General Mills Inc.
) missed the Zacks Consensus Estimate for both revenues and sales
in the fourth-quarter of fiscal 2014 - for the third time in a row.
Shares declined more than 3% in
. The packaged consumer goods giant also missed the full-year
Fourth-quarter adjusted earnings per share of 67 cents missed
the Zacks Consensus Estimate of 71 cents by 5.6%. Weak sales and
gross margins took a toll on earnings.
Earnings grew 24% year over year helped only by a lower tax rate
and reduced share count.
Adjusted earnings exclude gain on divesture and charges
associated with the Venezuelan Bolivar devaluation.
Increased promotional spending in developed markets that
generated less volume than planned; slowdown in food industry
trends; higher-than-expected input cost inflation; and currency
headwinds hurt results in the quarter.
Revenues and Margins
Total revenue of the global consumer food company declined 3%
year over year to $4.28 billion and missed the Zacks Consensus
Estimate of $4.45 billion by 3.8% as U.S sales continued to
Price/mix added 1% to revenues, same as in the first three
quarters of the year. Volumes declined 2%, which compared
unfavorably with a 1% dip last quarter. Foreign exchange dragged
revenues by 2%.
Adjusted gross margin declined 10 basis points (bps) to 35.0%
due to lower volumes and higher input costs, mainly dairy products.
Adjusted operating margin improved 160 bps to 15.7% in the quarter
as weak gross margins were offset by lower overhead costs.
The effective tax rate was 29.7% in the fourth quarter of 2014
much lower than 34.7% last year.
: Revenues from the U.S. Retail segment declined 1.4% year over
year to $2.44 billion in the quarter due to 2% decline in
price/mix. Volumes grew 1% in the quarter.
Segment operating profit declined 3.1% to $501.4 million due to
higher dairy costs and price/mix headwinds.
Revenues in the International segment declined 6.8% year over year
to $1.34 billion due to currency headwinds and difficult year-ago
comparisons. The year-ago comparable quarter included an extra
month of results for operations in Europe and Australia.
While price/mix added 4% to net sales growth, volume declined
6%. Foreign exchange had an unfavorable impact of 5% on net
Excluding the Venezuelan currency devaluation, segment operating
profit grew 3.8% to $145.8 million due to price/mix gains.
Convenience Stores and Foodservice:
On a year-over-year basis, the Convenience Stores and Foodservice
segment's quarterly revenues improved 1.1% to $507.5 million due to
price/mix gains. Volumes were flat while price/mix increased 1% due
to favorable business mix. Segment operating profit rose 14.1% year
over year to $85.9 million due to favorable business mix and lower
Fiscal 2014 Results Miss Expectations
The company reported adjusted earnings per share of $2.82 in
fiscal 2014 missing the company's guided range of $2.87-$2.90 as
well as the Zacks Consensus Estimate of $2.87. However, earnings
increased 4.0% year over year.
The company reported 1% increase in net sales to $17.9 billion
in fiscal 2014, falling short of management expectations it being
higher than $18 billion. Also, revenues missed the Zacks Consensus
Estimate of $18.11 by almost 2%.
Fiscal 2015 Outlook
In view of the highly disappointing performance in fiscal 2014,
the company laid out aggressive plans for the upcoming fiscal year
that include strong innovation and marketing and further cost
Management aims to accelerate top-line growth in fiscal 2015
through strong innovation, renovation of existing brands and
aggressive consumer oriented marketing initiatives. Fiscal 2015 net
sales are expected to increase at a mid single-digit rate in
constant currency (including impact of the 53
Moreover, the company expects to generate at least $400 million
of supply chain savings under its Holistic Margin Management (HMM)
program. In addition, the company has many "new cost-reduction
initiatives" in place including streamlining the North American
manufacturing and distribution operations and possible reduction in
capacity and overhead costs. These initiatives are expected to
result in $40 million pre-tax savings in fiscal 2015.
These savings are expected to lead to a mid single-digit growth
in adjusted operating profit (constant currency). Adjusted earnings
per share (constant currency) are expected to grow at a high
single-digit rate. Currency headwinds are expected to hurt
earnings per share by 3% in fiscal 2015.
However, commodity cost inflation is expected to be 3% in fiscal
2015 as commodity costs have been rising sharply in the past few
months. In calendar year 2014/2015, the overall cost environment
for food commodities is expected to be under pressure due to
domestic and worldwide agricultural supply and demand imbalance and
other macroeconomic factors.
Other Stocks to Consider
General Mills carries a Zacks Rank #3 (Hold). Other
better-ranked stocks in the food industry include
Hain Celestial Group Inc.
Treehouse Foods, Inc.
Inventure Foods, Inc.
). All these companies carry a Zacks Rank #2 (Buy).
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