Earnings Preview: General Mills - Analyst Blog

General Mills Inc. (GIS), one of the leading branded foods companies in the US, is scheduled to report its second-quarter 2011 financial results on Thursday, December 16, 2010. The current Zacks Consensus Estimate for the quarter is 78 cents a share.

First-Quarter 2011, a Synopsis

General Mills reported strong results for the first quarter of fiscal 2011. For the quarter, adjusted earnings increased 12.9% to 70 cents a share compared with 62 cents in the year-ago period. The quarterly EPS surpassed the Zacks Consensus Estimate of 63 cents by 11.1%. Profits were mainly driven by strong cereal and snack sales growth.

Management reiterated its fiscal 2011 earnings in the range of $2.46 - $2.48 a 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%.

Total revenue for the reported quarter grew 1.5% year over year to $3.5 billion. The quarter experienced volume growth which was partially offset by negative currency translation.

Fourth Quarter 2010 Consensus

Analysts surveyed by Zacks expect General Mills to post second-quarter 2010 earnings of 78 cents a share. The current Zacks Consensus Estimate represents a year-over-year decline of 1.3%. Analyst estimates for the quarter range from a low of 78 cents to a high of 79 cents over the past 30 days.

The current Zacks Consensus Estimate has increased marginally by 1.3% over the last 30 days; as none of the 19 analysts covering the stock revised their estimates upward. However, in the last 30 days, four analysts have lowered the forecast, while the others have kept their estimates unaltered.

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 3.78%. This suggests that General Mills has outperformed average analyst expectations during this period. However, the trend indicates in-line results.

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), Unilever (UL-Analyst Report), Tyson Foods Inc (TSN-Analyst Report). Furthermore, General Mills also encounters competition from local and regional players in the countries in which it operates. Consequently, the company is under severe 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 cereal 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.