On Feb 5, we maintained a Neutral recommendation on global consumer food company General Mills Inc. (GIS) following appraisal of its second quarter fiscal 2013 results. The company also carries a Zacks Rank #3 (Hold).
Why the Neutral Recommendation?
General Mills’ second quarter fiscal 2013 adjusted earnings rose 13% year on year to 86 cents per share. The quarterly earnings handsomely beat the Zacks Consensus Estimate by almost 9%. The upside was driven by recent acquisitions, better-than-expected sales and profits in the U.S. retail business and lower interest expenses and taxes. The company also delivered solid revenue growth and upped its full year earnings outlook.
Overall, we are encouraged by the company’s strong market share position in some leading food categories, its growing international presence, strategic acquisitions and focus on innovation and brand support. These initiatives combined with the cost saving efforts bode well for the company’s long-term growth.
The U.S yogurt business remains challenging as increased sale prices in response to dairy cost inflation is reducing the competitiveness of its products. Though management is taking steps to re-invigorate this business through innovation and increased promotional support for new products, we prefer to wait until there is a substantial rebound. Moreover, volume growth of the overall U.S. retail business has remained sluggish since the past few quarters, though some improvement was seen in the second quarter of fiscal 2013. The core cereal business has not delivered impressive results in the last few quarters as well.
We would like to remain on the sidelines until we see substantial improvement in the U.S. retail business, especially the yogurt segment.
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