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General Mills (GIS) Up 2.9% Since Last Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for General Mills (GIS - Free Report) . Shares have added about 2.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is General Mills due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
General Mills Q4 Earnings Beat Estimates, Sales Miss
General Mills released fourth-quarter fiscal 2019 results, recording its fifth straight earnings beat while the top line missed estimates. The top and the bottom lines improved on a year-on-year basis. The quarterly results gained from the acquisition of Blue Buffalo.
Nevertheless, sluggishness across segments such as the North America Retail and the Europe & Australia hampered results. Also, margins were weak due to higher input costs and other expenses.
Highlights of the Release
The company’s adjusted earnings per share of 83 cents increased 6% year over year on a constant-currency (cc) basis. The bottom line beat the Zacks Consensus Estimate of 76 cents. The year-over-year increase was fueled by reduced adjusted effective tax rate and higher adjusted operating profit. These were somewhat offset by escalated interest costs and average shares outstanding.
Net sales of $4,161.7 million improved 7% year over year, mainly backed by gains from Blue Buffalo. At cc, the top line rose 9% from the prior-year quarter’s figure. However, the top line missed the Zacks Consensus Estimate of $4,227 million.
Organic sales inched down 1% due to lower contributions from organic volume. Moreover, organic net sales declined in the North America Retail and the Europe & Australia segments
Adjusted gross profit amounted to $1,470.5 million, up nearly 5%. However, adjusted gross margin declined 50 basis points (bps) to 35.3% due to higher input costs.
Adjusted operating profit of $722 million depicted 5% year-over-year growth at cc, driven by the inclusion of Blue Buffalo and partially countered by decline in adjusted gross margin. Adjusted operating margin fell 50 bps to 17.3%.
Segmental Performance
North America Retail: Revenues in the segment came in at $2,341.7 million, down 1.9% year over year. The segment continued to witness challenges in U.S. Snacks and Canada. Organic net sales declined 2%
Convenience Stores & Foodservice: Revenues edged up 1.6% year over year to $519 million. Growth in Focus 6 platforms drove performance of the unit. The upside was partly countered by sluggishness in bakery flour. Organically, sales rose 2% from the year-ago quarter’s levels.
Europe & Australia: The segment’s revenues declined 10.2% to $499.5 million due to unfavorable year-on-year comparison. Further, sales declined 3% year over year on an organic basis. Lower sales stemmed from a tough operating environment in France and weak trends in ice cream. However, the decline was somewhat offset by double-digit growth in snack bars.
Asia & Latin America: Revenues declined almost 9.1% from the year-ago quarter’s levels to $395.9 million due to unfavorable currency movements, headwinds from the sale of La Saltena in Argentina and the divestiture of yoghurt business in China. Nevertheless, sales rose 1% on an organic basis.
Pet Segment: Revenues came in at $405.6 million. Sales in the segment rose 38% year over year on a pro-forma basis, thanks to growth in Food, Drug and Mass (FDM) channels as well as the parity in shipping days from the month of acquisition.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $450 million, a long-term debt of $11,624.8 million and total shareholder equity of $7,054.5 million.
General Mills generated $2,807 million as net cash from operating activities in fiscal 2019. During this period, the company made capital investments worth $538 million.
General Mills paid dividends of roughly $1,181.7 million in fiscal 2019.
Other Developments
Constant-currency sales from joint ventures of Cereal Partners Worldwide inched up 1% in the fourth quarter, while the same fell 13% from the prior-year quarter’s tally at Haagen-Dazs Japan.
Fiscal 2020 Guidance
Management is on track with innovations and, brand and capability building initiatives. These are likely to enhance the company’s revenue opportunities. Further, the company strives to enhance efficiencies to boost margins and maintain a stringent focus on cash for reducing leverage. Apart from these, the company is progressing well with plans such as the Consumer First strategy and the Compete, Accelerate and Reshape framework.
That said, General Mills provided guidance for fiscal 2020. Management expects organic sales to improve 1-2%. Moreover, net sales are expected to rise 1 to 2 percentage points on the back of gains from divestitures, favorable currency translations and contributions from the 53rd week in the fiscal.
Adjusted operating profit (on cc basis) is expected to improve 2-4% from $2.86 billion delivered in fiscal 2019. Also, the company envisions adjusted earnings per share (on cc basis) growth in the range of 3-5% year on year. Currency translation impacts are expected to remain irrelevant on adjusted operating profit and the bottom line.
Additionally, the company estimates free cash flow conversion of minimum 95% of adjusted after-tax earnings.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, General Mills has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise General Mills has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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General Mills (GIS) Up 2.9% Since Last Earnings Report: Can It Continue?
