Last week, I discussed the case of Flowers Foods, the largest publicly listed bakery in the US. The company has cut its “safe” dividend for the first time ever, unlike many other consumer staples that are still reluctant to do so — despite the market pressing them. Circumstances have changed, and wise managements better cut now, instead of denying reality any longer. Another candidate where the “safe” dividend might not be so safe is General Mills. The company reported another set of disastrous results. Although the payout is technically still covered, I have doubts it will be kept at this level.
Important disclaimer: All content is for information, educational, and entertainment purposes only and does not constitute personal investment recommendations or advice, but the sole personal, highly subjective opinion of the author.
Summary and key takeaways from today’s Weekly
– General Mills remains a popular dividend stock, despite its weak operational performance, and, more important, high risk for a cut.
– The company presented again weak results, while the outlook does not indicate a turnaround either.
– If this trend persists, the dividend will be in danger — maybe even over the next quarters.
Although I never formally declared it to be a dividend-cut series of weeklies, here’s another episode featuring a popular consumer staples stock with an elevated risk for a painful slash — General Mills (ISIN: US3703341046, ticker: GIS).
Officially and technically, GIS is neither a dividend king (it never was), nor an aristocrat — anymore. It lost the latter tittle when it paused its yearly rhythm of dividend increases after it acquired the pet-food business Blue Buffalo in 2018 (see here).
Elevated debt forced management to reprioritize capital allocation.
The problem is, today there’s still plenty of debt, while dividend hikes have resumed. Unlike back then, today GIS is coping with unprecedented challenges in its business. Despite the lack of an official dividend title, it remains one of the most popular dividend stocks — at least, the company has never cut it before, and it has been paying an uninterrupted dividend for 127 years (see here).
My view is that it will be tough to keep this successful track record alive.
In this weekly, I am throwing a look at GIS, discussing the key developments and financials, making my point why I caution investors to better be prepared for a crush.
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Important disclaimer: All content is for information, educational, and entertainment purposes only and does not constitute personal investment recommendations or advice, but the sole personal, highly subjective opinion of the author.
The dividend is at risk of getting milled
Occasionally, I have already commented a bit on General Mills (see here), showing here or there a stock-price chart or squeezing in one or the other paragraph with my (primarily negative) assessments.
I was surprised that I have not published a dedicated weekly about GIS so far.
Surprised, because for me, it is one of the most obvious, or let’s put it another way, one of the highest-risk cases of a pretend defensive consumer staple where the dividend is not safe.
Despite still-sufficient coverage by free cash flow, and the track record (that is backward-looking anyhow).
It is no secret that the entire processed-food sector has been suffering for quite some time. The reasons should be clear by now — else the chart of GIS would not be looking like it does. The stock is trading on a level of almost 20 years ago, or where it was in 2008, to be more precise.
Dividend investors will view it a bit differently, saying that one needs to factor in the paid dividends. This is of course correct, I do not want to deny that.
However, when one is honest, twenty years of nothing but dividends is not proof of a successful investment. Not to mention that it is before factoring in inflation.
Something the dividend crowd usually “forgets”.
No matter how we twist it and turn it — the company and its shareholders have had little joy over the last years:
- Shares are down 50% over the last ten years,
- 39% over the last five years,
- and 29% over the last twelve months.
Yes, again without dividends, but you get my point (and also without inflation…).
Like with most consumer staples, the reasons can be found in the company’s financials. It is one thing what management says, claims or guides.
The timeless wisdom of “numbers don’t lie” perfectly applies.
That’s why I am flipping through a few charts and screenshots that make it instantly clear — the winds have changed, and the negative development is neither unjustified, nor was it impossible to not anticipate it much earlier.
I am using trailing-twelve months charts that reach back five years only, but they show what happened on a quarterly basis, instead of a more distant yearly-only view.
Starting with sales, I could imagine the following might be a shock for many readers who do not follow the numbers closely on a frequent basis. The top line has fallen back to where it was five years ago. Part of the truth is, though, that GIS recently sold its American yogurt business that generated about 10% of total sales.
But this is a weak excuse, as the problems have deeper roots.
Tying into the above, the sales growth dynamic should not be surprising.
Maybe the pace of it, but not the direction.
Adding to this the fact that pricing power has become a relict of the past, squeezed margins have disproportionately hit operating results…
… the bottom line…
and of course cash flow.
Attentive readers will have noticed that the last net-income column showed a loss.
One of my main points of criticism — overly aggressive balance sheets with high debt, and low-quality assets (see here) — has struck. GIS had to write down certain intangible assets, leading to a cool 2.1 billion USD write-down.
While it does not affect cash flow, it confirms that one should not take what they report as assets on the balance sheet at face value. Tangible book value or equity — net assets after debt — is negative.
Below, orange bars represent total equity, while goodwill and other intangibles (green and purple) are stacked on each other — almost three times as much of these “assets”.
