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General Mills (GIS) Down 1.1% Since Last Earnings Report: Can It Rebound?

·5 min read

It has been about a month since the last earnings report for General Mills (GIS). Shares have lost about 1.1% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is General Mills due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

General Mills Q4 Earnings Top Estimates, Dividend Raised

General Mills posted robust fourth-quarter fiscal 2022 results. Adjusted earnings per share (EPS) of $1.12 rose 23% year over year on a constant-currency (cc) basis. The upside can be mainly attributed to the elevated adjusted operating profit and reduced average diluted shares outstanding. The bottom line surpassed the Zacks Consensus Estimate of $1.01 per share.

Net sales of $4,891.2 million advanced 8% from the year-ago quarter’s figure. The metric included a 4-point net unfavorable impact of divestitures and acquisition activity and a 1-point adverse impact of currency movements. Organic net sales rose 13% due to the favorable organic net price realization and mix to the tune of 14 points as part of the company’s Strategic Revenue Management (“SRM”) actions undertaken to counter input cost woes. This was somewhat offset by a 2-point negative impact of the reduced organic pound volume. The top line surpassed the Zacks Consensus Estimate of $4,802 million.

The adjusted gross margin contracted 70 basis points (bps) to 33.8% due to a double-digit rise in input cost inflation, escalated other costs of goods sold and supply-chain woes. These were somewhat offset by the positive net price realization and mix as well as cost savings from Holistic Margin Management (“HMM”). The adjusted operating profit margin expanded 200 bps to 18.3%.

Segmental Performance

North America Retail: Revenues in the segment came in at $3,004.9 million, up 11% year over year. The uptick can be attributed to the positive net price realization and mix, which somewhat offset the reduced pound volume. Organic net sales grew 11% year over year. The segment’s operating profit increased 18% to $764 million.

International: Revenues in the segment came in at $749.7 million, down 21% year over year. Revenues reflected a 25-point adverse impact of the divestitures of the European yogurt and dough businesses as well as 2 points of unfavorable foreign currency translation. Organic net sales inched up 6% year over year. The segment’s operating profit surged 36% to $76 million.

Pet: Revenues came in at $610.3 million, up 37% year over year due to solid pound volume growth, and positive net price realization and mix. Net sales included 15 points of gains from the pet treats business buyout (concluded on Jul 6, 2021). Organic sales increased 22% year over year. The segment’s operating profit increased 10% to $113 million.

North America Foodservice: Revenues came in at $526.3 million, up 25% year over year due to the positive net price realization and mix, somewhat negated by the reduced pound volume. Organic sales rose 25% as well. The segment’s operating profit jumped 23% to $81 million.

Other Financial Aspects

The company paid out dividends worth $1.2 million and bought roughly 14 million shares for $877 million in fiscal 2022. Concurrently, management unveiled a dividend hike of 6%, taking it to 54 cents per share, which is payable on Aug 1, 2022 to shareholders of record as of Jul 8. Cc sales from the joint ventures of Cereal Partners Worldwide remained flat year over year in the quarter. In Haagen-Dazs Japan, sales rose 6% at cc from the prior-year figure.

Fiscal 2023 Guidance

Management has undertaken several portfolio-reshaping actions over the past year, which are anticipated to boost the top and bottom lines in the long run. However, the net effect of these actions is expected to lower adjusted operating profit growth and adjusted EPS growth by nearly 3% each in fiscal 2023. Net proceeds from divestitures are, however, likely to help General Mills support an accelerated share buyback plan in fiscal 2023, which, in turn, is likely to lead to a 2-3% decline in the average diluted share count.

For fiscal 2023, organic net sales are anticipated to grow roughly 4-5%. The net effect of divestitures, buyouts and currency movements is anticipated to lower the full-year net sales growth by roughly 3%. The adjusted operating profit growth at cc is anticipated between a 2% decline and an increase of 1%. This includes a 3-point net adverse impact of divestitures and buyouts concluded in fiscal 2022. Adjusted EPS growth at cc is envisioned to be flat to up 3%. This includes a 3-point net adverse impact of divestitures and buyouts concluded in fiscal 2022. Currency woes are likely to have a nearly 1% adverse impact on the adjusted operating profit and adjusted EPS.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision flatlined during the past month.

VGM Scores

At this time, General Mills has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

General Mills has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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