Why Is General Mills (GIS) Up 3.7% Since Last Earnings Report?
A month has gone by since the last earnings report for General Mills (GIS). Shares have added about 3.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is General Mills due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
General Mills' Q1 Earnings Top Estimates, Sales Up Y/Y
General Millsposted decent first-quarter fiscal 2022 results, with the top and the bottom line surpassing their respective Zacks Consensus Estimate. Net sales increased year over year. However, earnings declined from the year-ago quarter’s reported figure. Management expects at-home food demand to stay above pre-pandemic levels, as people are spending more time working from home. Higher pet population as well as more humanization and premiumization of pet food amid the pandemic are a tailwind for the company’s pet food category. General Mills remains on track with its Accelerate strategy to boost growth.
The company’s adjusted EPS of 99 cents fell 2% year over year on a cc basis. The year-over-year downside can be accountable to lower adjusted operating profit. Nonetheless, the bottom line surpassed the Zacks Consensus Estimate of 88 cents.
Net sales of $4,539.9 million increased 4% year over year, which included a 1-point positive impact from currency movements. Organic net sales rose 2% on the back of favorable organic net price realization and mix as well as improved organic pound volume. The top line surpassed the Zacks Consensus Estimate of $4,352.3 million.
Adjusted gross margin contracted 150 bps to 34.7%, due to input cost inflation, higher other supply chain costs and fixed cost deleverage across the supply chain. These were somewhat offset by cost savings from HMM as well as positive net price realization and mix. Adjusted operating profit fell 2% at cc due to reduced adjusted gross profit dollars. These were somewhat offset by lower administrative costs. Adjusted operating profit margin contracted 110 bps to 18%.
North America Retail: Revenues in the segment came in at $2,638.9 million, down 3% year over year. The downside was due to reduced at-home food demand as well as unfavorable year-over-year comparison, wherein net sales benefited from retailer’s inventory rebuild at the onset of COVID-19. Organic net sales declined 3% in the segment.
Convenience Stores & Foodservice: Revenues increase 23% to $482.4 million, driven by sequential rebound in key away-from-home food channels like schools, restaurants, lodging, and convenience stores. Organic sales rallied 23%.
Europe & Australia: The segment’s revenues rose 5% to $517.5 million, owing to favorable foreign currency translation. Sales were flat on an organic basis.
Asia & Latin America: Revenues rose 8% from the year-ago quarter’s figure to $413.1 million on the back of positive net price realization and mix as well as favorable foreign currency impact. These were somewhat offset by lower volumes. Organic sales increased 6%.
Pet Segment: Revenues came in at $488 million, up 25% year over year on the back of solid volume growth as well as positive net price realization and mix. Net sales growth included 5 points of gains from the Tyson Foods’ pet treats business buyout (concluded on Jul 6, 2021). Organic sales increased 20%.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $710.6 million, long-term debt of $10,326.9 million and total shareholders’ equity of $9,692.3 million. General Mills generated $370 million as net cash from operating activities during the quarter. Capital investments amounted to $104 million. The company paid out dividends worth $312 Million and bought roughly 2.5 million shares for $150 million.
Other Developments & Outlook
Constant-currency sales from the joint ventures of Cereal Partners Worldwide dropped 5% in the quarter. In Haagen-Dazs Japan, sales rose 14% at cc from the prior-year quarter’s figure.
Management reiterated its fiscal 2022 guidance. General Mills anticipates organic sales growth toward the higher end of the previous guidance of a 1-3% decline. The updated view reflects the better-than-expected first-quarter sales performance. Moving on, adjusted operating profit growth (at cc) is expected toward the higher end of the earlier guidance of a 2-4% decline. Adjusted EPS growth at cc is envisioned at the greater end of the previous flat to down 2% view. The upward revision in these guidance ranges can be attributed to the impact of the recent pet treats business buyout from Tyson Foods. The buyout is expected to contribute nearly 2 cents to the bottom line in fiscal 2022. Free cash flow in fiscal 2022 is still likely to be roughly 95% of the adjusted after-tax earnings.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates.
Currently, General Mills has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise General Mills has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
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