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General Mills (GIS) Lowers FY24 View Despite Q2 Earnings Beat
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General Mills, Inc. (GIS - Free Report) posted mixed second-quarter fiscal 2024 results, with the bottom line surpassing the Zacks Consensus Estimate and increasing year over year. However, the top line missed the consensus mark and declined from the year-ago quarter’s level. Management lowered its fiscal 2024 outlook to reflect the impact of slower volume recovery.
Quarterly Highlights
General Mills posted adjusted earnings of $1.25 per share, surpassing the Zacks Consensus Estimate of $1.15. The bottom line rose 14% year over year on a constant-currency (cc) basis. The upside can be attributed to increased adjusted operating profit and reduced net shares outstanding. These were somewhat offset by increased net interest expenses.
GIS reported net sales of $5,139.4 million, lagging the Zacks Consensus Estimate of $5,337.2 million. The top line fell 2% from the year-ago quarter’s figure due to reduced pound volume. This was somewhat offset by positive net price realization and mix. Organic net sales declined 2%.
The adjusted gross margin expanded 180 basis points (bps) to 35%. The upside can be attributed to HMM cost savings and positive net price realization and mix. These were somewhat offset by input cost inflation, increased other supply chain costs and supply chain deleverage. Our estimate for the adjusted gross margin was pegged at 34.7%, up 150 bps in the reported quarter.
Adjusted operating profit came in at $989 million, up 13% at cc on the back of increased adjusted gross profit along with reduced compensation and benefits expenses. Adjusted operating profit margin expanded 240 bps to 19.3%.
Image Source: Zacks Investment Research
Segmental Performance
North America Retail: Revenues in the segment came in at $3,305 million. The metric dropped 2% year over year. The downside was caused by reduced pound volume. These were somewhat offset by favorable net price realization and mix. Organic net sales also fell 2% year over year. The segment’s operating profit increased by 3% to $859.9 million. We had expected the segment to generate revenues of $3,457.4 million in the quarter.
International: Revenues in the segment came in at $683.1 million, up 2% year over year. The upside can be attributed to positive net price realization and mix and favorable impact from foreign currency exchange. These were somewhat offset by reduced pound volume. Organic net sales remained flat year over year. The segment’s operating profit surged 94% to $34.6 million.
Pet: Revenues came in at $569.3 million, down 4% year over year. Revenues were hurt by reduced pound volume. Nevertheless, positive net price realization and mix offered respite. The segment’s operating profit came in at $102.5 million, up 18% on a year-over-year basis. Our estimate for the segment’s revenues was pegged at $619.6 million for the quarter.
North America Foodservice: Revenues came in at $582 million, flat year over year. Also, organic net sales were in line with the year-ago quarter’s level. The segment’s operating profit rose 17% to $95.5 million, driven by favorable net price realization and mix and savings. We had expected the segment to generate revenues of $603.4 million in the quarter.
Other Financial Aspects
General Mills ended the quarter with cash and cash equivalents of $593.8 million, long-term debt of $10,530.5 million and total shareholders’ equity of $9,378.8 million.
GIS generated $1,495.8 million in cash from operating activities in the six months ended Nov 26, 2023. Capital investments amounted to $294 million during the same period.
The company paid out dividends worth $691 million and bought nearly 18.8 million shares for $1.3 billion in the six-month period.
Other Developments
Constant-currency sales from the joint ventures of Cereal Partners Worldwide increased 11%. In Haagen-Dazs Japan, sales rose 6% year over year at cc from the prior year’s figure.
Fiscal 2024 Guidance
General Mills expects that the biggest factors impacting its performance in the fiscal 2024 are likely to be consumers’ economic status, the moderating rate of cost inflation and the rising stability of supply-chain status. However, the company expects to see a slower volume recovery in the fiscal 2024.
For the fiscal 2024, management expects input cost inflation of nearly 5% of the total cost of goods sold, stemming from labor inflation. Labor inflation continues to impact the costs of sourcing, manufacturing and logistics. Management expects Holistic Margin Management (HMM) cost savings of nearly 5% of the cost of goods sold in the fiscal 2024.
For the fiscal 2024, organic net sales are anticipated to be down 1% to flat year over year. Earlier, management had expected the metric to increase by 3-4%. The lowered view is a result of slower volume recovery in the fiscal 2024.
The adjusted operating profit growth at cc is anticipated at 4-5% compared with 4-6% growth expected earlier. Adjusted EPS growth at cc is envisioned between 4% and 5%. The company had earlier expected the metric to grow 4-6%. The updated view reflects lower organic sales growth. The company expects a free cash flow conversion of at least 95% of adjusted after-tax earnings.
The Zacks Rank #3 (Hold) company’s shares have inched up 1.9% in the past three months compared with the industry’s 0.0%.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Celsius Holdings (CELH - Free Report) , which offers functional drinks and liquid supplements, carries a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 110.9% on average.
The Zacks Consensus Estimate for Celsius Holdings’ current financial year sales and earnings suggests growth of 98.5% and 185.2%, 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) Lowers FY24 View Despite Q2 Earnings Beat
General Mills, Inc. (GIS - Free Report) posted mixed second-quarter fiscal 2024 results, with the bottom line surpassing the Zacks Consensus Estimate and increasing year over year. However, the top line missed the consensus mark and declined from the year-ago quarter’s level. Management lowered its fiscal 2024 outlook to reflect the impact of slower volume recovery.
