On Jul 19, we reiterated our Neutral recommendation on General
Mills. While the consumer food giant reported mixed
fourth-quarter fiscal 2013 results, its outlook for fiscal 2014
Why the Neutral Recommendation?
Overall, we are encouraged by the company's strong market
share position in some leading food categories, its growing
international presence, strategic acquisitions, focus on
innovation and brand support and cost saving initiatives.
On Jun 26, 2013, General Mills announced mixed fiscal
fourth-quarter results. Adjusted earnings declined 11.7% year on
year to 53 cents per share and lagged the Zacks Consensus
Estimate of 54 cents per share by 1.9%. The year-over-year
decline in earnings was due to higher input and advertising
costs, and increased spending to support in-store merchandising
activity and a higher tax rate.
Though the company delivered decent revenue growth, margins
were slightly weak in the quarter. Revenues grew 8.5% benefitting
mostly from the recent acquisitions. Operating margins, however,
declined due to higher advertising and pension costs. Estimates
mostly moved downward following the mixed fourth-quarter
Despite the fourth-quarter miss, management gave quite an
optimistic outlook for fiscal 2014. Growth in fiscal 2014 is
expected to be driven by strong innovation, increased brand
support, modest cost inflation, increased contribution from the
recent Yoki and Yoplait acquisitions and aggressive cost
However, General Mills' two most important categories -
cereals and yogurt - are showing sluggish results. The U.S.
yogurt business remains challenging as increased sales prices in
response to dairy cost inflation is reducing the competitiveness
of its products. In fiscal 2013, yogurt sales declined 5%,
missing management's expectation to witness growth. The core
cereals business also declined 2% in fiscal 2013 due to weak
category growth. Though management is taking steps to
re-invigorate these priority businesses in fiscal 2014 through
innovation and increased promotional support for new products, we
prefer to wait until we see a substantial rebound.
Other Stocks to Consider
General Mills carries a Zacks Rank #3 (Hold). Other stocks in
the food industry that are currently performing well and have a
bright outlook include
Flower Foods Inc.
Campbell Soup Company
B&G Foods Inc.
). While BGS carries a Zacks Rank #1 (Strong Buy), CPB and FLO
carry a Zacks Rank #2 (Buy).
B&G FOODS CL-A (BGS): Free Stock Analysis
CAMPBELL SOUP (CPB): Free Stock Analysis
FLOWERS FOODS (FLO): Free Stock Analysis
GENL MILLS (GIS): Free Stock Analysis Report
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