Is It Time to Buy General Mills Stock After the Latest Drop?

General Mills (NYSE: GIS) posted earnings results this week, and, as they have in response to many of the company's recent reports, investors reacted harshly to the news. The 9% decline in the stock price added to significant losses for the packaged foods specialist's shareholders, with the 25% drop this year trailing far behind the market's 9% gain.

It's understandable that investors would be less than thrilled by General Mills' forecast of flat organic sales in fiscal 2019. Shareholders also can't be excited about unfavorable industry trends that pair rising commodity prices with weak demand. Yet the company's latest report contained enough bright spots that investors might want to rethink the reflex reaction of avoiding this stock.

Looking deeper

General Mills' core sales rose by less than 1%, no real improvement over the flat results from the prior full fiscal year. But look beneath that top-line figure and you'll see signs of healthier demand trends over the last few months.

Prices inched higher across the portfolio, for one. General Mills also reported rising market share in eight of its nine core food categories, including cereal and yogurt. Executives pointed out that industry trends in the core U.S. market appear to be on the upswing, too, with both volume and prices reaching their highest levels in over a year.

Yes, we're talking about modest gains here. The cereal portfolio improved market share by just 0.1 percentage points, while yogurt's minor uptick only won back a small portion of the prior year's losses. But the broader picture supports management's rebound strategy, which relies on innovation and marketing to get growth back on track.

Meeting financial goals

Nothing in the first-quarter report threatened management's fiscal 2019 financial outlook, either. The company still expects the newly acquired Blue Buffalo pet food business to grow sales and profits by double digits in fiscal 2019. Organic sales should expand by about 1%, while the Blue Buffalo business pushes overall revenue higher by between 9% and 10%.

Operating profit is still on track to expand between 6% and 9%, management said, after notching what CEO Jeff Harmening called "a good start" to fiscal 2019 .

Meanwhile, investors can already see firm evidence that General Mills' financial efficiency is improving from cost cuts and changes to its supply chain. Operating cash flow rose to $607 million from $509 million a year ago. That success provided plenty of room for the company's dividend payment of roughly $300 million, which translates to an over 4% annual yield at current stock prices.

That healthy payout is one of the obvious reasons to like this stock, since it makes General Mills one of the highest-yielding dividend investments in the S&P 500. But, for a change, investors can buy that attractive income component while having reasonable expectations for improving operating results over the next few quarters.

Sure, fiscal 2019 is shaping up to look similar in some ways to the disappointing fiscal year that recently closed. But General Mills seems to be making the right moves, both in its core portfolio and its newly acquired franchises. These shifts should lay the groundwork for faster earnings growth that could start showing up as soon as this fiscal year. That could make the stock a good investment for conservative investors, given its 10-year-low valuation of just 12 times earnings.

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Demitrios Kalogeropoulos 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.