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General Mills' (GIS) Cost-Saving Plans to Drive Q4 Earnings

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General Mills, Inc. (GIS - Free Report) is slated to release fourth-quarter fiscal 2018 results on Jun 27. This global manufacturer and marketer of branded consumer foods has a mixed earnings surprise record in the trailing four quarters. Let’s see what’s in store for General Mills this time around.

General Mills, Inc. Price and EPS Surprise

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

Factors Driving General Mills

General Mills is likely to benefit from its four key global strategies for fiscal 2018, which are aimed at enhancing the company’s top line. Well, General Mills’ North American Retail segment has been facing sales declines at its U.S. Cereal and U.S. Yogurt businesses, which lingered in the third quarter of fiscal 2018. General Mills, like many other U.S. food producers, has been struggling due to the shift in consumer preference toward natural and organic food. Nonetheless, as part of its key strategies, General Mills is increasing focus on its cereal business and is also restructuring its U.S. Yogurt portfolio through innovations.

Analysts polled by Zacks expect sales at the North American Retail segment to increase 1.6% to $2,430 million in the third quarter. Apart from these, the company should also gain from its solid focus on strengthening e-commerce network. Notably, the company expects global e-commerce business to grow in double-digits in near future, the United States. These factors along with General Mills’ consumer-focused innovations and marketing strategies should fuel sales in the quarter to be reported.

Cost Savings Versus Cost Inflation

General Mills’ margins remained soft in the third quarter, as the company is encountering escalated supply-chain expenses, owing to a rise in freight, commodities and operational costs. These headwinds are expected to linger, which is clear from management’s raised input cost inflation outlook for fiscal 2018. The company now expects input cost inflation of 4%, a point greater than the prior guidance. This also led to a lowered operating profit outlook for fiscal 2018, which gives out unfavorable signals for the fourth quarter.

Nevertheless, the company remains on track with its cost-savings initiatives like increased efficiency, reduced complexity through SKU optimization, supply-chain optimization and expansion of zero-based budgeting across the business. General Mills earlier announced plans to deliver approximately $390 million in supply-chain productivity savings in fiscal 2018, through its ongoing Holistic Margin Management (HMM) efforts. These along with incremental savings from other restructuring and cost-reduction initiatives should help offset the aforementioned hurdles in the quarter under review.

Q4 Estimates in Numbers

Analysts polled by Zacks expect total revenues of $3,918 million, up 2.9% from the year-ago period. The current consensus mark for earnings is pegged at 75 cents, which shows a 2.7% jump from the year-ago period. The estimate has remained stable in the past 30 days.

What the Zacks Model Unveils

However, our proven model doesn’t show that General Mills is likely to beat bottom-line estimates this quarter. For this to happen, the stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

General Mills fails to meet both, as it has an Earnings ESP of -3.23% and a Zacks Rank #4 (Sell). Hence, we caution against sell-rated stocks going into earnings announcement.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post earnings beat:

Helen of Troy Limited (HELE - Free Report) has an Earnings ESP of +3.57% and carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Conagra Brands Inc. (CAG - Free Report) , a Zacks #3 Ranked stock, has an Earnings ESP of +0.39%.

Pepsico, Inc. (PEP - Free Report) , a Zacks #3 Ranked company, has an Earnings ESP of +0.15%.

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