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Will General Mills (GIS) Witness Improved Margins in Q3?
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General Mills Inc. (GIS - Free Report) is set to report third-quarter fiscal 2018 results on Mar 21, before market open.
A Look at General Mills’ Margins Performance in Q2
It isn’t unknown that a seismic shift in the U.S. food industry is creating hurdles for food behemoths such as General Mills, Kellogg Company (K - Free Report) , Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) and others, making it harder for legacy brands to improve sales and thereby profit level.
General Mills and other food majors have been focusing on various strategies to combat weak sales trajectory. However, higher promotions and advertising spending to support innovation and new product launches have been putting pressure on these companies’ margins. Again, inflation in commodity prices as well as price competition among retailers also remained headwinds.
General Mills has been experiencing weak margins for the past several quarters. Adjusted gross margin declined 240 basis points (bps) to 34.4% due to higher input costs in the last reported quarter. Adjusted operating margin also plunged 220 bps to 17.4%, owing to lower adjusted gross margins, and an increase in advertising and media expenses. Adjusted gross margin declined 230 bps and adjusted operating margin plunged 210 bps in the fiscal first quarter as well.
The company is currently taking a number of initiatives, focused on improving operational efficiency to generate cost savings and support its key growth strategies. General Mills is on track to reduce its COGS (cost of goods sold) through its Holistic Margin Management (HMM) program that has helped it boost margins despite lower volume.
General Mills has plans of delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing HMM efforts that will more than offset input cost inflation of 3%. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which equates to approximately $700 million in aggregate cost savings by fiscal 2018.
By fiscal 2018, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion.
Also, General Mills had earlier stated that it expects margin headwinds to subside in the second half of fiscal 2018 and generate higher cost savings during the period, driving its margins and thereby profit. Additionally, the company’s higher net price realization and benefits from its global sourcing initiative are expected to support margins in the to-be-reported quarter.
However, weak sales, and higher expenses associated with promotional activities and commodities could weigh on this Zacks Rank #2 (Buy) company’s margins. Despite having profound strategic plans, the company expects its adjusted operating margin to remain below the prior-year’s level in fiscal 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Overall Earnings & Revenues Expectations
Overall, for the fiscal third quarter, the Zacks Consensus Estimate for revenues stands at $3.89 billion, implying 2.5% year-over-year growth. The consensus estimate for earnings is pegged at 79 cents, reflecting an increase of 9.7% year over year. (Read More: General Mills to Report Q3 Earnings: What's in Store?)
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
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Will General Mills (GIS) Witness Improved Margins in Q3?
General Mills Inc. (GIS - Free Report) is set to report third-quarter fiscal 2018 results on Mar 21, before market open.
A Look at General Mills’ Margins Performance in Q2
It isn’t unknown that a seismic shift in the U.S. food industry is creating hurdles for food behemoths such as General Mills, Kellogg Company (K - Free Report) , Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) and others, making it harder for legacy brands to improve sales and thereby profit level.
General Mills and other food majors have been focusing on various strategies to combat weak sales trajectory. However, higher promotions and advertising spending to support innovation and new product launches have been putting pressure on these companies’ margins. Again, inflation in commodity prices as well as price competition among retailers also remained headwinds.
General Mills has been experiencing weak margins for the past several quarters. Adjusted gross margin declined 240 basis points (bps) to 34.4% due to higher input costs in the last reported quarter. Adjusted operating margin also plunged 220 bps to 17.4%, owing to lower adjusted gross margins, and an increase in advertising and media expenses. Adjusted gross margin declined 230 bps and adjusted operating margin plunged 210 bps in the fiscal first quarter as well.
General Mills, Inc. Gross Margin (TTM)
General Mills, Inc. Gross Margin (TTM) | General Mills, Inc. Quote
Third-Quarter Expectations
The company is currently taking a number of initiatives, focused on improving operational efficiency to generate cost savings and support its key growth strategies. General Mills is on track to reduce its COGS (cost of goods sold) through its Holistic Margin Management (HMM) program that has helped it boost margins despite lower volume.
General Mills has plans of delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing HMM efforts that will more than offset input cost inflation of 3%. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which equates to approximately $700 million in aggregate cost savings by fiscal 2018.
By fiscal 2018, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion.
Also, General Mills had earlier stated that it expects margin headwinds to subside in the second half of fiscal 2018 and generate higher cost savings during the period, driving its margins and thereby profit. Additionally, the company’s higher net price realization and benefits from its global sourcing initiative are expected to support margins in the to-be-reported quarter.
However, weak sales, and higher expenses associated with promotional activities and commodities could weigh on this Zacks Rank #2 (Buy) company’s margins. Despite having profound strategic plans, the company expects its adjusted operating margin to remain below the prior-year’s level in fiscal 2018. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Overall Earnings & Revenues Expectations
Overall, for the fiscal third quarter, the Zacks Consensus Estimate for revenues stands at $3.89 billion, implying 2.5% year-over-year growth. The consensus estimate for earnings is pegged at 79 cents, reflecting an increase of 9.7% year over year. (Read More: General Mills to Report Q3 Earnings: What's in Store?)
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020.
Click here for the 6 trades >>