Quarterly Highlights
General Mills posted adjusted earnings of $1.25 per share, surpassing the Zacks Consensus Estimate of $1.15. The bottom line rose 14% year over year on a constant-currency (cc) basis. The upside can be attributed to increased adjusted operating profit and reduced net shares outstanding. These were somewhat offset by increased net interest expenses.
GIS reported net sales of $5,139.4 million, lagging the Zacks Consensus Estimate of $5,337.2 million. The top line fell 2% from the year-ago quarter’s figure due to reduced pound volume. This was somewhat offset by positive net price realization and mix. Organic net sales declined 2%.
The adjusted gross margin expanded 180 basis points (bps) to 35%. The upside can be attributed to HMM cost savings and positive net price realization and mix. These were somewhat offset by input cost inflation, increased other supply chain costs and supply chain deleverage. Our estimate for the adjusted gross margin was pegged at 34.7%, up 150 bps in the reported quarter.
Adjusted operating profit came in at $989 million, up 13% at cc on the back of increased adjusted gross profit along with reduced compensation and benefits expenses. Adjusted operating profit margin expanded 240 bps to 19.3%.
Image Source: Zacks Investment Research
Segmental Performance
North America Retail: Revenues in the segment came in at $3,305 million. The metric dropped 2% year over year. The downside was caused by reduced pound volume. These were somewhat offset by favorable net price realization and mix. Organic net sales also fell 2% year over year. The segment’s operating profit increased by 3% to $859.9 million. We had expected the segment to generate revenues of $3,457.4 million in the quarter.
International: Revenues in the segment came in at $683.1 million, up 2% year over year. The upside can be attributed to positive net price realization and mix and favorable impact from foreign currency exchange. These were somewhat offset by reduced pound volume. Organic net sales remained flat year over year. The segment’s operating profit surged 94% to $34.6 million.
Pet: Revenues came in at $569.3 million, down 4% year over year. Revenues were hurt by reduced pound volume. Nevertheless, positive net price realization and mix offered respite. The segment’s operating profit came in at $102.5 million, up 18% on a year-over-year basis. Our estimate for the segment’s revenues was pegged at $619.6 million for the quarter.
North America Foodservice: Revenues came in at $582 million, flat year over year. Also, organic net sales were in line with the year-ago quarter’s level. The segment’s operating profit rose 17% to $95.5 million, driven by favorable net price realization and mix and savings. We had expected the segment to generate revenues of $603.4 million in the quarter.
Other Financial Aspects
General Mills ended the quarter with cash and cash equivalents of $593.8 million, long-term debt of $10,530.5 million and total shareholders’ equity of $9,378.8 million.
GIS generated $1,495.8 million in cash from operating activities in the six months ended Nov 26, 2023. Capital investments amounted to $294 million during the same period.
The company paid out dividends worth $691 million and bought nearly 18.8 million shares for $1.3 billion in the six-month period.
Other Developments
Constant-currency sales from the joint ventures of Cereal Partners Worldwide increased 11%. In Haagen-Dazs Japan, sales rose 6% year over year at cc from the prior year’s figure.
Fiscal 2024 Guidance
General Mills expects that the biggest factors impacting its performance in the fiscal 2024 are likely to be consumers’ economic status, the moderating rate of cost inflation and the rising stability of supply-chain status. However, the company expects to see a slower volume recovery in the fiscal 2024.
For the fiscal 2024, management expects input cost inflation of nearly 5% of the total cost of goods sold, stemming from labor inflation. Labor inflation continues to impact the costs of sourcing, manufacturing and logistics. Management expects Holistic Margin Management (HMM) cost savings of nearly 5% of the cost of goods sold in the fiscal 2024.
For the fiscal 2024, organic net sales are anticipated to be down 1% to flat year over year. Earlier, management had expected the metric to increase by 3-4%. The lowered view is a result of slower volume recovery in the fiscal 2024.
The adjusted operating profit growth at cc is anticipated at 4-5% compared with 4-6% growth expected earlier. Adjusted EPS growth at cc is envisioned between 4% and 5%. The company had earlier expected the metric to grow 4-6%. The updated view reflects lower organic sales growth. The company expects a free cash flow conversion of at least 95% of adjusted after-tax earnings.
The Zacks Rank #3 (Hold) company’s shares have inched up 1.9% in the past three months compared with the industry’s 0.0%.
Top 3 Staple Bets
MGP Ingredients, Inc. (MGPI - Free Report) produces and markets ingredients and distillery products to the packaged goods industry. The company currently has a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for MGP Ingredients’ current financial year sales and earnings suggests growth of almost 6% and 14.2%, respectively, from the year-ago reported figures. MGPI has a trailing four-quarter earnings surprise of 16.2% on average.
Celsius Holdings (CELH - Free Report) , which offers functional drinks and liquid supplements, carries a Zacks Rank #2. CELH has a trailing four-quarter earnings surprise of 110.9% on average.
The Zacks Consensus Estimate for Celsius Holdings’ current financial year sales and earnings suggests growth of 98.5% and 185.2%, 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.