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General Mills (GIS) Q1 Earnings & Revenues Lag Estimates

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General Mills, Inc.’s (GIS - Free Report) shares declined 5.3% in premarket trading after it missed both top and bottom-line expectations in first-quarter fiscal 2018. Results were primarily hurt by lower sales of its yogurts and cereals in North America.

General Mills, like a number of other U.S. food producers, has been struggling due to the shift in consumer preference toward natural and organic food.

Earnings Miss

The food giant reported first-quarter fiscal 2018 adjusted earnings per share of 71 cents, missing the Zacks Consensus Estimate of 77 cents by 7.8%. Earnings also decreased 9% year over year. On a constant currency basis, earnings decreased 9%.

Adjusted earnings exclude certain items affecting comparability of results. Including these items, reported earnings came in at 69 cents per share, reflecting an increase of 3% year over year.

Sales Miss

Total revenues of $3.77 billion fell shy of the Zacks Consensus Estimate of $3.79 billion and declined 3.5% year over year, owing to lower organic sales. Also, sales were weak in the core U.S. Retail and other segments barring Convenience Stores & Foodservice, and Europe & Australia segments.

Organically, excluding currency and acquisitions/divestures, sales declined 4%, wider than the 3% drop in the prior quarter.

Price/mix did not impact quarterly revenues but volumes declined 4% in the quarter. Foreign exchange headwinds also had a neutral effect on quarterly revenues.

General Mills, Inc. Price, Consensus and EPS Surprise


General Mills, Inc. Price, Consensus and EPS Surprise | General Mills, Inc. Quote

Margins Decline

Adjusted gross margin declined 230 basis points (bps) to 35.1% due to higher input costs.

Adjusted operating margin also plunged 210 bps to 17.1%, owing to lower adjusted gross margins and an increase in advertising and media expense.

Segment Performance

North America Retail: Revenues from this segment declined 5% year over year to $2.44 billion due to lower volumes, net price realization and mix. Organic sales were down 5%. Volumes dropped 3%, and price/mix had a 2% negative impact on revenues.

Segment operating profit declined 15% year over year, owing to higher input costs, advertising and media expense and lower volumes.

Convenience Stores & Food Service: Revenues were flat year over year at $447 million. Growth in cereal and frozen meals, offset the decline in yogurt and biscuits. Organically, sales were flat, too.

Segment operating profit decreased 8% from the year-ago level.

Europe & Australia: On a year-over-year basis, the segment’s revenues improved 3% to $492 million, thanks to benefits from net price realization and mix and favorable foreign currency exchange. Organically, sales were up 2%.

Foreign exchange and price/mix had a 1% and 3% favorable impact on revenues, respectively, in the quarter. Volumes were down 1%.

Segment operating profit dropped 30% year over year. This was due to major input cost inflation, including currency-driven inflation on products imported into the U.K.

Asia & Latin America: Revenues were down 8% year over year to $392 million. Organically, sales dropped 8%.

While volumes were down 17%, price/mix had a favorable impact of 9% on the quarter’s results.

Segment operating profit was down 31% year over year.

Fiscal 2018 Guidance

Organically, year-over-year sales growth is expected to decline 1-2%. This reflects an improvement of 200 to 300 bps over fiscal 2017 results.

Adjusted earnings per share (constant currency) are anticipated to grow 1-2% from the fiscal 2017 level of $3.08 per share. The company now expects currency-related translation to have a one cent benefit on full-year fiscal 2018 adjusted earnings per share.

Total segment operating profit growth is estimated in the range of flat to 1%, on a constant-currency basis. Adjusted operating margin is expected to remain above the fiscal 2017 level of 18.1%.

Zacks Rank & Key Picks

General Mills carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Consumer Staples sector are Nomad Foods Limited (NOMD - Free Report) , Pilgrim's Pride Corporation (PPC - Free Report) and The Chefs' Warehouse, Inc. (CHEF - Free Report) . While Nomad Foods and Pilgrim's Pride sport a Zacks Rank #1 (Strong Buy), Chefs' Warehouse carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Nomad Foods and Pilgrim's Pride are expected to witness an earnings growth rate of 22.8% and 37.1%, respectively, in 2017.

The current quarter’s expected earnings growth for Chefs' Warehouse is 42.9%.

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