General Mills Inc. ( GIS - Analyst Report ) is all set to report its first quarter 2013 results before the start of trading on September 19, 2012. The Zacks Consensus Estimate for the fourth quarter is 62 cents (estimated year-over-year decline of 3.1%) on revenues of $4.07 billion (year-over-year increase of 5.8%).

Fourth Quarter 2012 Recap

General Mills’ fourth-quarter 2012 earnings of 60 cents per share beat the Zacks Consensus Estimate by 3.4%. Earnings also topped the year-ago results by 15% driven by positive top-line growth and cost savings despite significant rise in input cost. Total revenue of the global consumer food company increased 12% year over year to $4.07 billion, benefiting mainly from the addition of Yoplait entities that were acquired in July last year. Revenues marginally missed the Zacks Consensus Estimate of $4.12 billion.

However, the addition of Yoplait International to the business mix, higher input cost inflation and lower U.S. retail volumes dragged the quarter’s adjusted gross margin down by 140 basis points (bps) to 37.2%. Adjusted operating margin still expanded 40 bps to 16.2% in the quarter due to the company’s cost saving efforts.

Agreement of Estimate Revisions

Over the last 7 days, 1 of 14 estimates has moved down for the first quarter of fiscal 2013. However, over the last 30 days, 2 estimates have moved down for the quarter. None of the estimates has been revised upwards. There has been no estimate revision for fiscal 2013 either over the last 7 or 30 days.

Management had already guided that earnings would decline year over year in the first quarter of fiscal 2013 and grow subsequently in the remaining nine months. The food industry is currently suffering from rising input costs and issues related to volume growth, which are offsetting the benefits from increased pricing. Though the analysts expect top-line growth to remain healthy, rising costs could undo most of the gains, imposing pressure on earnings.

Magnitude of Estimate Revisions

Given the limited estimate revisions, the consensus estimates for the first quarter as well as for fiscal 2013 have remained static over the last 7 days at 62 cents and $2.65, respectively. However, over the last 30 days, the estimates have gone down by a penny for the first quarter from 63 cents to 62 cents and for fiscal 2013 from $2.66 to $2.65.

Surprise History

General Mills has surpassed earnings estimates in two of the last four quarters and missed twice. It recorded a maximum positive surprise of 3.45% in the fourth quarter of fiscal 2012. On an average, the earnings surprise was 0.27% in the trailing four quarters.

Our Recommendation

We currently have a Neutral recommendation on General Mills. The stock carries a Zacks #3 Rank (a short-term ‘Hold’ rating).

We are encouraged by the company’s strong market share position in some fast growing food categories, its growing international presence, strategic acquisitions and focus on innovation and brand support. These growth initiatives combined with the cost saving efforts bode well for the company’s long-term growth. However, we prefer to remain on the sidelines until the U.S. retail volumes improve, margin pressures (due to input cost headwinds) subside, and the macroeconomic environment recovers substantially.