General Mills Inc. GIS is set to report fourth-quarter and fiscal 2015 results on Jul 1, before the market opens.
Last quarter, it delivered a positive earnings surprise of 4.48%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Sales and profits in the key U.S. Retail segment were below expectations in the first half of 2015 due to weak food industry trends.
Management is trying to turn around this business through increased investments in cereal to foster growth, improving the U.S. yogurt business and driving profits in the better-for-you snacks unit. The company will also invest in consumer focused innovation and marketing as well as accelerate its natural and organic product portfolio to drive growth in the segment.
In fact, General Mills has aggressive plans for its overall business that include strong innovation, better marketing and aggressive cost cuts. These were partly responsible for the better performance in the third quarter and could lead to strong results in the fourth quarter as well. In fact, management expects the fourth quarter to be stronger than the third on the back of gains from the Annie’s acquisition and one extra week during the period. Coupled with sales growth, cost savings from restructuring activities, lower taxes and fewer shares should aid earnings growth in the to-be-reported quarter.
Fourth-quarter net sales are expected to grow at a high single-digit rate in constant currency, including the impact of the 53rd week and incremental sales from Annie’s.
Adjusted operating profit (constant currency) is expected to decline at a low single-digit rate. SG&A ratio is expected to decline from the fiscal 2014 levels gaining from the savings from Project Catalyst and changes in expense policy.
Adjusted earnings per share (constant currency) are expected to grow at a double-digit rate, gaining from sales growth, cost savings from restructuring activities, lower taxes and share count.
Gross margins are expected to remain flat with the year-ago levels. However, lower trade expense and moderating input cost inflation are expected to result in a sequential improvement in gross margins.
Earnings Whispers
Our proven model does not conclusively show that General Mills is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
Zacks Rank: General Mills’ Zacks Rank #2 (Buy) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some food stocks that have both a positive Earnings ESP and a favorable Zacks Rank:
Constellation Brands Inc. STZ, with an Earnings ESP of +3.28% and a Zacks Rank #2.
Tyson Foods, Inc. TSN, with an Earnings ESP of +4.21% and a Zacks Rank #2.
Kraft Foods Group, Inc. KRFT, with an Earnings ESP of +3.57% and a Zacks Rank #3 (Hold).
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