General Mills Inc. (GIS) recently maintained its previously provided outlook for fiscal 2013 and 2014 at the Citibank Global Consumer Conference held in New York.
Fiscal 2013 Outlook
Management maintained its fiscal-2013 adjusted earnings guidance in a range of $2.66–$2.68 per share. Both sales and operating profit are expected to increase in the mid single-digit range. Acquisitions are expected to contribute significantly to top-line growth. However, excluding the impact from new businesses and currency effects, organic sales are expected to grow at low single-digit rates.
The U.S. retail business is expected to deliver low single-digit sales growth while operating profit is expected to grow faster than sales.
Gross margins are expected to decline 60 to 80 basis points (bps) in fiscal 2013. Commodity inflation is maintained at 3% in fiscal 2013. Full year adjusted tax rate is expected to be 33%.
Fourth Quarter Outlook
General Mills expects fourth-quarter earnings to decline from the strong year-ago results due to higher supply chain costs, increased spending to support in-store merchandising and a higher tax rate.
Outlook for Fiscal 2014
In fiscal 2014, General Mills expects stronger earnings growth and increased cash returns to shareholders. Growth is expected to be in line with its long-term targets; high single-digit growth in earnings, low single-digit growth in net sales and mid single-digit growth in segment operating profit. Acquisitions are expected to add 15 cents to earnings in fiscal 2014. We believe growth in fiscal 2014 will be driven by new products, increased brand support and cost savings from the Holistic Margin Management (:HMM) program.
Moreover, the company plans to increase dividends and share buybacks in the year, thus offering greater shareholder value. The increased buybacks are expected to lower the average number of shares outstanding by 2% in fiscal 2014. The company also plans to increase its dividend by 15% in the year.
The U.S retail business is expected to benefit from new product launches and increased innovation, while the international business will gain largely from the newly acquired businesses.
In 2014 and beyond, in order to drive sales growth, General Mills will focus on five global categories, which account for over 60% of the worldwide sales and deliver foods that are convenient, nutritious and provide good taste at a good value. Moreover, these categories are highly responsive to innovation and capable of meeting evolving consumer needs. These categories include ready-to-eat cereals, super-premium ice creams, convenient meals, wholesome snack bars and yogurt. General Mills’ retail sales in the five global categories are growing at attractive rates and all of these have promising long-term growth potential.
General Mills carries a Zacks Rank #2 (Buy). Other food companies that have been doing well consistently are Flower Foods Inc. (FLO) and Omega Protein Corp (OME) both carrying a Zacks Rank #1 (Strong Buy) and H.J. Heinz Company (HNZ) which carries a Zacks Rank #2 (Buy).