General Mills (GIS) Reports Mixed Q1 Earnings: What's Next for the Consumer Staples Giant?

Christopher Vargas

General Mills GIS reported first quarter fiscal 2020 earnings today before the opening bell. The company reported a mixed bag of results and while its stock initially rose, shares fell around 2% in intraday trading.

General Mills was hoping to deliver solid financials for its investors, but there still seems to be work that needs to be done by the cereal giant. Is the firm’s Q1 results an indicator for what’s in store for them in fiscal 2020? Let’s take a closer look at how General Mills stacked up in Q1 and how they might perform in the near future.

Q1 Performance

In Q1, General Mills reported a net sales decline of 2% to $4.0 billion. On the earnings front, GIS reported adjusted diluted EPS of $0.79, which is up 13% from the year ago quarter; earnings surpassed our estimate by 2.6% while net sales missed our target by 2.2%.

The company’s North America Retail segment attributed $2.38 billion, essentially matching its year ago levels. The pet segment, which includes its recently acquired company Blue Buffalo, brought in $368 million for a 7% jump. Convenience Stores and Foodservice dropped 4% to $445 million and the Europe and Australia segment declined 9% to $454 million. The Asia and Latin America segment also saw a 10% decline to $360 million.

General Mills attributed the Convenience Store & Foodservice drop to lower bakery flour volume and unfavorable index pricing, while the Europe & Australia was impacted by lower volume and unfavorable foreign currency exchange.

The company also reported that organic net sales were down 5% in Europe and Australia due to a continued challenging retail environment in France for yogurt and ice cream. General Mills noted that organic sales fell 3% in the Asia & Latin America sector because of retailer inventory reductions in Brazil, distribution network changes in India, and lower volumes in China.

Company Outlook

General Mills reaffirmed its previous fiscal 2020 guidance, and expects organic net sales to rise 1%-2%; the combination of currency translation and the impact of divestitures executed in fiscal 2019 is projected to benefit net sales in 2020. Adjusted diluted earnings is expected to increase by 2%-4% from the previous year.

For Q2, our consensus estimates forecast the firm’s bottom line to rise 4.71% to $0.89 per share, and net sales to spike 1.34% to $4.47 billion. We also anticipate North America Retail to gain 1.31% to $2.71 billion, and Convenience store and Foodservice is expected to climb 2.66% to $528 million. The Europe & Australia segment is anticipated to fall 1.78% to $445.7 million, while the Asia & Latin America and Pet segments are forecasted to make a 0.73% and 11.3% jump, respectively.

Bottom Line

General Mills seems to be in a transition period where it is trying to figure out how to reintegrate itself in the modern market. The acquisition of Blue Buffalo has paid off thus far, as it was the company’s only category in Q1 to make a solid Y/Y gain.

General Mills CEO, Jeff Harmening, believes that the business made clear progress in “becoming a nimbler, more consumer-connected General Mills" in Q1. Time will tell if the aging company can successfully establish itself as a powerhouse in today’s market and investors shouldn’t expect this transition to be done overnight. General Mills sits at a Zacks Rank #3 (Hold) with a Style Score of A in Growth.

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