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General Mills' (GIS) Accelerate Strategy Solid, Costs High

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General Mills, Inc. (GIS - Free Report) looks well-placed due to its Accelerate strategy, which aids the company in making the choices of how to win and where to play to boost profitability while enhancing shareholder returns in the long run.

Gains from the strategy helped boost General Mills’ second-quarter fiscal 2023 results, wherein the top and the bottom line rose year over year and surpassed the Zacks Consensus Estimate. Considering impressive first-half results and robust business momentum, management pulled up its fiscal 2023 guidance.

The consensus mark for fiscal 2023 earnings per share (EPS) has risen by a penny in the past 30 days to $4.12. Let’s delve deeper into the factors working well for this branded consumer food company amid escalated cost headwinds.

General Mills, Inc. Price, Consensus and EPS Surprise

General Mills, Inc. Price, Consensus and EPS Surprise

General Mills, Inc. price-consensus-eps-surprise-chart | General Mills, Inc. Quote


The company is focused on its Accelerate strategy, which was unveiled in February 2021. Under how to win, General Mills is focused on four pillars designed to provide a competitive advantage. These include brand building, undertaking innovations, unleashing scale and maintaining business strength.

The where-to-play principle is outlined to enhance the company’s capabilities to generate profitability through geographic and product prioritization, along with portfolio restructuring. This includes prioritizing investments, investing in five Global Platforms, driving growth in Local Gem brands and reshaping the portfolio.

For fiscal 2023, GIS remains committed to the Accelerate strategy, underscored by its three priorities. These involve competing efficiently through brand building, investing in Holistic Margin Management (“HMM”) and Strategic Revenue Management initiatives to counter inflation, making other strategic business investments, staying committed to ESG goals and reshaping the portfolio.

The company expects HMM cost savings of 3-4% of the cost of goods sold in fiscal 2023. For reshaping the portfolio, management announced or concluded seven transactions in fiscal 2022, including two buyouts and five divestitures, aimed at driving growth in the long run.

General Mills’ Pet segment looks well-positioned for growth. On its second-quarter earnings call, management stated that it expects the Pet sales performance to speed up in the second half of fiscal 2023 and revert to double-digit net sales growth.

The upside is likely to be led by higher capacity, better customer service, elevated brand-building investment, robust product news and anticipation of stable retailer inventory levels. A higher pet population and more humanization and premiumization of pet food have been acting as tailwinds for the company’s pet food category.

Cost Woes to be Countered

In the second quarter of fiscal 2023, though General Mills’ adjusted gross margin increased year over year, it was partly hurt by input cost inflation, supply-chain deleverage and the increased other costs of goods sold. The company also witnessed a rise in adjusted SG&A expenses.

Management stated that it still expects the biggest factors impacting its show in fiscal 2023 are likely to be consumers’ economic status, cost inflation and supply-chain bottlenecks. The company anticipates volume elasticities to remain lower than historical levels in the second half of the fiscal.

For fiscal 2023, management expects input cost inflation of 14-15% percent of the total cost of goods sold. It also expects moderately reduced supply-chain hurdles while anticipating greater investments in brand building and other growth-driving initiatives compared with the year-ago period.

Thus, the abovementioned upsides and a focus on innovation are likely to help General Mills tide over headwinds and fuel growth. Shares of this Zacks Rank #3 (Hold) company have risen 4.3% in the past six months compared with the industry’s growth of 2%.

Food Stocks Worth Grabbing

Some better-ranked food stocks are Conagra Brands (CAG - Free Report) , Lamb Weston (LW - Free Report) and Campbell Soup (CPB - Free Report) .

Conagra, a consumer-packaged goods food company, currently sports a Zacks Rank #1 (Strong Buy). CAG has a trailing four-quarter earnings surprise of 8.9%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Conagra’s current fiscal-year sales and earnings suggests growth of 6.8% and 11.9%, respectively, from the corresponding year-ago reported figures.

Lamb Weston, which is a frozen potato product company, currently sports a Zacks Rank #1. LW has a trailing four-quarter earnings surprise of 52.6%, on average.

The Zacks Consensus Estimate for Lamb Weston’s current fiscal-year sales and EPS suggests an increase of 19.5% and 89.9%, respectively from the year-ago reported number.

Campbell Soup, which manufactures and markets food and beverage products, currently carries a Zacks Rank of 2 (Buy). CPB has a trailing four-quarter earnings surprise of 8.7%, on average.

The Zacks Consensus Estimate for Campbell Soup’s current financial-year sales and earnings suggests growth of 8.3% and 4.6%, respectively, from the corresponding year-ago reported figures.

In-Depth Zacks Research for the Tickers Above

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Campbell Soup Company (CPB) - free report >>

Lamb Weston (LW) - free report >>

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