General Mills, Inc. (GIS Quick QuoteGIS - Free Report) posted robust third-quarter fiscal 2023 results as the top and bottom lines advanced year over year and came ahead of the Zacks Consensus Estimate. Management raised its guidance for fiscal 2023 again due to a robust year-to-date show and good indications regarding the fourth quarter.

In the third quarter, the company saw broad-based growth in all its segments. The company is managing well amid supply-chain headwinds and a volatile operating landscape.

Management remains focused on executing its Accelerate strategy. To this end, it has been committed to brand building and innovation, solidifying its capacities and reshaping its portfolio. GIS is on track with prioritizing core markets, global platforms and local brands, along with reshaping its portfolio via strategic acquisitions and divestitures.

Quarterly Highlights

General Mills posted adjusted earnings of 97 cents per share, which beat the Zacks Consensus Estimate of 91 cents. The bottom line rose 17% year over year on a constant-currency (cc) basis. The upside can be mainly attributed to the elevated adjusted operating profit and decreased net shares outstanding, somewhat negated by the higher adjusted effective tax rate, elevated interest expenses, reduced after-tax earnings from joint ventures and a reduced benefit plan non-service income.

GIS reported net sales of $5,125.9 million, which beat the Zacks Consensus Estimate of $4,913 million. The top line advanced 13% from the year-ago quarter’s figure. The metric included a two-point unfavorable impact of net divestitures and acquisition activity and a one-point adverse impact of currency movements. Organic net sales rose 16% due to the favorable organic net price realization and mix, with the organic pound volume remaining nearly flat with the year-ago period’s level.

The adjusted gross margin expanded 240 basis points (bps) to 33.8% due to the positive net price realization and mix, along with gains from Holistic Margin Management (“HMM”) cost savings. These were somewhat offset by input cost inflation and the increased other cost of goods sold.

The cc adjusted operating profit rose 20%, backed by increased adjusted gross profit dollars, somewhat offset by higher adjusted SG&A expenses (which included a double-digit spike in media investment). The adjusted operating profit margin expanded 80 bps to 15.7%.

Segmental Performance

North America Retail: Revenues in the segment came in at $3,232 million, up 15% year over year. The uptick can be attributed to the positive net price realization and mix, which more than offset the adverse impacts of divestitures and currency headwinds. Organic net sales grew 18% year over year. The segment’s operating profit increased 29% to $786.9 million.

International: Revenues in the segment came in at $700.6 million, down 3% year over year. The downside can be attributed to the reduced pound volume, which includes the adverse impacts of divestitures and unfavorable currency rates. That said, the favorable net price realization and mix offered some respite.

Organic net sales grew 8% year over year due to broad-based increases in Brazil, China and distributor markets, as well as in Europe and Australia. The segment’s operating profit increased 18% to $42.4 million.

Pet: Revenues came in at $645.5 million, which ascended 14% year over year due to the positive net price realization and mix and the higher pound volume. Organic sales also rose 14%. Segment net sales increased sequentially, backed by enhanced customer service, improved brand-building and other commercial activities, as well as restocking of retailer inventory.

The segment’s operating profit came in at $102.6 million compared with the $110.6 million reported in the year-ago period.

North America Foodservice: Revenues came in at $547.8 million, up 25% year over year, reflecting the positive net price realization and mix, including a benefit of one point from market index pricing on bakery flour. Net sales also included a six-point gain from the TNT Crust buyout.

Organic sales rose 19%. The segment’s operating profit jumped significantly from $35.2 million to $82.4 million.

Other Financial Aspects

General Mills ended the quarter with cash and cash equivalents of $618.7 million, long-term debt of $8,140.2 million and total shareholders’ equity of $10,234.5 million.

GIS generated $2 billion in net cash from operating activities through the first nine months of fiscal 2023. Capital investments amounted to $351 million during the same period. The company paid out dividends worth $967 million and bought roughly 15 million shares for $1.2 billion in the said time frame.

Management continues to expect free cash flow conversion to be at least 90% of the company’s adjusted after-tax earnings in fiscal 2023.

Other Developments

Cc sales from the joint ventures of Cereal Partners Worldwide increased 2%. In Haagen-Dazs Japan, sales climbed 1% at cc from the prior-year figure.

Fiscal 2023 Guidance

General Mills expects that the biggest factors impacting its show in fiscal 2023 are likely to be consumers’ economic status, cost inflation and the severity and frequency of supply-chain bottlenecks.

For fiscal 2023, management expects input cost inflation of 14-15% percent of the total cost of goods sold. Management continues to expect HMM cost savings of 3-4% of the cost of goods sold. It also expects moderately reduced supply-chain hurdles and greater investments in brand building and other growth-driving initiatives.

For fiscal 2023, organic net sales are now anticipated to increase 10-11%, up from the nearly 10% growth expected earlier. 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%.

The adjusted operating profit growth at cc is now anticipated at 7-8%. Earlier, the metric was anticipated between 6% and 7%. Both views include a three-point net adverse impact of divestitures and buyouts and a one-point headwind of the ice cream recall.

Adjusted EPS growth at cc is now envisioned between 8% and 9%. Previously, adjusted EPS growth at cc was expected to rise 7-8%. Both the guidance ranges include a three-point net adverse impact of divestitures and buyouts and a one-point headwind of the ice cream recall.

Currency woes are still likely to have a nearly 1% adverse impact on the adjusted operating profit and the adjusted EPS.

This Zacks Rank #2 (Buy) company’s shares have rallied 20.4% in the past year compared with the industry’s growth of 1.5%.

Other Solid Food Stocks

Some other top-ranked food stocks are Post Holdings (POST Quick QuotePOST - Free Report) , Ingredion Incorporated (INGR Quick QuoteINGR - Free Report) and Vital Farms (VITL Quick QuoteVITL - Free Report) .

Post Holdings, which operates as a consumer-packaged goods company, currently sports a Zacks Rank #1 (Strong Buy). POST has a trailing four-quarter earnings surprise of 34.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Post Holdings’ current fiscal-year EPS suggests an increase of 111.3% from the year-ago reported number.

Ingredion Incorporated produces and sells sweeteners, starches, nutrition ingredients and biomaterial solutions. INGR currently carries a Zacks Rank #2.

The Zacks Consensus Estimate for Ingredion Incorporated’s current fiscal-year earnings suggests growth of 11.7% from the corresponding year-ago reported figure.

Vital Farms, which provides pasture-raised products, currently carries a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 53.3%, on average.

The Zacks Consensus Estimate for Vital Farms’ current fiscal-year sales suggests an increase of 25.4% from the year-ago reported number.