"Basics" businesses are thriving in today's strange reality...
We need essentials like laundry detergent, toothpaste, deodorant, paper towels, and cereal...
Household, personal care, and food items are "the basics." Regardless of whether we're locked down at home or not, we have to buy these products regularly... making staples a huge market. These products may not provide "exciting growth," but they're always in demand. And especially right now...
To cope with lockdowns and the shutdowns of many restaurants during the COVID-19 crisis, consumers have been rushing out to stock up on basic goods. We've covered this theme in recent weeks with consumer-goods giant Procter & Gamble (PG) and big-box retailer Walmart (WMT).
And we're seeing more of the same with today's company...
General Mills (NYSE: GIS) is a $38 billion packaged-foods giant. Your pantry is probably full of its products...
It's a great example of what we call a "Global Elite" business. (Remember, the Global Elite have dominant, widely recognized brands. That's their competitive advantage.)
General Mills is one of the leading cereal makers in the U.S. It has the top-selling individual cereal brand, and an ever-growing stable of popular kitchen products.
This "boring" consumer-staples company owns some of the world's most popular food brands, including Cheerios (cereal), Yoplait (yogurt), Häagen-Dazs (ice cream), Pillsbury (dough), Nature Valley (snack bars), Betty Crocker (baking products), and Annie's (organic foods).
These products are in demand during good times and bad, which provides slow, steady sales growth.
And in addition to its traditional food brands, it acquired pet-food company Blue Buffalo in 2018. It has become a key growth driver for General Mills.
In a quarterly earnings report last year, General Mills said Blue Buffalo was the "leading brand in the fast-growing wholesome natural pet food category in the U.S." And General Mills expects Blue Buffalo to continue to deliver "top-tier returns" for shareholders in the long term.
The pet-food industry has incredible growth potential ahead of it. Consumers spent more than $90 billion on global pet-food sales in 2018. And that's expected to grow to $107 billion by 2024, according to market research firm Envision Intelligence.
In all, General Mills has an incredible portfolio of popular products.
And it's showing strength during the pandemic...
The company said it will beat its previously issued full-year guidance because of a surge in demand from coronavirus. General Mills had forecast organic net sales growth up 1% to 2% year over year and adjusted earnings per share growth up 6% to 8% year over year.
But because people are stocking up on General Mills products as they follow stay-at-home orders, the company expects its full-year results to be even stronger. The company noted an "unprecedented increase" in demand for its products.
It also gave a clue as to just how much sales are increasing...
General Mills said sales jumped by 45% in March and 32% in April, citing Nielsen-measured retail sales. The company also said demand moderated as April ended, but still remains "significantly elevated"... confirming what we could only guess before: The rush to stock up on staples would be a boost for General Mills and its peers.
Now, the company expects organic net sales to increase by double digits in the fourth quarter, which ends later this month. It said North American retail and pet-food sales are the key drivers of this growth.
The demand for staples during the pandemic has pushed General Mills shares to their highest level since December 2016. Since bottoming in March, the stock has soared more than 30%. On a longer time frame, the stock jumped more than 60% since the beginning of 2019.
While consumer-staples stocks may not always provide exciting growth, people stock their pantries full of their products in good times and bad. The coronavirus has just added another reason for people to rush out and buy General Mills products. And that's providing a tailwind for GIS shares...
Sometimes investing is simple.