Earnings Preview: General Mills - Analyst Blog

General Mills Inc. (GIS) is scheduled to report its first-quarter 2011 financial results on Wednesday, September 22, 2010. The current Zacks Consensus Estimate for the quarter is 63 cents a share.

Fourth Quarter and Fiscal 2010 Synopsis

General Mills had reported disappointing fourth quarter fiscal 2010 results. For the quarter, adjusted earnings dropped 4.6% to 41 cents per share compared to earnings of 43 cents in the year-ago period. For fiscal 2010, adjusted earnings jumped 16% to $2.30 per share compared with the year-ago earnings of $1.99.

Both the quarterly and yearly results were in line with the Zacks Consensus Estimate. However, the fiscal 2010 earnings results significantly surpassed the company's long-term high single-digit growth target.

Total revenue for the reported quarter dipped 2% year over year to $3.6 billion. The quarter saw positive currency translation and flat volumes compared with the year-ago period, but unfavorable price and product mix. However, total revenue for fiscal 2010 grew 1% annually to $14.8 billion, benefiting from both price and product mix. The company projects fiscal 2011 net sales to climb at a low single-digit rate.

Minneapolis-based General Mills expects fiscal 2011 earnings in the range of $2.46 - $2.48 per share. Excluding mark-to-market effects and the tax charge related to health care legislation, the fiscal 2011 earnings guidance reflects an annual growth of 7% – 8%.

First Quarter 2011 Consensus

Analysts surveyed by Zacks expect General Mills to post first-quarter 2011 earnings of 63 cents a share. The current Zacks Consensus Estimate represents a year-over-year decline of 1.6%. Analyst estimates for the quarter range from a low of 63 cents to a high of 65 cents.

The current Zacks Consensus Estimate has remained stagnant over the last 30 days; with only 3 out of 19 analysts covering the stock revising their estimates downward. In the last 7 days, two analysts have lowered the forecast, while the others have kept their estimates unaltered, leaving the consensus unchanged.

Earnings Surprise History

With respect to earnings surprises, General Mills has reported well above the Zacks Consensus Estimate over the last four quarters with an average of 11.7%. This suggests that General Mills has outperformed average analyst expectations during this period.

General Mills in Neutral Lane

General Mills has an outstanding portfolio of growth products and brands, especially its healthy and convenience packages. Through the Holistic Margin Management (HMM) program, the company manages costs and abates inflation, thus improving margins and gaining over its peers. Further, the recent hike in dividend and authorization of the buyback program ascertains a robust balance sheet, huge cash flow and optimistic long-term outlook.

However, the company faces stiff competition from its rivals, such as Kraft Foods Inc. (KFT) and Unilever (UL). Furthermore, General Mills also encounters competition from local and regional players in the countries in which it operates. Consequently, the company is under pressure to maintain profitability and increase market share.

General Mills is a global consumer food company and the second largest domestic manufacturer of cereals, including the well-known brands of Cheerios, Chex, Total, Kix, Wheaties, Golden Grahams, Trix, Cinnamon Toast Crunch and Lucky Charms. It maintains a Zacks #3 Rank (Hold), in line with our long-term Neutral recommendation on the shares.
 
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