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General Mills Ups Fiscal 2020 View on Coronavirus-Led Demand

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The coronavirus outbreak has compelled people to stay indoors and step out just for purchasing essentials. As consumers are unable to gauge the severity and duration of this pandemic, they are stockpiling goods, especially staple items to avoid venturing out often. This, in turn, has been spiking up demand for products of General Mills (GIS - Free Report) , which raised its guidance for fiscal 2020 amid this hour of crisis.

In March, General Mills witnessed heavy demand for at-home food (nearly 85% of net sales), especially in North America Retail as well as Europe and Australia segments owing to coronavirus-led stockpiling. Although the magnitude of the rising demand had moderated in April, it was still high when compared with the pre-pandemic periods. Markedly, the company’s Nielsen-measured U.S. retail revenues rallied45% and 32% year-over year in March and April, respectively.

However, the company’s away-from-home food (nearly 15% of net sales) business is exposed to challenges. In this regard, softness in General Mills’ convenience stores and Foodservice segment as well as Asia and Latin America segments is a threat to its performance.

Nevertheless, General Mills is undertaking initiatives to maintain an undisrupted supply chain to support higher demand for at-home food segment. In this regard, management is focused on increasing capacity and product availability. Consequently, the company has seen market share gains in various regions for at-home food segment. We note that shares of this Zacks Rank #2 (Buy) company have gained 15.8% in the past three months against the industry’s decline of 9.9%.

Certainly, the stockpiling works well for consumer staple players like General Mills. Other food players like Post Holdings (POST - Free Report) , Kraft Heinz (KHC - Free Report) and TreeHouse Foods (THS - Free Report) are also benefitting from the coronavirus-induced stock hoarding.

Forecasts Revised Upwards

Coming back to General Mills, higher demand from customers in at-home food segment for March and April caused the company to pull up its forecasts for fourth-quarter fiscal 2020. Although, it expects this trend to moderate in the month of May, it is stilllikely to remain higher when compared with the pre-pandemic periods. General Mills expects organic sales to grow by double digits year over year in fiscal fourth quarter, thanks to strength in North America Retail and Pet segment. Moreover, adjusted operating profit at constant currency (cc) is anticipated to increase at a faster rate when compared with organic net sales during the quarter. In its third-quarter earnings call, management stated that it expects organic sales to grow in the fourth quarter, courtesy of an extra month of Pet segment results.

Further, management now anticipatesexceeding its previously provided fiscal 2020 guidance. General Mills had earlier anticipated organic sales to improve 1-2%. Further, adjusted operating profit (at cc) was expected to improve 4-6%. Moreover, the company had envisioned adjusted earnings per share growth (at cc) of 6-8%.

However, owing to strong U.S dollars, the combined impact of divestitures, currency translations and contributions from the 53rd week is likely to boost net sales by nearly 0.5 percentage point. Earlier, the company had envisioned a percentage point benefit from such factors for fiscal 2020.

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