Wednesday, July 1, 2009

Great Quarter at General Mills (GIS)

AlphaNinja - In the spirit of highlighting "great companies at good prices," here's a look at the Q4 earnings release from General Mills (GIS).

On a 5% increase in sales, segment operating profits grew 29% -->>awesome improvement thanks to relenting cost pressures. The quarter included an extra week compared to the year earlier period, but results were impressive even despite that extra week.

Looking at GIS's free cash flow, it looks to me to be only slightly underpriced. The company's earnings and cash flows are extremely reliable, suggesting that the company does not need a very high FCFY (Free Cash Flow Yield. Basically if you bought the company outright, what it would pay you year in and year out as a % of your purchase price. The riskier a company, the more you'd demand in yield).

That said, there are other fantastic, reliable companies yielding closer to 10%, compared to GIS at about 7%. -->>meaning I'd wait for a pullback in the shares before buying.

Below is what I'm looking at for FCF. The trailing and forward FCF is running around $1.2-1.3billion annually. I compute "basic" FCF slightly different than the company does, but we arrive at very similar numbers.

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