General Mills Update: A Better Quarter, But Not Yet a Victory Lap
Two weeks ago, I wrote that General Mills was becoming interesting because the market had pushed a branded consumer staple into value territory. The setup was simple: a battered share price, a forward yield above 7%, and a business that was clearly under pressure but still generating enough cash to defend the dividend. The question was whether Q4 would show evidence of stabilization or confirm that this was just a melting ice cube.
Yesterday’s results were better than feared. The stock reacted accordingly, closing around $37.77, up sharply from the prior close (the share price was $33.80 on the date of the original publication). That move pulls the forward yield down from the 7% area to roughly 6.5% based on the $2.44 annual dividend.
Operationally, Q4 gave us the first sign that the floor may be forming. Organic net sales were flat, adjusted operating profit rose 13% in constant currency, and adjusted EPS rose 27%. Adjusted gross margin improved 150 basis points to 34.2%. That matters because the original PYE concern was not whether General Mills could survive. It was whether margins and volume had stopped deteriorating.
But I would not call this a clean turnaround yet. The full-year numbers remain ugly. Fiscal 2026 organic sales declined 2%, adjusted operating profit fell 16%, and adjusted EPS fell 16% to $3.55. Q4 also benefited from trade expense timing, retailer inventory changes, and the 53rd week. Those are real, but they are not repeatable.
The cash flow test is still acceptable. Operating cash flow was $2.17 billion, capex was $540 million, and dividends paid were $1.32 billion. That gives roughly $1.63 billion of free cash flow against the dividend. In plain English, the dividend is still covered, but not with a huge cushion. The board also maintained the quarterly dividend at $0.61.
The biggest positive from a PYE lens is capital discipline. Management is now saying share repurchases will be deprioritized and limited to offsetting dilution while they work leverage back toward 3x net debt to EBITDA. That directly addresses one of my concerns from the original article. Buybacks at higher prices while the business was weakening made no sense.
The 2027 guide is realistic, not heroic. Organic sales are expected between down 1.5% and up 0.5%, adjusted EPS between $3.00 and $3.20, and free cash flow conversion around 95%. That means the dividend payout ratio will be higher next year, likely in the high 70s to low 80s percent range on adjusted EPS. Covered, but tight.
My PYE conclusion is unchanged but slightly more constructive. General Mills has passed the first stabilization test. It is no longer screamingly cheap after today’s move, but it is still inexpensive at around 10x forward earnings. I still view this as a starter-position name, not a full-position buy. The next proof point is simple: organic volume must stabilize without accounting help, and free cash flow must keep covering the dividend by at least 1.2x.
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Disclaimer
The analysis and commentary shared here reflect my own research and investment approach. This content is provided for informational and educational purposes only and should not be considered financial advice, a recommendation to buy or sell any security, or an endorsement of any particular strategy. Nothing here is tailored to the investment needs or circumstances of any individual. Charts, graphs, or figures are illustrative only and should not be relied upon as the basis for investment decisions. Please consult a qualified financial advisor before making investment choices that may affect your personal financial situation.