General Mills Inc.
) began fiscal 2014 on a strong note with the first adjusted
earnings increasing 6% year on year to 70 cents per share. The
quarterly earnings were in line with the Zacks Consensus
Estimate. Earnings growth was driven by decent revenue
performance which made up for the soft margins in the
Moreover, the company maintained the previously-provided
impressive outlook for fiscal 2014.
Revenues and Margins
Total revenue of the global consumer food company increased
8.0% year over year to $4.37 billion and beat the Zacks Consensus
Estimate of $4.314 billion. Revenues benefited from the newly
acquired international businesses like Yoki Alimentos in Brazil
and Yoplait Canada which added 5% to top-line growth. Moreover,
increased contribution from new products like Yoplait Greek
yogurt and Pillsbury gluten-free dough also helped improve
Price/mix added 1% to revenues, better than a 1% decline in
the sequentially preceding quarter. Volume contributed 8% to
revenues. Most of the volume growth was driven by acquisitions.
However, foreign exchange dragged revenues by 1%.
Adjusted gross margin declined 130 basis points (bps) to
36.9%, mainly due to higher input costs and changes in business
mix. Adjusted operating margin declined 60 bps to 16.9% in the
quarter due to a 7% increase in advertising costs. Encouragingly,
however, both gross and operating margins improved
: Revenues from the U.S. Retail segment improved 3.6% year over
year to $2.58 billion in the quarter driven by growth in both
volume and price/mix. Volumes grew 1% year over year while
price/mix grew 3%.
Sales growth in the Snacks, Big G cereal, Baking Products and
Small Planet Foods divisions offset the decline in the Meals
segment. The Yoplait yogurt and Frozen Foods businesses delivered
Encouragingly, the core product categories, cereals and yogurt
showed some improvement in the first quarter after
underperforming in fiscal 21013. The core cereals business did
not do well in fiscal 2013 and sales declined 2% in the year due
to weak category growth. In fact, the company lost market share
in cereals in 2013.
Also, yogurt sales declined 5% in the year, missing
management's expectation of growth. Management is taking steps to
re-invigorate these priority businesses through innovation,
increased marketing support and expanded distribution for new
products in fiscal 2014.
Despite higher advertising expenses, segment operating profit
increased 6.4% to $611.9 million due to pricing gains.
Revenues in the International segment grew 21.7% year over year
to $1.32 billion benefiting largely from acquisitions. Volume
added 30%, mostly from the acquisitions of Yoki and Yoplait
International, while price/mix took away 5% from net sales
growth. Foreign exchange had an unfavorable 3% impact on net
On a constant currency basis, international revenues grew 25%
in the quarter. Constant currency revenues grew 196% in Latin
America due to the addition of Yoki. Constant currency revenues
grew 21% in Canada gaining from the addition of Yoplait Canada.
Constant currency revenues declined 3% in Europe but grew 13% in
Segment operating profit was flat at $125.6 million as
top-line growth was offset by higher input costs, currency
headwinds and increased advertising/marketing expenses.
Convenience Stores and Foodservice:
On a year-over-year basis, the Convenience Stores and Foodservice
segment's quarterly revenues declined 0.8% to $467.8 million due
to weak volumes. Volume declined 3% in the quarter. Segment
operating profit increased 9.5% year over year to $74.1
Fiscal 2014 Outlook Retained
The company maintained its previously provided outlook for
fiscal 2014. In fiscal 2014, General Mills expects stronger
earnings growth and increased cash returns to shareholders.
Growth in fiscal 2014 is expected to be in line with its
Earnings per share are expected to grow at a high single-digit
rate in the range of $2.87 to $2.90. Earnings growth in fiscal
2014 is expected to be driven by strong innovation, increased
brand support, modest cost inflation, increased contribution from
the Yoki and Yoplait acquisitions and aggressive cost
The company continues to expect net sales to grow at a low
single-digit rate and exceed $18 billion in fiscal 2014 on the
back of product innovation and contribution from new
Adjusted gross margin is projected to improve modestly from
the 2013 levels. Segment operating profit is expected to grow in
mid-single digits. The company expects margins to expand in
fiscal 2014 on the back of cost savings.
Other Stocks to Consider
General Mills carries a Zacks Rank #4 (Sell). Other food
companies which are currently doing well include
Pinnacle Foods Inc.
Green Mountain Coffee Roasters, Inc
Dole Food Company Inc.
). While PF and GMCR carry a Zacks Rank #1 (Strong Buy), DOLE
carries a Zacks Rank #2 (Buy).
DOLE FOOD CO (DOLE): Free Stock Analysis
GENL MILLS (GIS): Free Stock Analysis Report
GREEN MTN COFFE (GMCR): Free Stock Analysis
PINNACLE FOODS (PF): Free Stock Analysis
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