General Mills Inc.
) reported dismal second-quarter fiscal 2014 results missing the
Zacks Consensus Estimate for both revenues and sales due to lower
sales in the U.S retail business and high input costs in the
quarter. 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
Second-quarter fiscal 2013 adjusted earnings declined 3.5%
year on year to 83 cents per share. The quarterly earnings also
missed the Zacks Consensus Estimate of 88 cents. Both revenues
and margins were weak in the quarter as the company faced
difficult year-ago comparisons and the highest quarterly input
cost inflation of the fiscal year in the second quarter.
Adjusted earnings exclude the impact of mark-to-market gains
and restructuring costs.
Revenues and Margins
Total revenue of the global consumer food company was flat
year over year at $4.88 billion but missed the Zacks Consensus
Estimate of $4.931 billion. The top line was hurt by difficult
year ago comparisons, slowdown in food/beverage industry sales
across U.S and other key developed markets, and a shift in the
U.S Thanksgiving holiday this year.
Price/mix added 1% to revenues, same as in the first quarter.
Volumes were almost flat, much lower than 8% in the first
quarter. Foreign exchange dragged revenues by 1%.
Adjusted gross margin declined 100 basis points (bps) to 35.7%
mainly due to higher input costs. Despite a 3% decrease in
advertising costs, adjusted operating margin declined 70 bps to
17.4% in the quarter due to weak volumes and gross margins.
: Revenues from the U.S. Retail segment declined 0.7% year over
year to $2.97 billion in the quarter due to volume shortfall.
Volumes declined 2% year over year while price/mix grew 1%.
Sales growth in the Snacks, Big G cereal and Small Planet
Foods divisions were offset by declines in the Meals, Baking
Foods, Yoplait yogurt and Frozen Foods businesses.
Despite lower advertising expenses, segment operating profit
declined 6% to $682 million due to lower revenues.
Revenues in the International segment grew 1.6% year over year to
$1.40 billion due to price/mix gains as well as volume growth.
Volume added 2%, while price/mix added 3% to net sales growth.
Foreign exchange had an unfavorable 3% impact on net sales.
On a constant currency basis, international revenues grew 5%
in the quarter. Constant currency revenues grew 22% in Latin
America led by Brazil, 5% in Asia Pacific driven by China and 4%
in Canada. Constant currency revenues declined 2% in Europe due
to macroeconomic uncertainty in the country.
Segment operating profit grew 10% to $153 million due to
Convenience Stores and Foodservice:
On a year-over-year basis, the Convenience Stores and Foodservice
segment's quarterly revenues declined 1.7% to $507.0 million due
to price/mix decline. Volumes were flat in the quarter. Segment
operating profit declined 12% year over year to $85.0
Fiscal 2014 Outlook Retained
Management maintained its earnings per share guidance for
fiscal 2014. Earnings are still expected to grow at a high
single-digit rate in the range of $2.87 to $2.90. However,
management warned that currency headwinds will be greater than
previously anticipated and any possible devaluation in the
Venezuelan currency could result in earnings meeting just the
bottom end of the guided range.
Management expects earnings to accelerate in the second half
due to strong new product launches, lower input cost inflation
and easing year-ago comparisons.
Other Stocks to Consider
General Mills carries a Zacks Rank #4 (Sell). Other
better-ranked stocks in the food industry include
The Hain Celestial Group, Inc.
Green Mountain Coffee Roasters, Inc.
United Natural Foods, Inc.
). All the three companies carry a Zacks Rank #2 (Buy).
GENL MILLS (GIS): Free Stock Analysis Report
GREEN MTN COFFE (GMCR): Free Stock Analysis
HAIN CELESTIAL (HAIN): Free Stock Analysis
UTD NATURAL FDS (UNFI): Free Stock Analysis
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