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General Mills (GIS) Q3 Earnings Lag Estimates, Sales Grow Y/Y

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General Mills, Inc. GIS came out with third-quarter fiscal 2021 results, wherein the top and the bottom lines increased year over year and the former beat the Zacks Consensus Estimate. Results continued to be driven by increased demand stemming from the pandemic-led higher at-home consumption.

Further, the company made solid progress on its priorities for fiscal 2021 outlined earlier. Additionally, the company’s robust balance sheet status has enabled it to restart share buyback activities in the fourth quarter. General Mills remains committed to its Accelerate strategy, which is also evident from its latest announcement of the proposed sale of the European Yoplait business.

Management expects to continue witnessing elevated at-home food demand amid the pandemic. This is likely to be backed by increased cooking and baking at home. The company remains focused on capitalizing on these opportunities on the back of its strong brands, innovation and capacity to generate growth.

Quarterly Highlights

The company’s adjusted earnings per share of 82 cents grew 6% year over year on a constant-currency (cc) basis. However, the bottom line fell short of the Zacks Consensus Estimate of 84 cents. The year-over-year upside can be attributed to improved adjusted operating profit and reduced net interest expenses, somewhat negated by increased average diluted shares outstanding.

General Mills, Inc. Price, Consensus and EPS Surprise

General Mills, Inc. Price, Consensus and EPS Surprise
General Mills, Inc. Price, Consensus and EPS Surprise

General Mills, Inc. price-consensus-eps-surprise-chart | General Mills, Inc. Quote

Net sales of $4,520 million advanced 8% year over year and surpassed the Zacks Consensus Estimate of $4,460 million. Also, organic sales increased 7% on the back of broad-based market share gains, thanks to increased at-home food demand amid the pandemic.

Adjusted gross margin contracted 90 basis points (bps) to 33% due to elevated input costs, which includes input cost inflation, escalated logistic costs and costs associated with securing additional capacity. These were somewhat made up by improved net price realization and mix.

Adjusted operating profit at cc improved 5%, driven by increased adjusted gross profit dollars. These were somewhat offset by higher SG&A expenses, which include greater media and capability investments. Adjusted operating profit margin contracted 30 bps to 15.8%.

Segmental Performance

North America Retail: Revenues in the segment came in at $2,726.8 million, up 9% year over year. The upside was driven by a favorable competitive performance amid coronavirus-induced increased demand for food at home. Organic sales also rose 9%.

Convenience Stores & Foodservice: Revenues declined 10% to $417.1 million due to lower demand for away-from-home food amid the coronavirus outbreak. Reduced consumer traffic and other pandemic-induced restrictions adversely impacted the segment’s major away-from-home channels like restaurants, lodging and schools.

Europe & Australia: The segment’s revenues rose 15% to $484.2 million, including favorable currency impacts of 9 points. Also, sales were backed by favorable net price realization and mix. Further, sales increased 7% year over year on an organic basis on the back of strength in Old El PasoMexican food and Haagen-Dazs ice cream.

Asia & Latin America: Revenues rose 12% from the year-ago quarter’s figure to $455.6 million on higher volumes and favorable net price realizations and mix, partly countered by currency woes. Organic net sales increased 14%.

Pet Segment: Revenues came in at $436.3 million, up 14% year over year on the back of solid volume growth, partially hurt by adverse net price realization and mix, which included launch investments for the new product line, Tastefuls.

Other Financial Aspects

The company ended the quarter with cash and cash equivalents of $2,754.2 million, long-term debt of $9,766.6 million and total shareholders’ equity of $8,890.3 million.

General Mills generated $2,207.9 million as net cash from operating activities in the nine months ended Feb 28, 2021.

Other Developments & Outlook

Constant-currency sales from joint ventures of Cereal Partners Worldwide rose 5% in the quarter. In Haagen-Dazs Japan, sales improved 1% at cc from the prior-year quarter’s figure.

The company anticipates consumer demand for food at home to remain elevated when compared with pre-pandemic levels for the rest of fiscal 2021. Full-year organic sales are anticipated to rise nearly 3.5%, indicating robust year-to-date growth, somewhat likely to be negated by tough year-over-year comparisons in the fourth quarter. The tough comparison is expected on account of the initial surge in coronavirus-led at-home food demand as well as an extra month of Pet segment results.

Adjusted operating profit margin in fiscal 2021 is likely to be in line with fiscal 2020 levels, as greater-than-expected first-half results are likely to be countered by elevated input cost inflation and escalated logistic costs in the second half of fiscal 2021.

This Zacks Rank #3 (Hold) stock has increased 4.1% year to date compared with the industry’s growth of 5.5%.

Binge on These Food Stocks

The J.M. Smucker SJM has a Zacks Rank #2 (Buy) and its bottom line outpaced the Zacks Consensus Estimate by 17.7% in the trailing four quarters, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Medifast MED, which currently carries a Zacks Rank #2, has a trailing four-quarter earnings surprise of 17.4%, on average.

Hain Celestial HAIN has a Zacks Rank of 2 and a trailing four-quarter earnings surprise of 26.7%, on average.

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