorizing the stock as a ‘Buy’ for investors looking to take fresh position and a ‘Hold’ guidance for the ones already invested in the stock.
