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General Mills (GIS) Q4 Earnings Beat Estimates, Sales Up Y/Y

Zacks Equity Research

General Mills, Inc. GIS released fourth-quarter fiscal 2019 results, recording its fifth straight earnings beat while the top line missed estimates. The top and the bottom lines improved on a year-on-year basis. The quarterly results gained from the acquisition of Blue Buffalo.

Nevertheless, sluggishness across segments such as the North America Retail and the Europe & Australia hampered results. Also, margins were weak due to higher input costs and other expenses. These downturns have marred investors’ sentiments as the stock declined nearly 5% during the pre-market trading session on Jun 26.

Highlights of the Release

The company’s adjusted earnings per share of 83 cents increased 6% year over year on a constant-currency (cc) basis. The bottom line beat the Zacks Consensus Estimate of 76 cents. The year-over-year increase was fueled by reduced adjusted effective tax rate and higher adjusted operating profit. These were somewhat offset by escalated interest costs and average shares outstanding.

Net sales of $4,161.7 million improved 7% year over year, mainly backed by gains from Blue Buffalo. At cc, the top line rose 9% from the prior-year quarter’s figure. However, the top line missed the Zacks Consensus Estimate of $4,227 million.

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

Organic sales inched down 1% due to lower contributions from organic volume. Moreover, organic net sales declined in the North America Retail and the Europe & Australia segments

Adjusted gross profit amounted to $1,470.5 million, up nearly 5%. However, adjusted gross margin declined 50 basis points (bps) to 35.3% due to higher input costs.  

Adjusted operating profit of $722 million depicted 5% year-over-year growth at cc, driven by the inclusion of Blue Buffalo and partially countered by decline in adjusted gross margin. Adjusted operating margin fell 50 bps to 17.3%.

Segmental Performance

North America Retail: Revenues in the segment came in at $2,341.7 million, down 1.9% year over year. The segment continued to witness challenges in U.S. Snacks and Canada. Organic net sales declined 2%

Convenience Stores & Foodservice: Revenues edged up 1.6% year over year to $519 million. Growth in Focus 6 platforms drove performance of the unit. The upside was partly countered by sluggishness in bakery flour. Organically, sales rose 2% from the year-ago quarter’s levels.

Europe & Australia: The segment’s revenues declined 10.2% to $499.5 million due to unfavorable year-on-year comparison. Further, sales declined 3% year over year on an organic basis. Lower sales stemmed from a tough operating environment in France and weak trends in ice cream. However, the decline was somewhat offset by double-digit growth in snack bars.

Asia & Latin America: Revenues declined almost 9.1% from the year-ago quarter’s levels to $395.9 million due to unfavorable currency movements, headwinds from the sale of La Saltena in Argentina and the divestiture of yoghurt business in China. Nevertheless, sales rose 1% on an organic basis.

Pet Segment: Revenues came in at $405.6 million. Sales in the segment rose 38% year over year on a pro-forma basis, thanks to growth in Food, Drug and Mass (FDM) channels as well as the parity in shipping days from the month of acquisition.

Other Financial Aspects

The company ended the quarter with cash and cash equivalents of $450 million, a long-term debt of $11,624.8 million and total shareholder equity of $7,054.5 million.

General Mills generated $2,807 million as net cash from operating activities in fiscal 2019. During this period, the company made capital investments worth $538 million.

General Mills paid dividends of roughly $1,181.7 million in fiscal 2019.

Other Developments

Constant-currency sales from joint ventures of Cereal Partners Worldwide inched up 1% in the fourth quarter, while the same fell 13% from the prior-year quarter’s tally at Haagen-Dazs Japan.

Fiscal 2020 Guidance

Management is on track with innovations and, brand and capability building initiatives. These are likely to enhance the company’s revenue opportunities.  Further, the company strives to enhance efficiencies to boost margins and maintain a stringent focus on cash for reducing leverage. Apart from these, the company is progressing well with plans such as the Consumer First strategy and the Compete, Accelerate and Reshape framework.  

That said, General Mills provided guidance for fiscal 2020. Management expects organic sales to improve 1-2%. Moreover, net sales are expected to rise 1 to 2 percentage points on the back of gains from divestitures, favorable currency translations and contributions from the 53rd week in the fiscal.

Adjusted operating profit (on cc basis) is expected to improve 2-4% from $2.86 billion delivered in fiscal 2019. Also, the company envisions adjusted earnings per share (on cc basis) growth in the range of 3-5% year on year. Currency translation impacts are expected to remain irrelevant on adjusted operating profit and the bottom line.

Additionally, the company estimates free cash flow conversion of minimum 95% of adjusted after-tax earnings.



Price Performance

This Zacks Rank #2 (Buy) company’s shares have advanced 4.7% in the past three months compared with the industry’s 2.5% rise.

Looking For More Consumer Staples Stocks? Check These

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The Chefs' Warehouse CHEF, with a Zacks Rank #2, has long-term earnings growth rate of 15%.

The J. M. Smucker Company SJM, with an expected long-term earnings growth rate of 4%, also carries a Zacks Rank #2.

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