It has been about a month since the last earnings report for General Mills (GIS - Free Report) . Shares have added about 2.9% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is General Mills due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
General Mills Q4 Earnings Beat Estimates, Sales Miss
General Mills released fourth-quarter fiscal 2019 results, recording its fifth straight earnings beat while the top line missed estimates. The top and the bottom lines improved on a year-on-year basis. The quarterly results gained from the acquisition of Blue Buffalo.
Nevertheless, sluggishness across segments such as the North America Retail and the Europe & Australia hampered results. Also, margins were weak due to higher input costs and other expenses.
Highlights of the Release
The company’s adjusted earnings per share of 83 cents increased 6% year over year on a constant-currency (cc) basis. The bottom line beat the Zacks Consensus Estimate of 76 cents. The year-over-year increase was fueled by reduced adjusted effective tax rate and higher adjusted operating profit. These were somewhat offset by escalated interest costs and average shares outstanding.
Net sales of $4,161.7 million improved 7% year over year, mainly backed by gains from Blue Buffalo. At cc, the top line rose 9% from the prior-year quarter’s figure. However, the top line missed the Zacks Consensus Estimate of $4,227 million.
Organic sales inched down 1% due to lower contributions from organic volume. Moreover, organic net sales declined in the North America Retail and the Europe & Australia segments
Adjusted gross profit amounted to $1,470.5 million, up nearly 5%. However, adjusted gross margin declined 50 basis points (bps) to 35.3% due to higher input costs.
Adjusted operating profit of $722 million depicted 5% year-over-year growth at cc, driven by the inclusion of Blue Buffalo and partially countered by decline in adjusted gross margin. Adjusted operating margin fell 50 bps to 17.3%.
Segmental Performance
North America Retail: Revenues in the segment came in at $2,341.7 million, down 1.9% year over year. The segment continued to witness challenges in U.S. Snacks and Canada. Organic net sales declined 2%
Convenience Stores & Foodservice: Revenues edged up 1.6% year over year to $519 million. Growth in Focus 6 platforms drove performance of the unit. The upside was partly countered by sluggishness in bakery flour. Organically, sales rose 2% from the year-ago quarter’s levels.
Europe & Australia: The segment’s revenues declined 10.2% to $499.5 million due to unfavorable year-on-year comparison. Further, sales declined 3% year over year on an organic basis. Lower sales stemmed from a tough operating environment in France and weak trends in ice cream. However, the decline was somewhat offset by double-digit growth in snack bars.
Asia & Latin America: Revenues declined almost 9.1% from the year-ago quarter’s levels to $395.9 million due to unfavorable currency movements, headwinds from the sale of La Saltena in Argentina and the divestiture of yoghurt business in China. Nevertheless, sales rose 1% on an organic basis.
Pet Segment: Revenues came in at $405.6 million. Sales in the segment rose 38% year over year on a pro-forma basis, thanks to growth in Food, Drug and Mass (FDM) channels as well as the parity in shipping days from the month of acquisition.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $450 million, a long-term debt of $11,624.8 million and total shareholder equity of $7,054.5 million.
General Mills generated $2,807 million as net cash from operating activities in fiscal 2019. During this period, the company made capital investments worth $538 million.
General Mills paid dividends of roughly $1,181.7 million in fiscal 2019.
Other Developments
Constant-currency sales from joint ventures of Cereal Partners Worldwide inched up 1% in the fourth quarter, while the same fell 13% from the prior-year quarter’s tally at Haagen-Dazs Japan.
Fiscal 2020 Guidance
Management is on track with innovations and, brand and capability building initiatives. These are likely to enhance the company’s revenue opportunities. Further, the company strives to enhance efficiencies to boost margins and maintain a stringent focus on cash for reducing leverage. Apart from these, the company is progressing well with plans such as the Consumer First strategy and the Compete, Accelerate and Reshape framework.
That said, General Mills provided guidance for fiscal 2020. Management expects organic sales to improve 1-2%. Moreover, net sales are expected to rise 1 to 2 percentage points on the back of gains from divestitures, favorable currency translations and contributions from the 53rd week in the fiscal.
Adjusted operating profit (on cc basis) is expected to improve 2-4% from $2.86 billion delivered in fiscal 2019. Also, the company envisions adjusted earnings per share (on cc basis) growth in the range of 3-5% year on year. Currency translation impacts are expected to remain irrelevant on adjusted operating profit and the bottom line.
Additionally, the company estimates free cash flow conversion of minimum 95% of adjusted after-tax earnings.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
VGM Scores
At this time, General Mills has a nice Growth Score of B, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise General Mills has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.