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General Mills Inc.(GIS - Analyst Report) missed the Zacks Consensus Estimate for both revenues and sales in the fourth-quarter of fiscal 2014 – for the third time in a row. Shares declined more than 3% in pre-market trading. The packaged consumer goods giant also missed the full-year expectations.

Fourth-quarter adjusted earnings per share of 67 cents missed the Zacks Consensus Estimate of 71 cents by 5.6%. Weak sales and gross margins took a toll on earnings.

Earnings grew 24% year over year helped only by a lower tax rate and reduced share count.

Adjusted earnings exclude gain on divesture and charges associated with the Venezuelan Bolivar devaluation.

Increased promotional spending in developed markets that generated less volume than planned; slowdown in food industry trends; higher-than-expected input cost inflation; and currency headwinds hurt results in the quarter.

Revenues and Margins

Total revenue of the global consumer food company declined 3% year over year to $4.28 billion and missed the Zacks Consensus Estimate of $4.45 billion by 3.8% as U.S sales continued to lag.

Price/mix added 1% to revenues, same as in the first three quarters of the year. Volumes declined 2%, which compared unfavorably with a 1% dip last quarter. Foreign exchange dragged revenues by 2%.

Adjusted gross margin declined 10 basis points (bps) to 35.0% due to lower volumes and higher input costs, mainly dairy products. Adjusted operating margin improved 160 bps to 15.7% in the quarter as weak gross margins were offset by lower overhead costs.

The effective tax rate was 29.7% in the fourth quarter of 2014 much lower than 34.7% last year.

Segment Performance

U.S.Retail: Revenues from the U.S. Retail segment declined 1.4% year over year to $2.44 billion in the quarter due to 2% decline in price/mix. Volumes grew 1% in the quarter.

Segment operating profit declined 3.1% to $501.4 million due to higher dairy costs and price/mix headwinds.

International: Revenues in the International segment declined 6.8% year over year to $1.34 billion due to currency headwinds and difficult year-ago comparisons. The year-ago comparable quarter included an extra month of results for operations in Europe and Australia.

While price/mix added 4% to net sales growth, volume declined 6%. Foreign exchange had an unfavorable impact of 5% on net sales.

Excluding the Venezuelan currency devaluation, segment operating profit grew 3.8% to $145.8 million due to price/mix gains.

Convenience Stores and Foodservice:On a year-over-year basis, the Convenience Stores and Foodservice segment’s quarterly revenues improved 1.1% to $507.5 million due to price/mix gains. Volumes were flat while price/mix increased 1% due to favorable business mix. Segment operating profit rose 14.1% year over year to $85.9 million due to favorable business mix and lower input costs.

Fiscal 2014 Results Miss Expectations

The company reported adjusted earnings per share of $2.82 in fiscal 2014 missing the company’s guided range of $2.87–$2.90 as well as the Zacks Consensus Estimate of $2.87. However, earnings increased 4.0% year over year.

The company reported 1% increase in net sales to $17.9 billion in fiscal 2014, falling short of management expectations it being higher than $18 billion. Also, revenues missed the Zacks Consensus Estimate of $18.11 by almost 2%.

Fiscal 2015 Outlook

In view of the highly disappointing performance in fiscal 2014, the company laid out aggressive plans for the upcoming fiscal year that include strong innovation and marketing and further cost cuts.

Management aims to accelerate top-line growth in fiscal 2015 through strong innovation, renovation of existing brands and aggressive consumer oriented marketing initiatives. Fiscal 2015 net sales are expected to increase at a mid single-digit rate in constant currency (including impact of the 53rd week).

Moreover, the company expects to generate at least $400 million of supply chain savings under its Holistic Margin Management (HMM) program. In addition, the company has many “new cost-reduction initiatives” in place including streamlining the North American manufacturing and distribution operations and possible reduction in capacity and overhead costs. These initiatives are expected to result in $40 million pre-tax savings in fiscal 2015.

These savings are expected to lead to a mid single-digit growth in adjusted operating profit (constant currency). Adjusted earnings per share (constant currency) are expected to grow at a high single-digit rate. Currency headwinds are expected to hurt earnings per share by 3% in fiscal 2015.

However, commodity cost inflation is expected to be 3% in fiscal 2015 as commodity costs have been rising sharply in the past few months. In calendar year 2014/2015, the overall cost environment for food commodities is expected to be under pressure due to domestic and worldwide agricultural supply and demand imbalance and other macroeconomic factors.

Other Stocks to Consider

General Mills carries a Zacks Rank #3 (Hold). Other better-ranked stocks in the food industry include Hain Celestial Group Inc. (HAIN - Analyst Report), Treehouse Foods, Inc. (THS - Snapshot Report)and Inventure Foods, Inc. (SNAK - Snapshot Report). All these companies carry a Zacks Rank #2 (Buy).

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