Earnings Preview: General Mills

Consumer food giant, General Mills Inc. (GIS - Analyst Report) is all set to unveil its second quarter fiscal 2013 results before the start of trading on December 19, 2012. The Zacks Consensus Estimate for the second quarter is 79 cents (estimated year-over-year improvement of 3.6%) on revenues of $4.87 billion (year-over-year increase of 5.3%).

First Quarter 2013 Recap

General Mills’ first quarter fiscal 2013 adjusted earnings rose 3.1% year on year to 66 cents per share, beating the Zacks Consensus Estimate by 6.5%. The earnings upside was in contrary to management’s expectations that earnings would drop from the year-ago levels. The upside was driven by recent acquisitions, low advertising expense and tax rate, and solid international results.

Total revenue increased 5% year over year to $4.05 billion. Revenues mostly benefited from recent acquisitions. Revenues marginally missed the Zacks Consensus Estimate of $4.07 billion.

Agreement of Estimate Revisions

There has been no estimate revision for the current quarter over the last 7 or 30 days. However, for fiscal 2013, 1 of 9 estimates moved down over the past 30 days. None of the estimates has been revised upward. There has been no estimate revision over the past 7 days for the fiscal year.

General Mills did not announce any major news since the announcement of its earnings results in September, which explains the stalemate in estimate revisions.

Magnitude of Estimate Revisions

Given the limited estimate revisions, the consensus estimate for the second quarter has remained static over the last 7 days at 79 cents. However, for fiscal 2013, the estimate has gone down by a penny over the last 30 days from $2.67 to $2.66. The fiscal 2013 estimate has remained static over the last 7 days.

Surprise History

General Mills has surpassed earnings estimates in two of the last four quarters, while missing in two. It recorded a maximum positive surprise of 6.45% in the first quarter of fiscal 2013. On average, the earnings surprise was a positive 1.08% in the trailing four quarters.

Our Recommendation

We currently have a Neutral recommendation on General Mills. However, the stock carries a Zacks #2 Rank (a short-term Buy rating), reflecting the momentum following the better-than-expected first quarter results.

We are encouraged by the company’s strong market share position in some leading 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, the Yoplait yogurt business delivers and the macroeconomic environment recovers substantially.

Peer company Kellogg Company (K - Analyst Report) carries a Zacks #3 Rank.