General Mills, Inc. (GIS - Free Report) is slated to release first-quarter fiscal 2020 results on Sep 18. This branded consumer foods provider boasts a splendid earnings surprise record. Markedly, the company’s earnings outperformed the Zacks Consensus Estimate by average of 11.4% over the trailing four quarters. This can be attributable to General Mills’ focus on key global strategies, gains from Blue Buffalo buyout and cost-saving efforts, among other factors.
Let’s see what’s in store for the company this time around.
What to Expect?
The Zacks Consensus Estimate for earnings in the first quarter has been stable over the past 30 days at 77 cents, which suggests a jump of 8.5% from the year-ago period’s reported figure. The consensus mark for revenues is $4,092 million, indicating a slight drop from $4,094 million reported in the year-ago quarter.
Factors to Aid Q1 Results
General Mills is expected to benefit from its key global strategies in the quarter under review. To this end, the company is focused on innovation, efficient customer marketing and strong in-store execution to sharpen its competitive edge. Additionally, it is focusing on improving the U.S. Yogurt business, expanding presence in the emerging nations, stabilizing distribution channels and enhancing price mix.
The company is also committed toward driving growth across four differential global platforms, which include Haagen-Dazs ice cream, snack bars, Old El Paso Mexican food, and General Mills’ natural and organic food brands. Additionally, it is working toward reshaping its portfolio via prudent buyouts and divestitures. Such efforts are expected to be reflected in the upcoming results.
Talking of buyouts, General Mills has been gaining from its Blue Buffalo buyout, which was concluded in fiscal 2018. Management earlier stated that it envisions sales from Blue Buffalo and segment operating profit to grow at a significant pace in fiscal 2020. This along with General Mills’ focus on improving e-commerce network bodes well for the quarter to be reported.
General Mills is witnessing weakness in the U.S. Snacks unit. Consequently, the company’s North America retail organic sales declined 2% during the fourth quarter of fiscal 2019. However, the company is undertaking efforts to boost performance in the snacks category. Further, sales in the Europe & Australia segment declined almost 10.2% due to unfavorable year-on-year comparison, a tough operating environment in France and weak trends in ice cream. Persistence of such trends poses concerns for the company.
This apart, General Mills has been battling input cost inflation for a while now. During the third and fourth quarters of fiscal 2019, the company’s adjusted gross margin was negatively impacted by input cost inflation. Inflation during the fourth quarter was primarily driven by higher prices for commodities. Management earlier stated that it expects cost inflation to continue in fiscal 2020, due to increased logistic costs, and higher costs of grains, packaging and other commodities. In fact, input cost inflation is a threat to many other food companies like Campbell Soup (CPB - Free Report) , Conagra Brands (CAG - Free Report) and TreeHouse Foods (THS - Free Report) , among others.
Saving Efforts Likely to Benefit Results
Nevertheless, General Mills’ cost-saving efforts are likely to offset these hurdles. The company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization and continued expansion of zero-based budgeting across the business. Also, the company is on track with its Holistic Margin Management (HMM) program, which is expected to continue generating greater savings.
These efforts along with the aforementioned endeavors are likely to have driven General Mills’ bottom line in the quarter under review.
What the Zacks Model Unveils
Our proven model shows a beat for General Mills this earnings season. For this to happen, a 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 has a Zacks Rank #3 (Hold), which along with an Earnings ESP of +0.37% makes us reasonably confident of a positive earnings surprise.
You can see the complete list of today’s Zacks #1 Rank stocks here.
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