On Jan 29, we maintained our Neutral recommendation on
General Mills, Inc
) despite poor second-quarter fiscal 2014 results, as we have
faith in the company's long-term fundamentals.
Why a Neutral Recommendation?
On Dec 18, General Mills reported dismal second-quarter fiscal
2014 results missing the Zacks Consensus Estimate for both
revenues and earnings due to lower sales in the U.S. retail
business and high input costs during the quarter. Earnings of 83
cents per share declined 3.5% but revenues were flat with the
Though management maintained its fiscal 2014 earnings outlook,
it warned that higher-than-expected currency headwinds could
result in earnings coming in at the lower end of the guided
Estimates were largely revised downwards in response to the
poor results. The Zacks Consensus Estimate for 2014 declined 1%
and that for 2015 declined 1.6% over the last 60 days.
Despite the near-term weakness, we have faith in General
Mills' long-term fundamentals. We are encouraged by the company's
strong market share position in some leading food categories,
growing international presence, strategic acquisitions and
generous cash returns.
However, its two most important categories - cereals and
yogurt - have been sluggish. Though the company is making an
effort to re-invigorate growth in these categories, we prefer to
wait for a substantial improvement.
Moreover, though earnings are expected to accelerate in the
second half due to strong new product launches, lower input cost
inflation and easing year-ago comparisons, we remain
Other Stocks to Consider
General Mills carries a Zacks Rank #4 (Sell) due to weak
second-quarter results. Other better-ranked food stocks include
J&J Snack Foods Corp.
Post Holdings, Inc.
Green Mountain Coffee Roasters, Inc.
). While Green Mountain and Post Holdings carry a Zacks Rank #1
(Strong Buy), J&J Snack Foods carries a Zacks Rank #2
GENL MILLS (GIS): Free Stock Analysis Report
GREEN MTN COFFE (GMCR): Free Stock Analysis
J&J SNACK FOODS (JJSF): Free Stock Analysis
POST HOLDINGS (POST): Free Stock Analysis
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