Goldman Sachs Comments On General Mills Following Recent Earnings Release

General Mills

this morning reported an in-line quarter, but the quarter was noisy and the quality was a bit light. Non-recurring gains and charges essentially offset each other, though the release gave undue attention to the gains which exacerbated quality concerns. Advertising was down yoy, though this had been previously telegraphed by management. The surprise for us was essentially limited to two factors: a softer than expected US retail volume performance as shipments lagged consumption and relatively low JV income. Goldman's thesis remains intact and its estimates are unchanged as Goldman believes price growth is poised to rapidly accelerate in FY4Q2011. Volume growth will likely get worse in 4Q before stabilizing in FY2012. This algorithm should set the company up to post strong 5-6% sales growth next year while successfully mitigating inflation pressure at the margin line. Risks to the target price include competition; volume elasticity, and inflation mitigation. Goldman Sachs has a $41 PT and Buy rating on GIS GIS closed Wednesday at $36.91