General Mills, Inc.’s (GIS - Free Report) shares declined 5.3% in premarket trading after it missed both top and bottom-line expectations in first-quarter fiscal 2018. Results were primarily hurt by lower sales of its yogurts and cereals in North America.
General Mills, like a number of other U.S. food producers, has been struggling due to the shift in consumer preference toward natural and organic food.
Earnings Miss
The food giant reported first-quarter fiscal 2018 adjusted earnings per share of 71 cents, missing the Zacks Consensus Estimate of 77 cents by 7.8%. Earnings also decreased 9% year over year. On a constant currency basis, earnings decreased 9%.
Adjusted earnings exclude certain items affecting comparability of results. Including these items, reported earnings came in at 69 cents per share, reflecting an increase of 3% year over year.
Sales Miss
Total revenues of $3.77 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and declined 3.5% year over year, owing to lower organic sales. Also, sales were weak in the core U.S. Retail and other segments barring Convenience Stores & Foodservice, and Europe & Australia segments.
Organically, excluding currency and acquisitions/divestures, sales declined 4%, wider than the 3% drop in the prior quarter.
Price/mix did not impact quarterly revenues but volumes declined 4% in the quarter. Foreign exchange headwinds also had a neutral effect on quarterly revenues.
Margins Decline
Adjusted gross margin declined 230 basis points (bps) to 35.1% due to higher input costs.
Adjusted operating margin also plunged 210 bps to 17.1%, owing to lower adjusted gross margins and an increase in advertising and media expense.
Segment Performance
North America Retail: Revenues from this segment declined 5% year over year to $2.44 billion due to lower volumes, net price realization and mix. Organic sales were down 5%. Volumes dropped 3%, and price/mix had a 2% negative impact on revenues.
Segment operating profit declined 15% year over year, owing to higher input costs, advertising and media expense and lower volumes.
Convenience Stores & Food Service: Revenues were flat year over year at $447 million. Growth in cereal and frozen meals, offset the decline in yogurt and biscuits. Organically, sales were flat, too.
Segment operating profit decreased 8% from the year-ago level.
Europe & Australia: On a year-over-year basis, the segment’s revenues improved 3% to $492 million, thanks to benefits from net price realization and mix and favorable foreign currency exchange. Organically, sales were up 2%.
Foreign exchange and price/mix had a 1% and 3% favorable impact on revenues, respectively, in the quarter. Volumes were down 1%.
Segment operating profit dropped 30% year over year. This was due to major input cost inflation, including currency-driven inflation on products imported into the U.K.
Asia & Latin America: Revenues were down 8% year over year to $392 million. Organically, sales dropped 8%.
While volumes were down 17%, price/mix had a favorable impact of 9% on the quarter’s results.
Segment operating profit was down 31% year over year.
Fiscal 2018 Guidance
Organically, year-over-year sales growth is expected to decline 1-2%. This reflects an improvement of 200 to 300 bps over fiscal 2017 results.
Adjusted earnings per share (constant currency) are anticipated to grow 1-2% from the fiscal 2017 level of $3.08 per share. The company now expects currency-related translation to have a one cent benefit on full-year fiscal 2018 adjusted earnings per share.
Total segment operating profit growth is estimated in the range of flat to 1%, on a constant-currency basis. Adjusted operating margin is expected to remain above the fiscal 2017 level of 18.1%.
Zacks Rank & Key Picks
General Mills carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Consumer Staples sector are Nomad Foods Limited (NOMD - Free Report) , Pilgrim's Pride Corporation (PPC - Free Report) and The Chefs' Warehouse, Inc. (CHEF - Free Report) . While Nomad Foods and Pilgrim's Pride sport a Zacks Rank #1 (Strong Buy), Chefs' Warehouse carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nomad Foods and Pilgrim's Pride are expected to witness an earnings growth rate of 22.8% and 37.1%, respectively, in 2017.
The current quarter’s expected earnings growth for Chefs' Warehouse is 42.9%.
