Will Pet Segment Drive General Mills (GIS) in Q1 Earnings?
General Mills, Inc. GIS is ready to report first-quarter fiscal 2024 earnings on Sep 20. It is worth taking a closer look at the company’s Pet segment, which constituted nearly 13% of its total sales in the fourth quarter of fiscal 2023. We believe that the Pet division’s prospects are likely to have played a key role in determining the company’s performance in the quarter under review.
Pet Unit in Detail
General Mills has been benefiting from its Pet segment. A higher pet population and more humanization and premiumization of pet food are likely to have acted as tailwinds for the company’s pet food category. Segment sales ascended 7% year over year in the fourth quarter of fiscal 2023 due to the positive net price realization and mix. Organic sales also rose 7%. Segment net sales benefited from strong growth in dry pet food and pet treats.
The Pet segment mainly constitutes Blue Buffalo Pet Products, Inc., which was acquired by GIS in fiscal 2018. Following this acquisition, General Mills became one of the leading players in the pet food arena. Blue Buffalo manufactures and markets wholesome natural pet food items and is contributing to General Mills’ top line. Additionally, the company acquired Tyson Foods’ pet treats business in July 2021, which added another leaf to the company’s impressive Pet story. These acquisitions are expected to have bolstered the company’s Pet segment.
For fiscal 2024, management expects operating profit growth in the Pet segment to be higher than organic net sales growth, driven by enhanced volumes, reduced supply-chain costs and gains from the company’s Strategic Revenue Management initiative. This also bodes well for the quarter under review. We expect revenues in the Pet segment to come in at $610.3 million in the first quarter, suggesting year-over-year growth of 5.3%.
General Mills, Inc. Price, Consensus and EPS Surprise
General Mills, Inc. price-consensus-eps-surprise-chart | General Mills, Inc. Quote
Other Factors
General Mills has been grappling with cost inflation. On its fourth-quarter earnings call, management stated that the biggest factors impacting its show in fiscal 2024 are likely to be consumers’ economic status, cost inflation and the rising stability of supply-chain status. For fiscal 2024, management expects input cost inflation of 5% of the total cost of goods sold, stemming from labor inflation. Labor inflation continues to impact the costs of sourcing, manufacturing and logistics.
The company also witnessed a rise in adjusted SG&A expenses in the fourth quarter, which included a double-digit spike in media investments. Management stated that as it steps into a potentially more difficult scenario, it is important for the company to elevate brand-related investments. We believe these might have impacted margins in the quarter under review.
How Are Estimates Shaping Up?
The Zacks Consensus Estimate for first-quarter revenues is pegged at $4.9 billion, suggesting a rise of 3.5% from the prior-year quarter’s reported figure. The consensus mark for quarterly earnings has dipped by a penny in the past 30 days to $1.09 per share, indicating a decline of 1.8% from the year-ago quarter’s reported figure. GIS has a trailing four-quarter earnings surprise of around 7% on average.
General Mills carries a Zacks Rank #4 (Sell) and has an Earnings ESP of -0.83%. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an earnings beat, which is not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks With the Favorable Combination
Here are three companies worth considering, as our model shows that these have the correct combination to beat on earnings this time.
Constellation Brands, Inc. STZ currently has an Earnings ESP of +1.85% and a Zacks Rank #2. The company is likely to register a top-line and bottom-line increase when it reports second-quarter fiscal 2024 numbers. The Zacks Consensus Estimate for the quarterly earnings per share of $3.36 suggests a roughly 6% increase from the figure reported in the year-ago quarter. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Constellation Brands’ quarterly revenues is pegged at $2.84 billion, suggesting growth of 7.1% from the figure reported in the prior-year quarter. STZ has a trailing four-quarter earnings surprise of 4.4%, on average.
Flowers Foods FLO currently has an Earnings ESP of +0.52% and carries a Zacks Rank #2. The company is likely to register top-line growth when it reports second-quarter fiscal 2023 numbers. The Zacks Consensus Estimate for FLO’s quarterly revenues is pegged at $1.2 billion, indicating a jump of 5.2% from the figure reported in the prior-year quarter.
The Zacks Consensus Estimate for Flowers Foods’ quarterly earnings per share of 28 cents suggests a drop of 6.7% from the year-ago quarter’s levels. FLO has a trailing four-quarter earnings surprise of 7.6%, on average.
Lamb Weston LW currently has an Earnings ESP of +2.70% and a Zacks Rank of 3. LW is likely to witness top-line and bottom-line growth when it reports first-quarter fiscal 2024 results. The Zacks Consensus Estimate for quarterly earnings is pegged at $1.08 per share, suggesting a 44% rise from the year-ago fiscal quarter’s reported number.
The consensus estimate for Lamb Weston’s quarterly revenues is pegged at $1.6 billion, implying a 41.2% increase from the figure reported in the prior-year fiscal quarter. LW delivered an earnings beat of 44.8%, on average, in the trailing four quarters.
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General Mills, Inc. (GIS) : Free Stock Analysis Report
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