These two leading foodmakers continue to improve the quality of their products as consumers demand healthier alternatives. Those changes should spur their earnings, and let them keep raising their dividends.
GENERAL MILLS INC. $59(New York symbol GIS; Income-Growth Dividend Payer Portfolio, Consumer sector; Shares outstanding: 568.3 million; Market cap: $33.5 billion; Dividend yield: 3.3%; Dividend Sustainability Rating: Highest; www.generalmills.com) is one of the world’s largest food producers. Its top brands include Big G (cereal), Green Giant (canned and frozen vegetables), Pillsbury (baking dough), Old El Paso (tacos), Progresso (soups and salads) and Yoplait (yogurt).
The company last raised its quarterly dividend in August 2017 by 2.1%, to $0.49 a share from $0.48. The new annual rate of $1.96 yields 3.3%.
For its fiscal 2018 second quarter, ended November 26, 2017, General Mills earned $430.5 million. That’s down 10.6% from $481.8 million a year earlier. However, earnings per share fell 7.5%, to $0.74 from $0.80, on fewer shares outstanding.
If you disregard unusual items, including costs to restructure its operations, General Mills earned $0.82 a share in the latest quarter. The company expects that cost-cutting to reduce its annual expenses by $700 million, starting this year.
Sales in the quarter improved 2.1%, to $4.20 billion from $4.11 billion. Higher sales of cereal and snacks, particularly in the U.S., offset weaker demand for yogurt.
For all of fiscal 2018, General Mills expects its overall revenue will be flat to down 1%. However, savings from its restructuring plan should increase its earnings by around 1.5%, to $3.13 a share. The stock trades at 18.8 times that forecast.
General Mills is a hold.
CAMPBELL SOUP CO. $48(New York symbol CPB; Conservative-Growth Payer Portfolio, Consumer sector; Shares outstanding: 300.5 million; Market cap: $14.4 billion; Dividend yield: 2.9%; Dividend Sustainability Rating: Above Average; www.campbellsoupcompany.com) is the world’s largest maker of canned soups. Other products include Prego canned pasta, Pepperidge Farm cookies, V8 vegetable juices and Bolthouse Farms fresh carrots.
With the October 2016 payment, the company raised its quarterly dividend by 12.2%, to $0.35 a share from $0.312. The new annual rate of $1.40 yields 2.9%.
The company has agreed to acquire Snyder’s-Lance Inc. (Nasdaq symbol LNCE). It makes pretzels, sandwich crackers, cookies, kettle-cooked chips and others, tortilla chips, popcorn, nuts and other salty snacks. Main brands include Snyder’s of Hanover; Lance; Cape Cod; Snack Factory Pretzel Crisps; Pop Secret; Emerald; Kettle Brand; KETTLE Chips, and Late July.
Campbell will pay roughly $4.9 billion in cash for Snyder’s-Lance. If you include that firm’s debt, the purchase price is $6.1 billion.
The combined company will have annual sales of over $10 billion. It will get 46% of its revenue from snacks, 27% from soup, 17% from simple means and 10% from beverages.
Campbell will borrow $6.2 billion to finance the acquisition. That will increase its long-term debt to $8.5 billion, or 59% of its market cap. The company expects to complete the purchase in mid-2018.
The new operations should begin contributing to Campbell’s earnings in fiscal 2019 (fiscal years end July 31). As well, the company expects to cut $170 million from its annual costs by the end of fiscal 2022.
Despite the additional interest costs and other expenses, Campbell plans to maintain its current annual dividend rate. However, the company will suspend its share buyback plan to conserve cash.
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