General Mills (GIS) Poised on Elevated Pandemic-Led Demand
General Mills, Inc. GIS appears to be in a good shape, courtesy of its focus on core strategies as well as gains from pandemic-led demand. Markedly, several companies, including Conagra Brands CAG, TreeHouse Foods THS and B&G Foods BGS, to name a few, have been gaining on increased demand stemming from elevated at-home consumption.
Meanwhile, General Mills’ first-quarter fiscal 2021 results benefited from broad-based market share gains from rising demand due to increased at-home consumption. Adjusted earnings increased 27% year over year on a constant-currency (cc) basis. Further, net sales of $4,364 million advanced 9% year over year and surpassed the Zacks Consensus Estimate of $4,176 million. Also, organic sales increased 10% year over year on the back of higher pound volumes stemming from increased at-home demand, favorable net price realization and mix.
Moreover, second-quarter at-home food demand is expected to remain high compared with the pre-pandemic levels, though declines in away-from-home food demand are likely to weigh on the Convenience Stores & Foodservice segment. Incidentally, sales in the Convenience Stores & Foodservice segment declined 12% to $391.6 million in the first quarter due to a significant reduction in demand for away-from-home food amid the coronavirus outbreak. Though results improved from the previous quarter, traffic remained below the year-ago period levels in core channels, such as restaurants, convenience stores and lodging.
Management expects declines in away-from-home food demand, together with other pandemic-led macroeconomic hurdles, to negatively impact fiscal 2021 results. Apart from this, the company is battling escalated cost challenges. SG&A expenses increased 6% in the first quarter of fiscal 2021. Further, it saw input cost inflation of 3% and incurred additional costs to cater to the elevated demand, including external manufacturing. Also, the company saw high coronavirus-related costs for health and safety, and expenses associated with additional capacity.
Nonetheless, the company’s focus on saving initiatives and other strategic endeavors are likely to aid. Markedly, General Mills is on track with its three core priorities for fiscal 2021, which include competing efficiently, boosting efficiency to fuel investments and reducing leverage. With regard to the first priority, the company expects fiscal 2021 sales growth to be backed by elevated demand and solid execution. However, sales comparisons are likely to reflect adverse impacts from an additional week and an extra month of Pet segment results in fiscal 2020.
As part of boosting efficiency, management expects adjusted operating profit margin in fiscal 2021 to be roughly in-line with that in fiscal 2020. It expects full-year margins to benefit from Holistic Margin Management savings as well as volume leverage. Finally, management expects to reduce its net-debt-to-adjusted-EBITDA ratio to less than 3.2x by the end of fiscal 2021.
We believe that General Mills’ strategies and solid demand are likely to help it counter the hurdles and keep it well poised on growth trajectory.
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Conagra Brands Inc. (CAG): Free Stock Analysis Report
General Mills, Inc. (GIS): Free Stock Analysis Report
TreeHouse Foods, Inc. (THS): Free Stock Analysis Report
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