General Mills Earnings: Price Increases Offset Volume Declines in First Quarter; Shares Undervalued

Shares were roughly flat intraday, as the market reacted to few surprises in General Mills’ first fiscal quarter results. We anticipate making a low- to mid-single-digit increase to our fair value estimate of $78 per share for the time value of money and as we revisit some of our assumptions. Even before making the change, we see shares as undervalued. Over the last three months, shares have fallen almost 20%, lagging the Morningstar US Market Index’s 1% increase by a wide margin. We think the market is now overextending recent volume declines as longer-term weakness. But narrow-moat General Mills’ portfolio of strong brands should deliver improved financial performance as the macroeconomic environment stabilizes.