General Mills Reaffirms 2016 Growth Targets, Venezuela Divestiture
Did General Mills Impress with Its Fiscal 3Q16 Results?
What are the expectations for fiscal 4Q16?
General Mills (GIS) expects a fall in net sales, total segment operating profit, and adjusted diluted EPS. The Green Giant sale, continued currency translation headwinds, and a comparison to fiscal 4Q15, which included an extra week, are expected to affect the company’s fiscal 4Q16 performance.
An increased media investment, mostly up by double digits, compared to last year. The highest quarterly input cost inflation rate is also expected in fiscal 4Q16.
Full-year outlook
In its fiscal 3Q16 press release, General Mills (GIS) confirmed its previously mentioned 2016 full-year growth outlook. This outlook includes the impact of the Green Giant divestiture.
Constant currency net sales are expected to fall at a low single-digit rate from the 2015 levels, which included a 53rd week.
Constant currency total segment’s operating profit is projected to be basically in line with last year.
Constant-currency adjusted diluted EPS is likely to rise at a low single-digit rate from the base of $2.86 made in fiscal 2015.
A headwind of $0.08 is anticipated from currency translation in 2016.
Venezuela divestiture
On March 16, 2016, General Mills sold its General Mills de Venezuela CA subsidiary to a third party and exited its business in Venezuela. A non-cash charge of ~$35 million pretax is expected to be incurred in fiscal 4Q16. However, the ongoing financial results are expected to have no implications on this deal as of now.
Update on the joint venture
The Cereal Partners Worldwide (CPW) and Haagen-Dazs Japan (HDJ) joint venture together earned $16 million after tax in fiscal 3Q16. This was an increase of 24% compared to fiscal 3Q15.
Volume growth for HDJ supported a rise of 19% in constant-currency after-tax earnings from joint ventures. The constant-currency net sales increased by 22% for HDJ and fell by 1% for CPW.
General Mills’ peer Bunge (BG) reported a YTD (year-to-date) return of -17.7%. However, General Mills (GIS), J.M. Smucker (SJM), and Flowers Foods (FLO) reported YTD returns of 7.3%, 5.08%, and -13.8%, respectively. The PowerShares S&P 500 High Dividend Low Volatility Portfolio ETF (SPHD) invests 1.4% of its holdings in GIS.
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