A month has gone by since the last earnings report for General Mills (GIS). Shares have added about 4.5% in that time frame, underperforming 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 & Sales Top Estimates, Up Y/Y
General Mills released robust first-quarter fiscal 2021 results, which benefited from broad-based market share gains from rising demand due to increased at-home consumption amid the coronavirus pandemic. Given the current situation and uncertainty surrounding the pandemic, the company is not offering fiscal 2021 guidance.
The company’s adjusted earnings per share of $1.00 increased 27% year over year on a constant-currency (cc) basis. Moreover, the bottom line beat the Zacks Consensus Estimate of 87 cents. The uptick can be attributed to improved adjusted operating profit and higher after-tax earnings from joint ventures. This was somewhat countered by elevated adjusted effective tax rate and a rise in the number of shares outstanding.
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% on the back of higher pound volumes stemming from increased at-home demand amid the pandemic, favorable net price realization and mix.
Adjusted gross margin expanded 100 basis points (bps) to 36.2% owing to gains from fixed cost leverage in the supply-chain network. This was partly countered by coronavirus-related costs like health, safety and costs associated with additional capacity. Adjusted operating profit increased 22% at cc on the back of higher net sales and adjusted gross margin, partly negated by a rise in SG&A expenses. Adjusted operating margin expanded 210 bps to 19.1%.
North America Retail: Revenues in the segment came in at $2,707 million, up 14% year over year, courtesy of solid demand from higher at-home consumption amid the pandemic. Organic sales also rose 14%.
Convenience Stores & Foodservice: Revenues dropped 12% to $391.6 million 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.
Europe & Australia: The segment’s revenues rose 8% to $491 million, including favorable currency impacts of 3 points. Also, sales were backed by elevated demand due to increased at-home consumption amid the pandemic. Further, sales increased 7% year over year on an organic basis.
Asia & Latin America: Revenues rose 6% from the year-ago quarter’s figure to $382.7 million on higher volumes, partly countered by currency woes, adverse net price realization and mix.
Pet Segment: Revenues came in at $391.7 million, up 6% year over year on the back of solid volume growth, somewhat offset by adverse net price realization and mix.
Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $1,796.7 million, long-term debt of $10,832.9 million and total shareholders’ equity of $8,444.6 million. General Mills generated $584 million as net cash from operating activities in the first quarter. During the same time frame, the company made capital investments worth $117 million and paid out dividends of $303 million.
Concurrently, the company raised its quarterly dividend by 4%, taking it from 49 cents per share to 51 cents, which is payable on Nov 2, 2020, to shareholders of record as on Oct 9.
Other Developments & Outlook
Constant-currency sales from joint ventures of Cereal Partners Worldwide increased 9% in the quarter on elevated pandemic-led demand. In Haagen-Dazs Japan, sales declined 1% at cc from the prior-year quarter’s figure.
The company continues to expect pandemic-related trends to be the main factor driving its fiscal 2021 performance. To this end, it expects increased at-home consumption and declines in away-from-home food demand, together with other pandemic-led macroeconomic hurdles, to impact fiscal 2021 results. The company stated that at-home demand remained higher than pre-pandemic levels through the first quarter, though the trend has moderated sequentially owing to the gradual easing of restrictions and elevated restaurant reopening. Nonetheless, second-quarter at-home food demand is expected to remain high compared with pre-pandemic levels. This includes expectations of high-single-digit total retail sales growth in the North America Retail categories.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
Currently, General Mills has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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 broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, 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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