It’s been about a month since General Mills’ last earnings report (GIS – free report). The stock fell about 8.1% over that time frame, below the S&P 500.
Will the recent negative trend continue until the next earnings release, or is General Mills heading for a breakout period? To better understand Catalyst, let’s take a quick look at the latest earnings report.
General Mills Raises Second Quarter Earnings and Sales Guidance
General Mills reported solid second quarter 2023 adjusted earnings of $1.10 per share. This beat the Zacks consensus estimate of $1.06 and our estimate of $1.04. Bottom line earnings increased 12% year over year on a constant currency (cc) basis. The increase can be attributed primarily to higher adjusted operating income, a lower adjusted effective tax rate and lower net shares outstanding, partially due to lower benefit plan non-service income. has been canceled.
The company reported net sales of $5.2207 billion, beating Zacks Consensus’ estimate of $5.15 billion and our estimate of $5.167 billion. The top line was 4% ahead of the prior-year figure. The measure included a 5 point unfavorable impact from net sales and acquisition activity and a 1 point unfavorable impact from currency movements.
Organic net sales increased 11% behind favorable underlying net pricing and mix. These were somewhat offset by lower organic pound trading volumes.
Adjusted gross margin expanded 100 basis points (bps) to 33.2%. Benefit from positive net price realization and mix and cost savings from Holistic Margin Management (“HMM”). These were partially offset by higher input costs, supply chain deleveraging and other cost of goods sold increases. cc adjusted operating profit increased 7%. This was supported by higher adjusted gross margin, partially offset by higher adjusted selling, general and administrative expenses. Adjusted operating margin expanded 60 bps to 16.9%.
North America Retail: Revenue in this segment was $3,373.1 million, up 11% year-over-year. The rise can be attributed to positive net price realization and mix, which somewhat offset the decline in pound volume and the sale of helpers and sudden salads. Organic net sales increased 13% year-over-year. Operating income in this segment increased 24% to $837 million.
International: Revenue in this segment was $671.7 million, down 27% year-over-year. The downside can be attributed to lower pound volumes, including the impact of yogurt and dough sales, and an ice cream recall. Also, the negative impact of unfavorable exchange rates is a headwind. That said, the favorable net price realization and mix provided some respite. Organic net sales increased 5% year-over-year driven by progress in Brazil, secondary markets, Europe and Australia, partially offset by weakness in China. Operating income for this segment fell from $59 million to $18 million.
Pets: Revenues of $592.9 million were flat year over year. This is because the net realized price and mix were offset by a decline in pound volumes. Organic sales were also flat year-over-year. Management expects pet sales performance to accelerate in the second half of fiscal 2023 driven by increased capacity, improved customer service, increased investment in brand building and expectations of stabilizing retailer inventory levels. . Operating income for this segment was $87 million, compared with his $132 million in the same period last year.
North America Foodservice: Revenues were $583 million, up 24% year-over-year. This reflects the realization and composition of positive net prices, including a 5 point gain from bakery flour market index pricing. Net sales also included a 6 point increase from the TNT Crust acquisition. Organic sales increased 17%. Operating income in this segment increased 20% to $82 million.
guidance
General Mills expects consumer economic conditions, rising costs and supply chain bottlenecks will likely be the biggest factors impacting the show in fiscal 2023. The company expects volume elasticity in the second half to remain lower than historical levels. Compared to previous fiscal 2023 guidance, management now expects stronger organic net sales growth driven by improved volume and price/mix improvements.
For fiscal 2023, management expects input cost inflation of 14-15% of total cost of goods sold. Management continues to expect his HMM cost savings of 3-4% of the cost of goods sold. We also expect a modest reduction in supply chain hurdles and increased investment in brand building and other growth-enhancing initiatives compared to the same period last year.
Organic net sales are expected to grow 8-9% in 2023. Previously, management had expected organic net sales to increase by 6-7% from his. The net impact of business divestitures, acquisitions and currency fluctuations could reduce reported full-year net sales growth by approximately 4.5%. Adjusted cc operating profit growth is now expected to be between 3% and 5%. Previously, the metric was expected to be between flat to 3% increase. Both views include a 3-point net negative impact from business divestitures and acquisitions and a 1-point headwind from the ice cream recall.
Adjusted cc EPS growth is currently assumed to be between 4% and 6%. Previously, adjusted cc EPS growth was expected to be up 2-5%. The increased guidance reflects higher adjusted operating income and higher net interest expense. This guidance includes a 3 point net negative impact from divestitures and acquisitions and a 1 point headwind from the ice cream recall. Currency issues could negatively impact adjusted operating profit and adjusted EPS by nearly 1%.
How has the quote moved since then?
Estimate revisions were found to trend downward over the past month.
VGM score
Right now, General Mills has a B growth score, but a slightly better A momentum score. Drawing a similar path, the stock was assigned a grade of B on the value side. His second quantile for this investment strategy.
Overall, this strain has an overall VGM score of A. This score should be your focus when you are not focused on one strategy.
Outlook
Equity quotes are generally trending downward, and the size of these corrections is net zero. Notably, General Mills has Zacks Rank #3 (Hold). You can expect inline returns from stock in the coming months.
industry player performance
General Mills is part of the Zacks Food – Miscellaneous industry. Over the past month, United Natural Foods (UNFIMore – Free Report, a peer stock, rose 0.2%. The company reported results for the quarter ended October 2022, more than a month ago.
United Natural reported revenue of $7.53 billion in its last reported quarter. This is a change of +7.7% year-on-year. At the same time he had EPS of $1.13 and a year ago he was at $0.97.
United Natural is expected to post earnings of $1.38 per share this quarter, representing a +22.1% change from the same period last year. The Zacks Consensus Estimate has not changed in the last 30 days.
The overall direction and magnitude of the quote correction translates to Zacks Rank #3 (Hold) on United Naturals. Also, her VGM score for this strain is a B.
