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General Mills (GIS) Hurt by Volatile Consumer Trends, Cost Woes
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General Mills, Inc. (GIS - Free Report) , a well-known name in the food industry, is currently grappling with a host of challenges that are impacting its financial performance. Despite the company’s strong brand portfolio and strategic initiatives, volatile consumer trends and escalating production costs are weighing on its margins.
As the company approaches fiscal 2025, these pressures are shaping a cautious outlook, reflected in the recent downward revisions of its earnings projections. The Zacks Consensus Estimate for the first quarter and fiscal 2025 earnings per share (EPS) has declined by 8.8% and 3.2% to $1.04 and $4.49, respectively, in the past 60 days.
Factors Making Things Bitter
Like other food companies, General Mills has been operating amid a tough operating landscape. As fiscal 2025 approaches, the company anticipates that the operating environment will continue to evolve. It expects that ongoing macroeconomic uncertainty will lead consumers to continue seeking value, influencing both the products they purchase and the channels they shop through.
To address this issue, General Mills intends to focus on ensuring that its brands offer a compelling mix of great taste, health, convenience and trust, all at the right price, to remain the preferred choice. As the macroeconomic uncertainties affect consumers, growth in the company’s categories is expected to fall slightly short of our long-term projections in fiscal 2025.
GIS faces ongoing margin pressure from rising production costs. In the fourth quarter of fiscal 2024, the adjusted gross margin contracted 10 basis points (bps) to 34.9%. This could be attributed to input cost inflation, supply chain deleverage, and adverse net price realization and mix, somewhat made up by HMM cost savings and reduced other supply-chain costs. Lower adjusted gross profit also weighed on the company’s adjusted operating profit, which fell 10% at cc in the fourth quarter despite reduced SG&A costs. Further, the adjusted operating profit margin contracted 70 bps to 17%.
On its fourth-quarter earnings call, General Mills stated that the rate of inflation for goods and services in the United States and many other countries remains above historical levels, even though it has moderated from recent highs. Inflation is expected to impact the company's input costs in fiscal 2025. The company expects input cost inflation to be 3-4% of the cost of goods sold in fiscal 2025, with labor being the primary driver affecting sourcing, manufacturing and logistics expenses.
Additionally, General Mills plans to increase brand-building investments significantly to support its growth plans. We believe that these factors are likely to affect the company’s margins. Additionally, increased net interest expenses are likely to impact the bottom line.
Image Source: Zacks Investment Research
A Look Ahead
In fiscal 2025, the adjusted operating profit growth at constant currency or cc is anticipated between a decline of 2% and flat. Management anticipates adjusted EPS growth between down 1% and an increase of 1% at cc.
This Zacks Rank #4 (Sell) company expects first-quarter fiscal 2025 results to fall short of the full-year growth expectations. This is likely to stem from a considerable increase in brand-building investments, as well as tough comparisons with strong organic net sales growth and adjusted gross margin performance in the year-ago period.
As General Mills faces the headwinds of rising costs and shifting consumer behavior, the company's near-term performance remains under pressure. While the strength of its brands and the Accelerate strategy provide some resilience, the challenging operating environment and cost-related hurdles cannot be overlooked.
Shares of General Mills have dropped 3.5% in the past year compared with the industry’s decline of 4%.
The Zacks Consensus Estimate for Vital Farms’ current financial-year earnings indicates growth of 72.9% from the year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings calls for growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings implies growth of 4.3% and 11.5%, respectively, from the prior-year reported level.
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General Mills (GIS) Hurt by Volatile Consumer Trends, Cost Woes
General Mills, Inc. (GIS - Free Report) , a well-known name in the food industry, is currently grappling with a host of challenges that are impacting its financial performance. Despite the company’s strong brand portfolio and strategic initiatives, volatile consumer trends and escalating production costs are weighing on its margins.
As the company approaches fiscal 2025, these pressures are shaping a cautious outlook, reflected in the recent downward revisions of its earnings projections. The Zacks Consensus Estimate for the first quarter and fiscal 2025 earnings per share (EPS) has declined by 8.8% and 3.2% to $1.04 and $4.49, respectively, in the past 60 days.
Factors Making Things Bitter
Like other food companies, General Mills has been operating amid a tough operating landscape. As fiscal 2025 approaches, the company anticipates that the operating environment will continue to evolve. It expects that ongoing macroeconomic uncertainty will lead consumers to continue seeking value, influencing both the products they purchase and the channels they shop through.
To address this issue, General Mills intends to focus on ensuring that its brands offer a compelling mix of great taste, health, convenience and trust, all at the right price, to remain the preferred choice. As the macroeconomic uncertainties affect consumers, growth in the company’s categories is expected to fall slightly short of our long-term projections in fiscal 2025.
GIS faces ongoing margin pressure from rising production costs. In the fourth quarter of fiscal 2024, the adjusted gross margin contracted 10 basis points (bps) to 34.9%. This could be attributed to input cost inflation, supply chain deleverage, and adverse net price realization and mix, somewhat made up by HMM cost savings and reduced other supply-chain costs. Lower adjusted gross profit also weighed on the company’s adjusted operating profit, which fell 10% at cc in the fourth quarter despite reduced SG&A costs. Further, the adjusted operating profit margin contracted 70 bps to 17%.
On its fourth-quarter earnings call, General Mills stated that the rate of inflation for goods and services in the United States and many other countries remains above historical levels, even though it has moderated from recent highs. Inflation is expected to impact the company's input costs in fiscal 2025. The company expects input cost inflation to be 3-4% of the cost of goods sold in fiscal 2025, with labor being the primary driver affecting sourcing, manufacturing and logistics expenses.
Additionally, General Mills plans to increase brand-building investments significantly to support its growth plans. We believe that these factors are likely to affect the company’s margins. Additionally, increased net interest expenses are likely to impact the bottom line.
Image Source: Zacks Investment Research
A Look Ahead
In fiscal 2025, the adjusted operating profit growth at constant currency or cc is anticipated between a decline of 2% and flat. Management anticipates adjusted EPS growth between down 1% and an increase of 1% at cc.
This Zacks Rank #4 (Sell) company expects first-quarter fiscal 2025 results to fall short of the full-year growth expectations. This is likely to stem from a considerable increase in brand-building investments, as well as tough comparisons with strong organic net sales growth and adjusted gross margin performance in the year-ago period.
As General Mills faces the headwinds of rising costs and shifting consumer behavior, the company's near-term performance remains under pressure. While the strength of its brands and the Accelerate strategy provide some resilience, the challenging operating environment and cost-related hurdles cannot be overlooked.
Shares of General Mills have dropped 3.5% in the past year compared with the industry’s decline of 4%.
Better-Ranked Staple Bets
Vital Farms (VITL - Free Report) offers a range of produced pasture-raised foods. It currently carries a Zacks Rank #2 (Buy). VITL has a trailing four-quarter earnings surprise of 82.5%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Vital Farms’ current financial-year earnings indicates growth of 72.9% from the year-ago reported numbers.
Freshpet, Inc. (FRPT - Free Report) , a pet food company, has a trailing four-quarter earnings surprise of 132.9%, on average. FRPT currently carries a Zacks Rank #2.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings calls for growth of 26.1% and 251.4%, respectively, from the prior-year reported level.
Nomad Foods (NOMD - Free Report) , carrying a Zacks Rank #2, manufactures and distributes frozen foods. NOMD has a trailing four-quarter earnings surprise of 3.1%, on average.
The Zacks Consensus Estimate for Nomad Foods’ current financial-year sales and earnings implies growth of 4.3% and 11.5%, respectively, from the prior-year reported level.