General Mills Reaffirms Full-Year Guidance as International Profit Jumps 14%. Is the Turnaround Finally Working?

It's never easy for a company grounded in a traditional business to shift to a higher-growth model. General Mills (NYSE:GIS), a food company best known for its line of breakfast cereals, has been undergoing such a transition for several years.

Results have been mixed, but at least General Mills topped expectations (if only modestly) after reporting its fiscal first-quarter 2027 financials Wednesday morning. Let's see how it did.

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Slimming down

General Mills' sales were $4.4 billion in the period, down 3% year over year. It attributed the decline to the sale of its U.S. yogurt portfolio in June (to French specialty food company Lactalis). It said that the sales dynamic would have been flat otherwise. The company's take in all three of its U.S. business units -- retail, pet, and food service -- declined at single-digit percentage rates, but this was mitigated by improvements in price/mix (i.e., pricing strategy and product selection). The international segment produced 6% growth — and a 14% improvement in operating profit — although its price/mix fell by 3%.

Net income under generally accepted accounting principles (GAAP) plummeted, meanwhile. The metric declined by 67% to just over $398 million, although much of this was due to a more than $1 billion gain from the sale of that U.S. yogurt business. On a non-GAAP (adjusted), per-share basis, General Mills earned $0.75. That was still down (from the year-ago figure of $0.86), although not as drastically as the GAAP result would indicate.

With those numbers, the company did slightly better than analysts were expecting. The consensus pundit estimate for revenue was slightly over $4.3 billion. That for adjusted, bottom-line profitability was $0.72 per share.

General Mills didn't move the needle much on revenue and its profitability slumped, so it had little justification for boosting its guidance for the entirety of fiscal 2027. It did reaffirm its existing forecasts, however, so it's still counting on net sales dipping by 1.5% to growing by 0.5% over the previous year. Adjusted net earnings should be $3 to $3.20 per share; that range is well under the $3.55 per share in the preceding fiscal year.

Acceleration, in fits and starts

In 2021, General Mills unveiled its Accelerate strategy, a long-term initiative to -- you guessed it -- accelerate its business and post meaningful growth in the fundamentals.

Is it working? To a degree, yes. The sale of the uninspiring yogurt business -- and, to a lesser extent, the more recent divestment of its Brazil unit -- indicated that management is trying to reshape the portfolio around its eight leading brands (which include Cheerios, Pillsbury, and Betty Crocker). However, its aim of boosting volume fell short, at least as far as its foundational and critical U.S. business was concerned.

General Mills is a favorite of some income investors, as it is one of the steadiest and most consistent dividend payers on the scene -- it's dispensed this form of shareholder remuneration regularly since its predecessor company initiated it in 1898. These days, at a quarterly $0.61 per share, it's a high-yield dividend that pays out at 6.8%.

A steady business filters down into reliably high cash flow, which has been sufficient in recent times to fund the dividend. That high-yield dividend is a point of pride for General Mills, given the company’s long payment streak. So, unless free cash flow falls off a cliff, I don't think management will reduce it anytime soon.

While a high-yield dividend is always attractive, the best income stocks marry a generous payout with at least some promising growth potential. And that's the issue I'd have with General Mills stock: the company's core products are basically staples, and it isn't really capitalizing on the current long-tail consumer trend toward healthier eating. I believe pure yield-chasers could be satisfied with this stock, but if I were looking for any consistent growth, I'd leave it alone.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.