GENERAL MILLS INC (GIS) stock intrinsic value fair value estimate & owner earnings analysis

General Mills makes Cheerios and other Big G cereals, Pillsbury dough and baking mixes, Nature Valley and Fiber One bars, Old El Paso, Progresso soups, Totino's pizza rolls, Annie's, Häagen-Dazs (outside the U.S.) and, since 2018, Blue Buffalo pet food plus the Whitebridge cat and dog food brands bought in December 2024. It sold its U.S. yogurt business (Yoplait, Go-Gurt) to Lactalis in the first quarter of fiscal 2026 for $1.8 billion, sold Canada yogurt in fiscal 2025, and has agreed to sell its Brazil business. How we measure earnings. We start from cash from operations, strip out working-capital timing swings, and deduct stock compensation and capital spending (all of it, since sales have been falling). On that basis owners earned $3.06 to $4.18 per share a year between fiscal 2017 and 2026, with $3.60 in fiscal 2025 and $3.77 in fiscal 2026. The fiscal 2026 reported net loss was driven by $2.9 billion of non-cash charges, mostly a $1.5 billion goodwill write-down in North America Pet and $250 million on the Nudges and True Chews treat brands, offset by a $1.05 billion gain on the yogurt sale. We add those non-cash items back, but the treat-brand write-downs show that acquired pet brands can lose value, and that shows up in our cases instead. The filing says the pet write-down was driven mainly by higher discount rates, not lower cash-flow forecasts. Because General Mills carries a lot of debt, we value the business before interest and then subtract what it owes. Before interest, the business produced $2.4 to $2.9 billion a year from fiscal 2023 to 2026, a median of about $2.54 billion. Why we start lower than that. Fiscal 2026 had a 53rd week. Incentive pay was unusually low, and cash taxes were unusually low ($391 million against about $600 million normally, helped by tax deferrals). Fiscal 2026 also included a few weeks of yogurt. Most important, the company finished a round of price cuts in fiscal 2026 to win back shoppers lost to store brands, so the higher prices of 2022 to 2024 are gone. Adjusted operating profit fell 16% in fiscal 2026 to $2.81 billion, and first-quarter fiscal 2027 sales fell 2.8% with net earnings of $397 million. Putting these facts together, we expect the business to produce about $2.25 billion ($4.18 per share) before interest in fiscal 2027. That is 13% below fiscal 2026, which itself was up about 5%. The company's own fiscal 2027 outlook (operating profit down 8% to 13%) is consistent with this, but our figure comes from the reported results. Debt. Long-term debt is $13.75 billion at face value, plus about $0.2 billion of commercial paper, less $0.43 billion of cash. Most of it is fixed-rate at an average coupon near 4.1%. That includes $1.05 billion due in fiscal 2027 at 2.2% and $1.98 billion of junior subordinated notes due 2057 at 5.0%. Because those coupons are below our 6% required return, the debt is worth about $1.0 billion less to us, so we subtract $12.5 billion, or $23.31 per share. No single maturity is large next to roughly $2.2 billion of yearly cash earnings. Interest is covered about four times today and at least twice in every case. Base case ($40.51): about $2.25 billion a year before interest, held flat for ten years. We credit no growth. Organic sales fell 2% in fiscal 2026, and the company expects between down 1.5% and up 0.5% for fiscal 2027. Also, the cost-savings program (it has saved about 4% of cost of goods every year for two decades, with at least $750 million targeted for fiscal 2027) has historically offset input-cost inflation (4% to 5% expected this year) rather than lifting profit. After year ten, earning power erodes 1% a year with ongoing center-of-the-store volume losses. Brands like Cheerios, Pillsbury and Old El Paso have held their places for generations, but their volumes are shrinking. The business is worth about $34.3 billion ($63.82 per share), less $12.5 billion of debt, or about $21.8 billion for shareholders. Bear case ($24.99): fiscal 2027 lands at about $2.15 billion, the bottom of the company's own range. Then volumes keep moving to store brands and pet keeps weakening, as the pet and treat write-downs already show, so earning power falls 3% a year through year five and 2% a year after that, reaching about $1.7 billion by year ten and continuing to shrink. The business is worth about $26.0 billion ($48.30 per share), less $12.5 billion of debt, or about $13.4 billion for shareholders. Even here, cash earnings cover interest roughly twice. Bull case ($52.98): the completed price cuts and new products steady volumes, and fiscal 2027 lands at about $2.30 billion. Earning power then grows 1% a year, the pace the business achieved before interest from fiscal 2019 to 2024 ($2.73 billion to $2.89 billion), and holds flat after year ten. The business is worth about $41.0 billion ($76.29 per share), less $12.5 billion of debt, or about $28.5 billion for shareholders. What would make this wrong: volume losses faster than 3% a year, another large write-off from an acquisition, or refinancing the 2028 to 2031 maturities at well above 6%. On the other side, a lasting return of organic growth would beat our base case, and we did not credit it because the record of the last three years does not support it. Changes since our August analysis: our value for the business is now based on a lower starting level of earning power, reflecting the completed price cuts, the yogurt sale and a weak first quarter. However, we now apply the same 6% required return to every company and capture risk only through the spread between the cases, rather than through a higher discount rate. We also give credit for the low fixed coupons on the debt. Together these raise all three values compared with before.