General Mills (GIS) is Turning Around: Should You Invest Now? - Analyst Blog
We issued an updated research report on General Mills, Inc. GIS on Apr 7, 2015.
On Mar 18, General Mills announced third-quarter fiscal 2015 results that marked an improvement from a much weaker first half.
Adjusted earnings of 70 cents per share beat the Zacks Consensus Estimate of 67 cents by 4.5%. Earnings increased 13% year over year as higher pricing, gains from acquisitions and lower advertising costs made up for the currency headwinds.
Moreover, in constant currency terms, sales grew 3% helped by incremental sales from the Oct 2014 buyout of natural foods company, Annie’s Inc. Moreover, pricing gains and improved volumes aided revenues.
Sales and profits in the key U.S. Retail segment were below expectations in the first half of 2015 due to weak food industry trends.
Management is trying to turn around this business through increased investments in cereal to foster growth, turning the U.S. yogurt business around and driving profits at the better-for-you snacks business. The company will also invest in consumer focused innovation and marketing as well as accelerate its natural and organic product portfolio to drive growth in the segment.
The better third-quarter results indicate that these efforts may have started to pay off.
In fact, General Mills has aggressive plans for fiscal 2015 that include strong innovation, better marketing and aggressive cost cuts. These were partly responsible for the better performance in the third quarter and could lead to strong results in the fourth quarter. In fact, management expects the fourth quarter to be stronger than the third on the back of gains from the Annie’s acquisition and one extra week during the period. Coupled with sales growth, cost savings from restructuring activities, lower taxes and lower share count should aid earnings growth in the fourth quarter.
Also, the company enjoys sound fundamentals — strong market share position in some leading food categories and growing international presence — which keeps our faith in the stock.
Stocks to Consider
General Mills carries a Zacks Rank #3 (Hold). Better-ranked food stocks include Flowers Foods, Inc. FLO, SUPERVALU Inc. SVU and Danone DANOY. All the three stocks have a Zacks Rank #2 (Buy).
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