General Mills, Inc. (GIS - Free Report) looks well poised to maintain its vigor in the New Year, courtesy of key global strategies and acquisition prospects. Moreover, the company has been investing in consumer-centric innovation and marketing to boost the top line. Also, management is on track with its cost-saving plans.
Buoyed by these factors, this Zacks Rank #2 (Buy) stock has jumped 35.4% in a year compared with the industry’s growth of 20.2%.
Notably, General Mills’ growth strategies helped the company deliver a strong earnings trend and gain investors’ confidence despite the weak U.S. Snacks business and soft sales in Europe & Australia. Notably, this trend continued in second-quarter fiscal 2020, wherein the bottom line rose year over year and surpassed the Zacks Consensus Estimate for the seventh straight time. Also, management’s guidance for fiscal 2020 was impressive.
In its second-quarter earnings call, management highlighted that it is encouraged about building sales momentum in the second half of fiscal 2020 on the back of increased brand investments. For the entire fiscal, the company expects organic sales to improve 1-2% year over year. Moreover, net sales are expected to rise 1 percentage point, considering the impact from divestitures, currency translations and contributions from the 53rd week of fiscal 2020. Further, General Mills envisions adjusted earnings per share (EPS) growth of 3-5% (at cc). In fact, management raised its free cash flow conversion guidance to a minimum 105% of adjusted after-tax earnings from the previous guidance of at least 95% conversion.
Clearly, an encouraging performance and a positive outlook have heightened analysts’ optimism in the stock. Evidently, the Zacks Consensus Estimate for fiscal 2020 earnings moved up by a couple of cents to $3.39 in the past 30 days.
Factors Favoring General Mills
General Mills is working toward reshaping its portfolio via prudent buyouts and divestitures. Markedly, it acquired Blue Buffalo Pet Products in fiscal 2018, which now forms the company’s Pet segment and significantly contributes to the top line. In fact, during the second quarter, the company witnessed sales growth only in the Pet segment. Management anticipates sales in the segment to grow 8-10%, on a like-for-like basis, in fiscal 2020. Also, it is encouraged about the long-term growth prospects of this segment.
Further, General Mills is on track with the Consumer First strategy and key global growth strategies to drive the top line. To this end, the company focuses on innovation, efficient customer marketing and strong in-store execution to sharpen its competitive edge. Management is also focusing on the Compete, Accelerate and Reshape growth framework. Additionally, it is concentrating on improving the U.S. Yogurt business, expanding presence in emerging nations, stabilizing distribution channels and enhancing price mix.
Apart from this, the company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply-chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion. Also, it is on track with its Holistic Margin Management (HMM) program, which is expected to continue generating increased savings.
We believe that these growth drivers are likely to help General Mills continue being in investors’ good books.
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