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Earnings Preview: General Mills

Zacks Equity Research

General Mills Inc. (GIS), one of the leading branded foods companies in the US, is scheduled to report its third-quarter 2012 financial results before the opening bellon Wednesday, March 21, 2012. The current Zacks Consensus Estimate for the quarterly earnings is pegged at 56 cents a share.

Second-Quarter 2012, a Synopsis

General Mills, which faces stiff competition from Kraft Foods Inc. (KFT), Unilever (UL) and Tyson Foods Inc. (TSN), reported adjusted earnings, excluding the effects of mark-to-market valuation of certain commodity positions, Yoplait integration costs in 2012, and a net benefit from certain tax matters in 2011, of 76 cents in the second quarter of fiscal 2012, in-line with the prior-year quarter. However, the quarterly earnings, lagged the Zacks Consensus Estimate of 79 cents.

Management affirmed its fiscal 2012 earnings to be in the range of $2.59 – $2.61 a share, excluding mark-to-market effects and integration costs for the Yoplait acquisition. General Mills also expects adjusted earnings to post high single-digit to low double-digits growth in the second half of 2012.

Total revenue for the reported quarter grew 14% year over year to $4.62 billion, and the Yoplait acquisition contributed 8 percentage points to the net sales growth. In addition, foreign exchange contributed 1 percentage point of net sales growth, while price realization and mix contributed 3 percentage points of growth.

Read the FullStory at General Mills Lags, Affirms Outlook

Consensus Estimates for Third Quarter 2012

Analysts surveyed by Zacks expect General Mills to post third-quarter 2012 earnings of 56 cents a share, which is in line with the prior-year quarter. Analyst estimates for the quarter range from a low of 54 cents to a high of 60 cents.

The current Zacks Consensus Estimate has slipped by 10.0% over the last 30 days; as 9 out of 11 analysts covering the stock revised their estimates downward.

Earnings Surprise History

General Mills’ earnings per share exceeded the Zacks Consensus Estimate inthree of the last four quarters. In those four quarter, earnings surprise ranged from a negative 3.80% to a positive 3.23%, with the average earnings surprise being a negative 0.29%, suggesting that General Mills has underperformed the Zacks Consensus Estimate by that magnitude over that period.

Retains Neutral Recommendation

General Mills has an outstanding portfolio of products and brands, especially its healthy and convenience packages, helping in the company’s growth. Through the Holistic Margin Management (:HMM) program, the company manages costs and abates inflation, thus improving margins and gaining over its peers.

However, the company faces stiff competition from rival retail giants as well as from local and regional players in the countries in which it operates. Consequently, the company is under severe pressure to maintain profitability and increase market share.

Currently we maintain a Zacks #3 Rank (Hold), in line with our long-term Neutral recommendation on the shares.

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