For the second quarter in a row,
General Mills Inc.
) missed the Zacks Consensus Estimate for both revenues and sales
in the third-quarter of fiscal 2014.
Third-quarter adjusted earnings per share declined 6.1% year
on year to 62 cents per share. The quarterly earnings also missed
the Zacks Consensus Estimate by a penny. Both revenues and
margins were weak in the quarter. Low volumes globally due to
severe weather conditions, slowdown in food industry trends,
higher consumer marketing spending and currency headwinds hurt
results in the quarter.
In fact, a shortened holiday season and severe winter have
been affecting sales performance across the U.S. retail food
industry for the past three months.
Revenues and Margins
Total revenue of the global consumer food company declined 1%
year over year to $4.38 billion and missed the Zacks Consensus
Estimate of $4.431 billion. Weak volumes in the U.S. retail and
foodservice business overshadowed decent international sales
Price/mix added 1% to revenues, same as in the first two
quarters of the year. Volumes declined 1%, which compared
unfavorably with the flat growth in the first quarter. Foreign
exchange dragged revenues by 1%.
Adjusted gross margin declined 80 basis points (bps) to 34.1%
due to lower volumes and higher input costs, mainly dairy
products. Despite a 3% decrease in advertising costs, adjusted
operating margin declined 70 bps to 14.8% in the quarter due to
weak gross margins and a 5% increase in consumer marketing
: Revenues from the U.S. Retail segment declined 1.7% year over
year to $2.62 billion in the quarter due to 1% decline in both
volume and price/mix.
Despite lower advertising expenses, segment operating profit
declined 10.5% to $516.6 million due to higher dairy costs and
increased marketing and merchandising expenses to support the
U.S. yogurt business.
General Mills' U.S. yogurt business has been sluggish for
several quarters as increased sales prices in response to dairy
cost inflation reduced the competitiveness of its products. In
fiscal 2013, yogurt sales declined 5%, missing management's
expectation to witness growth. The company is trying to
reinvigorate the category through the launch of new yogurt items,
increased marketing support and expanded distribution of Yoplait
Greek blended yogurt.
Revenues in the International segment grew 2.0% year over year to
$1.32 billion due to price/mix gains. While price/mix added 8% to
net sales growth, volume declined 1%. Foreign exchange had an
unfavorable impact of 5% on net sales.
On a constant currency basis, international revenues grew 7%
in the quarter. Constant currency revenues grew 17% in Latin
America led by Brazil, 14% in Asia Pacific driven by China and 2%
each in Canada and Europe.
Excluding Venezuelan currency devaluation, segment operating
profit grew 0.5% to $110.5 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 declined 7.1% to $436.5 million due
to lower volumes. Volumes declined 3% due to severe weather
conditions while price/mix went down 4%. Segment operating profit
declined 17.2% year over year to $62.4 million due to weak top
Fiscal 2014 Outlook Retained
Fiscal 2014 earnings are still expected to grow at a high
single-digit rate in the range of $2.87 to $2.90. In the fourth
quarter, management expects lower input costs and taxes coupled
with decreased share count to lead to double-digit growth in
adjusted earnings per share.
Other Stocks to Consider
General Mills carries a Zacks Rank #3 (Hold). Other
better-ranked stocks in the food industry include
J&J Snack Foods Corp.
Diamond Foods, Inc.
Inventure Foods, Inc.
). All the three companies carry a Zacks Rank #2 (Buy).
DIAMOND FOODS (DMND): Free Stock Analysis
GENL MILLS (GIS): Free Stock Analysis Report
J&J SNACK FOODS (JJSF): Free Stock Analysis
INVENTURE FOODS (SNAK): Free Stock Analysis
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