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It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
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General Mills, Inc.’s (GIS - Free Report) shares declined 5.3% in premarket trading after it missed both top and bottom-line expectations in first-quarter fiscal 2018. Results were primarily hurt by lower sales of its yogurts and cereals in North America.
General Mills, like a number of other U.S. food producers, has been struggling due to the shift in consumer preference toward natural and organic food.
Earnings Miss
The food giant reported first-quarter fiscal 2018 adjusted earnings per share of 71 cents, missing the Zacks Consensus Estimate of 77 cents by 7.8%. Earnings also decreased 9% year over year. On a constant currency basis, earnings decreased 9%.
Adjusted earnings exclude certain items affecting comparability of results. Including these items, reported earnings came in at 69 cents per share, reflecting an increase of 3% year over year.
Sales Miss
Total revenues of $3.77 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and declined 3.5% year over year, owing to lower organic sales. Also, sales were weak in the core U.S. Retail and other segments barring Convenience Stores & Foodservice, and Europe & Australia segments.
Organically, excluding currency and acquisitions/divestures, sales declined 4%, wider than the 3% drop in the prior quarter.
Price/mix did not impact quarterly revenues but volumes declined 4% in the quarter. Foreign exchange headwinds also had a neutral effect on quarterly revenues.
Margins Decline
Adjusted gross margin declined 230 basis points (bps) to 35.1% due to higher input costs.
Adjusted operating margin also plunged 210 bps to 17.1%, owing to lower adjusted gross margins and an increase in advertising and media expense.
Segment Performance
North America Retail: Revenues from this segment declined 5% year over year to $2.44 billion due to lower volumes, net price realization and mix. Organic sales were down 5%. Volumes dropped 3%, and price/mix had a 2% negative impact on revenues.
Segment operating profit declined 15% year over year, owing to higher input costs, advertising and media expense and lower volumes.
Convenience Stores & Food Service: Revenues were flat year over year at $447 million. Growth in cereal and frozen meals, offset the decline in yogurt and biscuits. Organically, sales were flat, too.
Segment operating profit decreased 8% from the year-ago level.
Europe & Australia: On a year-over-year basis, the segment’s revenues improved 3% to $492 million, thanks to benefits from net price realization and mix and favorable foreign currency exchange. Organically, sales were up 2%.
Foreign exchange and price/mix had a 1% and 3% favorable impact on revenues, respectively, in the quarter. Volumes were down 1%.
Segment operating profit dropped 30% year over year. This was due to major input cost inflation, including currency-driven inflation on products imported into the U.K.
Asia & Latin America: Revenues were down 8% year over year to $392 million. Organically, sales dropped 8%.
While volumes were down 17%, price/mix had a favorable impact of 9% on the quarter’s results.
Segment operating profit was down 31% year over year.
Fiscal 2018 Guidance
Organically, year-over-year sales growth is expected to decline 1-2%. This reflects an improvement of 200 to 300 bps over fiscal 2017 results.
Adjusted earnings per share (constant currency) are anticipated to grow 1-2% from the fiscal 2017 level of $3.08 per share. The company now expects currency-related translation to have a one cent benefit on full-year fiscal 2018 adjusted earnings per share.
Total segment operating profit growth is estimated in the range of flat to 1%, on a constant-currency basis. Adjusted operating margin is expected to remain above the fiscal 2017 level of 18.1%.
Zacks Rank & Key Picks
General Mills carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the Consumer Staples sector are Nomad Foods Limited (NOMD - Free Report) , Pilgrim's Pride Corporation (PPC - Free Report) and The Chefs' Warehouse, Inc. (CHEF - Free Report) . While Nomad Foods and Pilgrim's Pride sport a Zacks Rank #1 (Strong Buy), Chefs' Warehouse carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Nomad Foods and Pilgrim's Pride are expected to witness an earnings growth rate of 22.8% and 37.1%, respectively, in 2017.
The current quarter’s expected earnings growth for Chefs' Warehouse is 42.9%.
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 >>
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
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