Citi Gives Color On General Mills In-Line Earnings Results

In terms of FY12, General Mills

management hinted that that the growth expectation is in-line with long-term targets of +7%-9%. Bottom line is that with expectations that General Mills will manage commodity inflation in FY12 and grow EPS +7%-9%, Citi sees its and consensus' FY12 EPS estimates as safe. In terms of valuation, with the stock trading at ~13.4x, we think FY12 looks reasonable and cheap. Citi is increasing its price target to $45 as it rolls valuation metrics forward to FY13 and reiterates a Buy rating. Looking ahead to F4Q11, management is expecting good earnings growth behind an increased contribution from price realization, especially in U.S. Retail. Volumes are not expected to grow in F4Q11 as pricing is up, but gross margins will improve significantly, up about 100bps. General Mills reported F3Q11 EPS results of $0.56, which was in-line with consensus estimates of $0.56. Total sales for the quarter were up +2%, driven entirely by volumes, as pricing was flat. Moreover, gross and operating margins expanded. U.S. retail sales were a little weaker than expected, down -1% with flat volumes. GIS closed Wednesday at $36.42