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Will Soft Volume Weigh on General Mills' (GIS) Q2 Sales?

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General Mills Inc. (GIS - Free Report) is set to report second-quarter fiscal 2018 results on Dec 20, before market open. The food giant has been reporting dismal revenues for the last few quarters. Much like other U.S. food giants like Kellogg Company (K - Free Report) , Mondelez International, Inc. (MDLZ - Free Report) , The Kraft Heinz Company (KHC - Free Report) and others, General Mills too is having a tough time due to the shift in consumer preference toward natural and organic food.

The company’s total sales declined 3.5% in the first quarter. Organic 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.

Resultantly, General Mills’ shares have declined 9.3% year to date, compared with the industry’s decline of 6%.



Let’s see how the company's top line is shaping up for this earnings season.

Although General Mills is making efforts to drive revenue growth through consumer-focused innovations and marketing initiatives in its key businesses, the company is expected to follow the trend in the second quarter as well. This is due to continued volume declines in North America.

Sales and profits at the North America Retail segment, accounting for about 65% of the company’s total sales, have been soft owing to lower volumes in yogurts and cereals. At the same time, retailers are also reducing inventory, given the ongoing price war. The company’s North America Retail’s sales declined 6.8% in fiscal 2017 and 4.6% in the last reported quarter.

Although the company expects organic sales to be better in the second quarter sequentially, we believe that the company needs time to be back in the positive territory. The company expects product innovations, promotions during key seasons for soup and refrigerated dough, and investments in compelling media campaigns to strengthen its brands will bring in improvements. As for fiscal 2018, General Mills expects its total organic sales to decline 1-2%.

According to the Zacks Consensus Estimate, the company’s North America segment revenues, of $2.7 billion are likely to surge 9.2% sequentially but is expected to decline 0.03% year over year.

Convenience Stores & Food Service segment is likely to witness 8.9% sequential growth but is expected to remain unchanged year over year. On the other hand, consensus estimate for Europe & Australia segment revenues of $454 million indicates a decrease of 7.7% from the prior quarter but 0.04% growth on a year-over-year basis. Again, the consensus estimate for Asia & Latin America segment revenues of $457 million are likely to increase 16.6% sequentially and 0.04% year over year.

Overall, for the second quarter, the Zacks Consensus Estimate for total revenues is pegged at $4.1 billion, reflecting a sequential growth of 7.8%. However, revenues of this Zacks Rank #4 (Sell) company are likely to decline 1.2% year-over-year.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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