The reason I am showing this is not to do a valuation using the book value — this is of little sense in my view. Where I sometimes use book value is when assessing financial companies (which I generally dislike, though) or in the case of heavy industries and real hard assets.
It shall show that an operationally challenged business — like GIS — that is primarily living off its past success, and brand recognition, is presenting itself in a stronger form that it actually and factually is.
This was so far a quick ride through a few key longer-term developments.
Personally, I use such visuals to get a first impression in which direction business momentum is going. When I see things like the above, I don’t have to care as much about managment claiming to “innovate” or other garbage.
Numbers don’t lie.
Adding more numbers, here are the highlights from the latest results — their just-closed fiscal-year.
First looking back, then looking into the future.
Net sales in FY 2026 (until end of May 2026) came it 8% below last year’s figure. The divesture of the yogurt business strongly affected the top line — however, on an organic basis, i.e. adjusted for the one-time divesture effect — sales were still down 3%.
Even worse was operating profit.
Down 41% on a reported, and 32% on an adjusted basis. Here, we have the asset write down which in itself is also a one-time effect. Nonetheless, if everything was rosy, they would not have to do such an impairment to begin with.
Scrolling down a bit, GIS breaks down its segment performance.
North American Retail and NA Pet are the two key segments, as they gave the highest margins, and generate the bulk of sales. In these two segments, GIS did the most-aggressive pricing action.
Interestingly, the rest showed even declining pricing in the last quarter.
Just this observation, we’re having a deeper look on the next screenshot.
The next table shows a more detailed breakdown — which tells us what we should know.
Here, we have the organic development, adjusted for all one-time effects. Not just the yogurt divesture, but all transactions in both directions, and other one-time effects.
Starting with the yellow parts, GIS was not able to raise prices, respectively lowered prices in its most important NA Retail segment. The core has absolutely no pricing power — again, this is before inflation. Pets saw higher prices — but at the expense of hefty volume losses, shown in red. Retail also had volume losses, together with lower pricing, resulting in miserable organic net sales.
We can also see that Pet’s reported sales growth was acquisition-driven — not organic. So, maybe the “people will feed their pets even before themselves” narrative started to crumble?
So in total, and ignoring the smaller units, the business is drowning.
No pricing power.
Hiking prices sacrifices volumes (pets), and even lowering prices in the core does not prevent a sales decline. In this regard, I don’t understand how bulls are able to call this a turnaround in the making.
Looking now into the future, optimists might potentially assume this was just a bad year, or maybe a kitchen sink, an adjustment to finally start recovering from here.
But not really.
The trend is your friend — or rather your enemy in this case.
There is no recovery in sight.
I was surprised that the stock popped around 10% after these disastrous results. Results are one thing, but the outlook is still negative. I believe that the negative downtrend for the stock will resume, soon.
Rounding up this overview, here is the debt situation.
Net debt (orange) is trending up, while cash (green) is trending down.
We have seen operating cash flow above.
Here is free cash flow — cash flow after investments (that have been reduced already).
FCF is what pays the dividend (and debt, but not in their case…).
Between 7–8 times net debt to FCF is hardly low leverage.
The EBITDA figure is already not low. But this one here is a red flag. Rising debt, falling FCF, and a horrendous leverage ratio. I mean, this is not just one accidental quarter with some unlucky timing in working capital.
This is real stress.
Turning now to the dividend, we can see that it remains covered — for now.
With sales expected to fall, operating earnings guided to drop another 16–20%, I cannot imagine cash flow to come in strong against this trend.
Based on the numbers above, GIS is paying out 81% of FCF in dividends.
Should FCF drop only 10%, we are talking about 90%.
If it drops in line with operating profits — it gets tight.
A first indication is that GIS did NOT hike their dividend a few days ago, as they have done over the last years after four four equal payments.
Of course, it is possible that they take on even more debt, or sell some assets to bring in some liquidity. It is also possible or even likely that they will try to “optimize” working capital — just pay your suppliers a bit later, and suddenly there’s more cash flow (but this trick cannot be used perpetually).
It is up to debate whether this is a lucrative case — not only regarding the dividend, but generally.
Maybe everything bad is priced in? With an enterprise value of 32 billion USD, and a FCF of 1.6 billion USD, we get a multiple of 20x — is this a good deal?
I am leaving this and all the other questions open.
I am just putting the finger in the wound.
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A critical inflection point.
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Conclusion
General Mills remains a popular dividend stock, despite its weak operational performance, and, more important, high risk for a cut.
The company presented again weak results, while the outlook does not indicate a turnaround either.
If this trend persists, the dividend will be in danger — maybe even over the next quarters.
Important disclaimer: All content is for information, educational, and entertainment purposes only and does not constitute personal investment recommendations or advice, but the sole personal, highly subjective opinion of the author.
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