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General Mills: Will the Strategic Initiatives Boost Sales?

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On Jan 17, we issued an updated research report on global manufacturer and marketer of branded consumer food products through retail stores -- General Mills, Inc. (GIS - Free Report) .

General Mills' shares outperformed the Zacks categorized Food-Miscellaneous Preparation/Diversified industry in the last three months. The stock has lost around 1.3% while the broader market witnessed a decline of 2.7%.



Q2 Recall & Other Concerns

General Mills reported a dull second quarter of fiscal 2017 wherein earnings and revenues lagged expectations. Although adjusted earnings improved 4%, revenues deteriorated 7.1% year over year with volumes declining 10%. Also, organic sales were down 4%. Sales were weak at the core U.S. Retail segment as well as other segments.

U.S. Retail segment, accounting for 60% of its sales in 1H17, has been facing weak sales and profits in the recent quarters due to lower demand amid weak food industry trends and changing consumer preference.

Also, management trimmed its organic sales growth guidance for fiscal 2017. Organically, year-over-year sales growth is now anticipated to drop 3% to 4%, wider than the earlier expectation of flat to down 2% for the year. For the second half of the year, the company expects modest improvement in organic net sales growth (read more: General Mills Misses Q2 Earnings, Updates View).

Initiatives

General Mills is currently pursuing many multi-year restructuring initiatives focused at improving operational efficiency to generate cost savings and support its key growth strategies. As part of its initiative to streamline its global supply chain network, it will shut down 11 plants by fiscal 2018 or 17% of its 2014 factory base.

The company is already efficiently executing the Holistic Margin Management (HMM) program, Project Century, Project Compass and Project Catalyst.

During second-quarter fiscal 2017, the company announced plans to alter it reporting structure to maximize global scale, unlock global growth opportunities and drive efficiency. With this, the company expects to eliminate positions worldwide, which will likely drive savings of $70 million to $90 million by fiscal 2018. The company intends to report under this new organizational structure starting from the third quarter of fiscal 2017.

Robust restructuring savings are making up for the sluggish revenue growth. General Mills is also seeing impressive margin expansion with operating margin expanding 130 basis points in the last reported quarter. By fiscal 2018, the company anticipates to achieve an operating margin of 20%.

It is worth mentioning here that though the company trimmed its organic sales view, the guidance for adjusted earnings per share (constant currency) growth has been maintained at the 6--8% range from the fiscal 2016 level of $2.92 per share. For the second half, General Mills anticipates double-digit growth in adjusted diluted EPS.

Zacks Rank & Key Picks

General Mills carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the industry include B&G Foods, Inc. (BGS - Free Report) , J&J Snack Foods Corp. (JJSF - Free Report) and Conagra Brands, Inc. (CAG - Free Report) .

B&G Foods sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here. J&J Snack Foods and Conagra Brands hold a Zacks Rank #2 (Buy).

Current year earnings for B&G Foods are expected to grow 42.2%.

J&J Snack Foods is expected to witness 5.3% growth in full-year fiscal 2017 earnings.

Meanwhile, Conagra Brands has an impressive earnings surprise history, beating the Zacks Consensus Estimate in all the last four quarters, the average positive surprise being 13.3%.

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