General Mills Ups Guidance Again

General Mills (GIS - Analyst Report) has again raised EPS guidance for fiscal 2009 (May fiscal year). Management stated today that earnings should be greater than the most recent guidance of between of $3.87 and $3.89 that was issued on March 18, 2009, concurrent with the third fiscal quarter’s earnings report.

Earlier, concurrent with the second fiscal quarter’s earnings report on December 17, 2008, management also raised guidance. At that time guidance was raised to the $3.83 to $3.87 range.

Today’s announcement comes ahead of the company’s meetings with European investors this week, starting with the Deutsche Bank Global Consumer and Food Retail Conference in Paris, France tomorrow.

Portfolio managers who utilize an earnings momentum style are piling in today, driving the stock up over 2 points for a 4%+ gain. With this series of positive earnings estimate revisions, these portfolio managers are gaining confidence in the future earnings outlook for General Mills.

Obviously, the company’s operations are improving. The U.S. Retail business segment is growing strongly, with sales increasing 10% through the first nine months of fiscal 2009. Though currency translations are expected to negatively impact the International segment’s sales (by approximately 6%), on a constant-currency basis net sales have grown at a 10% rate.

However, the company’s Bakeries and Foodservice segment is facing a challenging year with weak domestic economy impacting the market for food eaten away-from-home. In addition, during 2009, General Mills divested foodservice businesses; therefore, net sales of the Bakeries and Foodservice segment are expected to decline in fiscal 2010.

Productivity initiatives and new product introductions should help General Mills achieve high single-digit earnings growth in fiscal 2009 and in the long term. In addition, management has implemented a strategy to enhance shareholder value. Since fiscal 2005, cash flow has been utilized to reduce debt, repurchase shares and increase dividends.

However, debt was issued in fiscal 2007, raising the company’s net debt position. Also, higher input commodity costs impeded meaningful margin expansion last year. Now the Bakeries and Foodservice segment is facing meaningful challenges. We continue to rate the stock a Hold.