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What Investors Need to Know About General Mills' 1st-Quarter Earnings

General Mills Inc. (NYSE:GIS) released its first-quarter earnings before the opening bell on Sept. 18. While earnings met analysts' projections, revenue fell short.

Earnings highlights

The maker of Cheerios cereal reported adjusted earnings of 79 cents per share, topping FactSet's consensus estimate by 2 cents. Earnings grew 13% from the prior-year quarter. Revenue of $4 billion lagged Wall Street's expectations of $4.09 billion.


Organic sales declined 1%, weighed down by lower organic volume that was partly offset by the favorable organic net price realization and mix across all operating divisions.

"We are making clear progress in becoming a nimbler, more consumer-connected General Mills," Chairman and CEO Jeff Harmening said. "Our first-quarter net sales performance included encouraging improvement in North America Retail and strong growth in Pet, driven by good innovation and effective brand-building investment. We got off to a slower start in our other segments, and we're taking actions to drive topline improvement for those segments and the company starting in the second quarter."

Segment performance

In the North American retail segment, net sales were $2.38 billion on the back of positive net price realization and mix, which was partly offset by lower volume. While the U.S. Cereal operating unit flourished during the quarter with sales growth of 1%, U.S. Yogurt and U.S. Snacks witnessed a combined sales decline of 1%. The operating profit totalled $560 billion, reflecting a gain of 2%.

The Pet segment recorded $368 million in revenue, up 7% year over year. The company cited robust volume growth as well as net price realization and mix. The division's operating profit surged from $14 million in the year-ago quarter to $81 million.

Sales in the Convenience Stores and Foodservice sector decreased 4% to $445 million due to lower bakery flour volume, coupled with adverse index pricing, which was somewhat offest by the low single-digit growth of Focus 6 platforms, which included splendid performances from cereal and frozen baked foods. The operating profit was $91 million.

Net sales in the Europe and Australia segment plummeted 9% to $554 million on the back of low volume and adverse foreign currency exchange, which was partially offset by positive net price realization and mix. Organic sales decreased 5% on account of a tough retail atmosphere in France for yogurt and ice cream. The business' profit declined from $34 million in the year-ago quarter to $28 million.

In Asia and Latin America, revenue was $360 million, down 10% year over year. Organic sales dipped 3% as a result of a decrease in retail inventory in Brazil, distribution network modifications in India and poor volume growth in China.

Fiscal 2020 guidance

For fiscal year 2020, General Mills anticipates organic net sales growth of 1% to 2%. The combined effect of currency translations and divestitures that took place in fiscal 2019 is projected to lead to higher top-line growth. The company also guided for adjusted diluted earnings growth of 2% to 4% compared to the prior year.

Disclosure: I do not hold any positions in the stocks mentioned.

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This article first appeared on GuruFocus.