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Bear of the Day: General Mills (GIS)

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General Mills Company Overview

Based in Minneapolis, MN, Zacks Rank #5 (Strong Sell) stock General Mills Inc. ((GIS - Free Report) ) is one of the largest food producers worldwide, selling its products through supermarkets and retail stores. Its principal product categories include ready-to-eat cereals, convenient meals, and snacks (including grain, fruit, savory snacks, nutrition bars, and frozen foods). Additionally, the company sells ice cream and baking mix ingredients. GIS has also entered the pet food market with its 2018 acquisition of Blue Buffalo and its acquisition of Tyson Foods’ ((TSN - Free Report) ) pet treat business in 2021.

MAHA Movement May Pressure General Mills

The ‘Mahe America Healthy Again’ (MAHA) movement, spearheaded by US Health and Human Services (HHS) Secretary Robert F. Kennedy Jr., could have a significant impact on General Mills’ business. Kennedy has long been a proponent of raising awareness about ultra-processed foods (like those produced by General Mills) and eliminating artificial dyes. Thus far, the primary impact of the MAHA campaign on GIS is that the company has committed to removing all artificial dyes from its US product lines by 2027.

However, the commitment will require more than simply removing artificial dyes. If General Mills wants to keep its customer base, it will need to spend millions in research and development efforts to discover natural replacements that mimic the color, taste, and texture of its popular products like ‘Lucky Charms’ cereal. Meanwhile, Kennedy has not yet fully focused crosshairs on ultra-processed foods. Government pressure on this front could lead to more costs in the future for GIS. Either way, the movement is already raising awareness about the danger of these foods and influencing US citizens to eat healthier.

GIS Demand Stagnates

In addition to the many consumers making healthier choices, General Mills is battling prolonged value-seeking consumer behaviors. Both earnings and net sales declined year-over-year for General Mills, as more consumers opted for less expensive private-label brands. To make matters worse, Zacks Consensus Analyst Estimates suggest that earnings growth is likely remain negative through 2026, and remain stagnant into 2027.

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General Mills Faces Stiff Competition

Beyond the consumer changes and uncertain macroeconomic backdrop, GIS faces stiff competition from food brands like Kraft Heinz ((KHC - Free Report) ), Conagra Brands ((CAG - Free Report) ), and Mondelez International ((MDLZ - Free Report) ).

GIS: Poor Stock Performance

Slow-growth, packaged food companies like General Mills are optimal as safe-haven stocks. However, with the US stock market in a robust bull market, GIS is dramatically underperforming the S&P 500 Index and is likely to continue to do so into the future.

Zacks Investment Research
Image Source: Zacks Investment Research

Bottom Line

General Mills faces intense headwinds from evolving consumer preferences amid the “Make America Healthy Again Movement.” To regain momentum, GIS will need to spend millions in R&D to adapt its product portfolio.

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