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General Mills (GIS) Banks on Accelerate Strategy Amid Cost Woes

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General Mills, Inc. (GIS - Free Report) has been benefiting from its Accelerate strategy. Solid prospects from the Pet segment also bode well for the company, which is no exception to battling inflated cost headwinds in the industry.

Accelerate Strategy – a Key Driver

GIS is focused on its Accelerate strategy (unveiled in February 2021), which aids it in making the choices of how to win and where to play to boost profitability while enhancing shareholder returns in the long run. 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, General Mills remains committed to the Accelerate strategy, underscored by its three priorities — competing efficiently through brand building, investing in Holistic Margin Management and Strategic Revenue Management initiatives to counter inflation, making other strategic business investments, staying committed to ESG goals and reshaping the portfolio. It expects HMM cost savings of 3-4% of the cost of goods sold in fiscal 2023.

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

Pet Segment – a Growth Engine

The higher pet population and more humanization and premiumization of pet food have been acting as tailwinds for General Mills’ Pet segment. In the second quarter of fiscal 2023, segmental revenues came in at $592.9 million, flat year over year, as the positive net price realization and mix were countered by the reduced pound volume.

That said, management 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 investments, robust product news and anticipation of stable retailer inventory levels. 

Cost Headwinds 

In the second quarter of fiscal 2023, GIS’ adjusted gross margin 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. On its second-quarter earnings call, 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.

Wrapping Up

The abovementioned upsides are likely to aid growth amid headwinds. For fiscal 2023, organic net sales are anticipated to increase 8-9%. The net impact of divestitures, acquisitions and foreign currency movements is likely to lower the full-year reported net sales growth by about 4.5%.

Adjusted EPS growth at cc is envisioned between 4% and 6%. The guidance includes a three-point net adverse impact of divestitures and buyouts and a one-point headwind of the ice cream recall.

Shares of this Zacks Rank #3 (Hold) company have rallied 12.6% in the past year against the industry’s decline of 0.9%.

Food Stocks Worth a Look

Some better-ranked stocks are Conagra Brands (CAG - Free Report) , Lamb Weston (LW - Free Report) and Post Holdings (POST - 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 7.2% and 12.7%, 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 19.6% and 90.4%, respectively, from the year-ago reported number.

Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1. POST has a trailing four-quarter earnings surprise of 34.8%, on average.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 115.5% from the year-ago reported number.


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