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General Mills' (GIS) Strategic Priorities Aid, High Costs Hurt
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General Mills, Inc. (GIS - Free Report) has been gaining from favorable net price realization amid cost inflation. The company has been on track with prioritizing core markets, global platforms and local brands and reshaping its portfolio via strategic acquisitions and divestitures. Further, GIS’ Accelerate strategy has been fueling growth.
These upsides drove the company’s top line in the first quarter of fiscal 2024. General Mills reported net sales of $4,904.7 million, which advanced 4% from the year-ago quarter’s figure. Organic net sales rose 4% due to the favorable organic net price realization and mix, partly countered by the reduced organic pound volume.
Accelerate Strategy in Full Swing
The Accelerate strategy (unveiled in February 2021) aids General Mills in making 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 2024, General Mills remains committed to the Accelerate strategy, underscored by its three priorities — competing efficiently through brand building and innovation, enhancing the supply chain by boosting Holistic Margin Management (“HMM”) cost savings and curtailing costs and undertaking efficient capital allocation, rewarding shareholders and staying committed to reshaping the portfolio.
Management remains committed to undertaking productivity efforts and expects HMM cost savings of 4% of the cost of goods sold in fiscal 2024. Talking of reshaping the portfolio, General Mills undertook one acquisition and two divestitures in fiscal 2023, thereby having reshaped more than 20% of its portfolio since fiscal 2018.
Image Source: Zacks Investment Research
Cost Challenges
GIS has been battling input cost inflation for a while, with the trend persisting in the first quarter of fiscal 2024. Although offset by the positive net price realization and mix, the adjusted gross margin was hurt by elevated input costs in the first quarter. General Mills also witnessed a rise in adjusted SG&A expenses, which included a double-digit spike in media investments.
On its first-quarter earnings call, management stated that the biggest factors impacting its performance in fiscal 2024 are likely to be consumers’ economic status, the moderating rate of cost inflation and the rising stability of supply-chain status. We note that an increasingly cautious consumer landscape continues to impact General Mills in fiscal 2024. For fiscal 2024, management expects input cost inflation of 5% of the total cost of goods sold, stemming from labor inflation. Labor inflation continues to impact the costs of sourcing, manufacturing and logistics. Additionally, continued brand investments may escalate SG&A expenses.
Wrapping Up
A focus on the Accelerate strategy and gains from pricing are likely to work well for GIS. For fiscal 2024, organic net sales are anticipated to increase 3-4%, driven by robust marketing, innovation and in-store support. Also, gains from net price realization through the company’s Strategic Revenue Management initiative are likely to aid. The adjusted operating profit growth at cc is anticipated at 4-6%. Adjusted earnings per share (EPS) growth at cc is also envisioned between 4% and 6%.
Shares of this Zacks Rank #3 (Hold) company have decreased 4.2% in the past three months compared with the industry’s decline of 3.5%.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales suggests growth of 29.4% from the year-ago reported figure.
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General Mills' (GIS) Strategic Priorities Aid, High Costs Hurt
General Mills, Inc. (GIS - Free Report) has been gaining from favorable net price realization amid cost inflation. The company has been on track with prioritizing core markets, global platforms and local brands and reshaping its portfolio via strategic acquisitions and divestitures. Further, GIS’ Accelerate strategy has been fueling growth.
These upsides drove the company’s top line in the first quarter of fiscal 2024. General Mills reported net sales of $4,904.7 million, which advanced 4% from the year-ago quarter’s figure. Organic net sales rose 4% due to the favorable organic net price realization and mix, partly countered by the reduced organic pound volume.
Accelerate Strategy in Full Swing
The Accelerate strategy (unveiled in February 2021) aids General Mills in making 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 2024, General Mills remains committed to the Accelerate strategy, underscored by its three priorities — competing efficiently through brand building and innovation, enhancing the supply chain by boosting Holistic Margin Management (“HMM”) cost savings and curtailing costs and undertaking efficient capital allocation, rewarding shareholders and staying committed to reshaping the portfolio.
Management remains committed to undertaking productivity efforts and expects HMM cost savings of 4% of the cost of goods sold in fiscal 2024. Talking of reshaping the portfolio, General Mills undertook one acquisition and two divestitures in fiscal 2023, thereby having reshaped more than 20% of its portfolio since fiscal 2018.
Image Source: Zacks Investment Research
Cost Challenges
GIS has been battling input cost inflation for a while, with the trend persisting in the first quarter of fiscal 2024. Although offset by the positive net price realization and mix, the adjusted gross margin was hurt by elevated input costs in the first quarter. General Mills also witnessed a rise in adjusted SG&A expenses, which included a double-digit spike in media investments.
On its first-quarter earnings call, management stated that the biggest factors impacting its performance in fiscal 2024 are likely to be consumers’ economic status, the moderating rate of cost inflation and the rising stability of supply-chain status. We note that an increasingly cautious consumer landscape continues to impact General Mills in fiscal 2024. For fiscal 2024, management expects input cost inflation of 5% of the total cost of goods sold, stemming from labor inflation. Labor inflation continues to impact the costs of sourcing, manufacturing and logistics. Additionally, continued brand investments may escalate SG&A expenses.
Wrapping Up
A focus on the Accelerate strategy and gains from pricing are likely to work well for GIS. For fiscal 2024, organic net sales are anticipated to increase 3-4%, driven by robust marketing, innovation and in-store support. Also, gains from net price realization through the company’s Strategic Revenue Management initiative are likely to aid. The adjusted operating profit growth at cc is anticipated at 4-6%. Adjusted earnings per share (EPS) growth at cc is also envisioned between 4% and 6%.
Shares of this Zacks Rank #3 (Hold) company have decreased 4.2% in the past three months compared with the industry’s decline of 3.5%.
3 Appetizing Picks
Lamb Weston (LW - Free Report) , which offers frozen potato products, sports a Zacks Rank #1 (Strong Buy). LW has a trailing four-quarter earnings surprise of 46.2%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Lamb Weston’s current financial-year sales and earnings suggests growth of 28.3% and 24.8%, respectively, from the year-ago reported numbers.
The Kraft Heinz Company (KHC - Free Report) , a food and beverage product company, currently carries a Zacks Rank #2 (Buy). KHC has a trailing four-quarter earnings surprise of 9.9%, on average.
The Zacks Consensus Estimate for Kraft Heinz’s current financial-year sales and earnings suggests growth of 1.1% and 6.5%, respectively, from the year-ago reported numbers.
Vital Farms Inc. (VITL - Free Report) offers a range of produced pasture-raised foods. It currently has a Zacks Rank #2. VITL has a trailing four-quarter earnings surprise of 145%, on average.
The Zacks Consensus Estimate for Vital Farms’ current financial-year sales suggests growth of 29.4% from the year-ago reported figure.