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Can General Mills (GIS) Stock Continue Its 2019 Run After Q2 Earnings?

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General Mills (GIS - Free Report) is set to report its second quarter fiscal 2020 results before the market opens on Wednesday, December 18. The food giant’s shares have climbed over 34% in 2019 to outpace the broader food market’s 16% run.

General Mills stock currently hovers around 7% below its 52-week high of $56.40 per share, which it reached back in early September.

The company has made strides to better adapt its products to current consumer tastes and expanded its product portfolio.

First Quarter Yields Mixed Results

General Mills saw moderate revenue growth despite its flat organic sales in fiscal 2019 thanks to its acquisition of the premium pet food maker, Blue Buffalo. General Mills also bought other big companies like organic food maker Annie's and the Brazilian food company Yoki Alimentos.

In the company's largest business division, its North American retail segment, Q1 sales were flat at nearly $2.4 billion. General Mills' pet segment revenue improved by 7% to $368 million on volume growth, higher price realization, and favorable product mix.

Plus, General Mills' profitability has been a bright spot for investors in recent quarters and Q1 was no different. The firm’s Gross profit margin rose by nearly 2% last quarter. These gains resulted in a 11% bottom-line gain, which was higher than management had predicted, even though sales came in below expectations.

International Struggles & Outlook

While General Mills saw some success in the first quarter, the company still saw weakness in its international units and its specialty retail section. General Mills CEO, Jeff Harmening, stated in a press release that “We got off to a slower start in our other segments, and we're taking actions to drive top-line improvement for those segments ... starting in the second quarter."

Management said the stumbles were caused by economic issues in Brazil and weak flour demand in convenience stores and supermarket bakeries. Its international growth is something that will likely be closely monitored by Wall Street in the upcoming report as investors gauge the firm’s international runway.

Our Zacks consensus estimates call for sales to slip about 0.1% to $4.41 billion and for earnings to grow about 3.5% to $0.88 per share. The North American retail segment is projected to bring in $2.69 billion for a slight 0.4% gain.

Its international struggles are forecasted to continue in the second quarter as Europe and Australia sales are predicted to fall 4.2% to $434.7 million and Asia and Latin America sales are anticipated to decline 5.2% to $408.2 million.

Looking ahead to our fiscal 2020 figures, estimates predict a top-line rally of 2.2% to $17.2 billion and a bottom-line hike of 4.7% to $3.37 per share.

Bottom Line

General Mills has put together a nice 2019 so far, boosted by its Blue Buffalo acquisition. The company has also been able to successfully expand its margins, which has compelled Wall Street to drive the stock higher.

General Mills currently trades at about 15.3X its forward earnings, which is below the industry average of 18.8X forward earnings. General Mills also pays out a quarterly dividend with a hefty 3.8% yield, which can help ease investors’ risk of potentially continued decline on the international front.

General Mills sits at a Zacks Rank #3 (Hold) with a B grade for Growth in our Style Scores.

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