General Mills Inc. (GIS) announced its financial results for the first quarter of 2012 on September 22 with operating earnings of 64 cents a share, surpassing the Zacks Consensus Estimate by 2 cents.
Below we have dealt with the recent earnings announcement, subsequent analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation for the stock.
Earnings Recap
General Mills’ first quarter 2012 earnings surpassed estimates having benefited from sales growth in each operating segments, coupled with efficient investment in advertising and several product innovations, both in the cereals as well as general snacks category. Sales growth also resulted from the acquisition of a controlling interest in the international Yoplait yoghurt business.
Global brands also drove sales in the quarter. International business recorded remarkable growth during the first quarter fuelled by strong performance in the European region.
Total revenue for the reported quarter grew by 9% year over year to $3.85 billion, and the Yoplait acquisition contributed 3 percentage points to net sales growth. In addition, foreign exchange contributed 2 percentage points of net sales growth, while price realization and mix contributed 5% points of growth.
Revenues marginally exceeded the Zacks Consensus Estimate of $3.81 billion.
During the quarter, General Mills completed the acquisition of a 51% controlling interest in international Yoplait yogurt business and a 50% interest in a related entity that holds the Yoplait brands worldwide. The agreement was formed in May, 2011 with PAI Partners and Sodiaal.
Further, the acquisition was completed for approximately €810 million. Sodiaal will now hold the remaining ownership stakes in both entities, as per the agreement. Yoplait is headquartered in France and happens to be the second largest brand in the global yogurt market.
During the first quarter, General Mills repurchased approximately 3 million shares of common stock for $110 million, and declared a quarterly dividend of 31 cents per share, payable November 1, 2011, to shareholders of record October 10, 2011.
Management’s Guidance for 2012
Management has re-affirmed its fiscal 2012 earnings to be in the range of $2.59 – $2.61 a share, excluding mark-to-market effects and integration costs for the Yoplait acquisition.
Agreement of Estimate Revisions
In the last 30 days, only 1 of the 14 analysts covering the stock has increased its estimates for the second quarter, while 4 of them revised their estimates downwards. On the other hand, none of the 13 analysts gave a positive sign for the third quarter of 2012, while four of them declined their estimates.
For the fiscal year 2011, 2 of the 14 analysts signaled a positive movement in their estimates. However, 4 of them lowered their estimates over the same period. For the fiscal 2012, 3 out of 15 analysts were positive, while 2 of them declined their estimates.
This indicates that the company is facing pressure from the increasing prices for commodities from corn to fuel, and that the analysts are circumspect about the long-term earnings trend of the company.
However, the company has relatively stable operating results in recent years and it expects to maintain stable financial policies in future.
Magnitude of Estimate Revisions
Earnings estimates for second quarter 2012 and for the fiscal 2012 have decreased by 1 penny each in the last 30 days to 79 cents and $2.60 per share, respectively. For fiscal 2013, earnings estimates have increased by one cent to $2.84 during the last 30 days.
We believe that General Mills will continue to sustain or improve its strong credit profile over the intermediate term. However, the company anticipates its profit margins to remain under pressure in the near-term as the company absorbs higher commodity costs.
General Mills, like nearly all food companies, has raised prices to offset higher costs for commodities from corn to fuel. But the company — like others in the sector — has had to weigh its price hikes against just how much shoppers are willing to absorb. Consumers remain cautious about their spending in the uncertain economy.
General Mills, which faces stiff competition from Kellogg Company (K) currently, holds a Zacks #3 Rank. On a long-term basis, the company retains a Neutral rating on the stock, with a short-term Hold rating.
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