General Mills' Strategic Divestiture: A Catalyst for Long-Term Growth and Value Creation

General Mills' decision to divest its North American yogurt business—once a cornerstone of its portfolio—for $2.1 billion marks a pivotal shift in its corporate strategy. While the transaction will dilute adjusted EPS by ~3% in the first year, the move underscores a disciplined focus on high-margin, high-growth categories that align with sector reallocation trends in consumer goods. For investors, this is a signal to look past short-term earnings noise and embrace a Buy stance, as the company's capital allocation efficiency and dividend sustainability are set to benefit from a leaner, more focused portfolio.

The Strategic Rationale: Exiting a Mature Market to Fuel Future Growth

The yogurt division, which contributed $1.5 billion in sales in 2024, has faced secular headwinds, including declining demand for traditional yogurt, competition from brands like Chobani, and shifting consumer preferences toward plant-based alternatives. By exiting this space, General Mills is reallocating capital to higher-margin "gem brands" such as Nature Valley (snacks), Blue Buffalo (pet food), and Haagen-Dazs (premium ice cream). These categories align with global growth priorities, including premiumization, pet care, and snacks—a market the company estimates will grow at 5–7% annually.

The $2.1 billion in proceeds will primarily fund share repurchases, a move that directly benefits long-term shareholders. Historically, General Mills has used buybacks effectively: since 2019, it has reduced shares outstanding by 9%, boosting EPS by ~20%. With the stock trading at 9.5x EV/EBITDA—below its 10-year average—the current valuation offers a compelling entry point for accretive repurchases.

Dividend Sustainability: A Foundation of Trust

Despite the near-term EPS hit, General Mills' dividend yield of 3.6% remains a cornerstone of its investor appeal. The company has increased dividends annually for 126 consecutive years—a testament to its financial discipline. The sale's proceeds will bolster free cash flow, which averaged $18.3 billion over the past five years, ensuring ample liquidity to sustain the dividend.

Critically, the company's focus on high-margin brands (e.g., Blue Buffalo generates ~30% EBIT margins) will offset the yogurt division's lower margins (~15–20%). Management has also prioritized cost savings reinvestment, including a $100 million allocation to marketing and innovation for key brands like Cheerios and Pillsbury. This underscores a commitment to capital efficiency, where every dollar is directed toward growth initiatives with measurable returns.

GuruFocus' 33% Upside: Valuation Backed by Structural Advantages

GuruFocus' $71.37 GF Value (implying a 33% upside from current prices) reflects its confidence in General Mills' strategic realignment. The model factors in:
- Accelerated growth in snacks and pet food: These categories now account for 40% of sales, up from 30% in 2018.
- Global expansion: Blue Buffalo's European launch and Haagen-Dazs' Asia-Pacific growth (up 8% in 2024) highlight untapped opportunities.
- Balance sheet flexibility: Net debt/EBITDA of 0.4x provides room for M&A or further buybacks.

Even conservative analysts' average target of $61.71 implies a 15% upside—a stark contrast to the consensus “Hold” rating, which underestimates the sector reallocation tailwinds.

Addressing Near-Term Concerns: Why the EPS Dilution Isn't a Dealbreaker

Bearish arguments often cite the 3% EPS dilution and lingering challenges in categories like fruit snacks. However, these issues are already priced into the stock. Meanwhile, the strategic benefits are structural:
- Operational simplification: Eliminating yogurt's complex supply chain (e.g., three manufacturing plants) reduces overhead.
- Competitive positioning: Focusing on premium brands positions General Mills to capitalize on rising consumer demand for quality and convenience.

The company's “Accelerate” strategy—which aims to grow high-margin categories at 5–7% annually—has already delivered results. In Q2 2025, net sales rose 2%, while operating profit surged 33%, driven by margin improvements in snacks and pet food.

Conclusion: A Compelling Buy for a 12–18 Month Horizon

General Mills' yogurt sale is a textbook example of capital reallocation at scale. By exiting a mature, low-growth segment to fuel high-margin businesses, the company is positioning itself to outperform peers in consumer goods. With GuruFocus' valuation signaling a 33% upside and a dividend yield offering 8.3% total return potential (dividend + buybacks), the stock is a buy for investors willing to look past short-term noise.

The key risk—execution in new markets—pales against the strategic clarity of this move. As General Mills continues to streamline its portfolio, its “gem brands” will drive shareholder value for years to come.

Rating: Buy
Price Target: $71.37 (33% Upside)