General Mills performs like a growth stock

Core brand sales grew since 2011 and performance continues to ramp up.

By Benzinga Mar 21, 2013 11:55AM

Girl grocery shopping with her mother image100 SuperStock By Tim Parker

General Mills (GIS) reported better-than-expected third quarter earnings Wednesday.

Sales of its core brands, such as Cheerios, Progresso soups and Haagen-Dazs ice cream, rose for the first time since 2011, according to Reuters.

Further, GIS shares are up 19% this year. Much of that, says Edward Jones analyst Jack Russo, is in response to the Berkshire Hathaway (BRK.B) and 3G Capital, H.J. Heinz (HNZ) deal, which has boosted share values for many food companies.

Russo says General Mills has been performing better in cereal and yogurt, businesses that have been challenged in recent years due, in part, to increased commodity costs.

"It looks like they're reinvesting back into the business," Russo said. As a result, the company says sales by volume rose 1% for the first time in two years. This despite the fact that the company raised prices on many of its products.

Although General Mills clearly sees the consumer environment improving, there will be challenges going forward.

Higher taxes and commodity costs have caused the company to raise its full-year outlook by only a penny per share. In addition, it said fourth quarter earnings would be lower than a year ago.

The packaged food industry has suffered in the U.S., mostly due to economic uncertainty. GIS has faced unique additional challenges, including pressure on its Yoplait yogurt by emerging Greek brands. The cereal division has also faced increased competition from competitors.

Sales for both segments were down in the third quarter, but General Mills indicated that trends were improving. The company says it expects high single-digit earnings growth over the long term.

Meanwhile, The Street's Jim Cramer picked GIS as one of his Top Stock Picks, saying that the cereal giant has what it takes and has been delivering for its shareholders year after year.

Jefferies continued to maintain a "hold" on GIS, but has raised its price target to $44. BMO Capital maintained its "outperform," and raised the price target to $50. Deutsche Bank maintained a "buy" rating and set a new price target of $53. Stifel Nicolaus reiterated a "buy" rating and raised the price target to $51.

General Mills shares, which closed Wednesday at $47.61, traded 1.4% higher by late morning to $48.28.

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