January 23, 2022

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Here’s Why General Mills (GIS) Stock Appears Appetizing Now

Amid an otherwise disrupted market, we have General Mills, Inc. GIS, which has seen its shares gain 9.9% so far this year against the industry’s decline of 16%. We note that this Zacks Rank #2 (Buy) company raised its fiscal 2020 guidance, while releasing third-quarter results on Mar 18, and has rallied 10.3% in a month. Moreover, the Zacks Consensus Estimate for fourth-quarter and fiscal 2020 earnings have moved up about 8% and 2.4%, respectively, over the past 30 days.

Before getting into General Mills’ guidance and driving factors, it is worth noting that the company recently unveiled several measures to support its workers amid the growing spread of coronavirus. In this regard, it has announced opportunities for corporate workers to work at manufacturing plants, improved benefits for plant workers (including daily bonus) and will offer charitable grants worth $5 million to facilitate food access in core global markets.

General Mills, Inc. Price, Consensus and EPS Surprise

General Mills, Inc. Price, Consensus and EPS Surprise

General Mills, Inc. price-consensus-eps-surprise-chart | General Mills, Inc. Quote

Notably, COVID-19 had an impact on the company’s third-quarter performance, wherein the performance in Asia was hurt to an extent by the coronavirus-led soft traffic in Haagen-Dazs shops and foodservice outlets. Although the company expects to see lower consumer demand for away from home food in the near term, it anticipates increased orders from retail customers across North America and Europe.

Raised Fiscal 2020 Guidance

During the third quarter of fiscal 2020, adjusted earnings per share of 77 cents beat the Zacks Consensus Estimate of 75 cents. The company expects to see organic sales growth in the fourth quarter of fiscal 2020, courtesy of an extra month of Pet segment results. Also, fourth-quarter results will include gains from an additional week or the 53rd week. Further, management’s latest guidance includes the effect of increased orders from retail customers across North America and Europe following the third quarter-end, as they are stockpiling due to coronavirus. This, in turn, resulted from higher consumer demand for food. Management further stated that its supply chain is expected to face minimum bottlenecks through the remaining part of fiscal 2020.

Considering all factors and the year-to-date show, management raised its adjusted operating profit and bottom-line guidance. Adjusted operating profit (at cc) is expected to improve 4-6% compared with the prior growth projection of 2-4%. The raised outlook can be attributable to HMM productivity savings, reduced forecasts for input-cost inflation and solid administrative cost control. Courtesy of a raised adjusted operating profit guidance and expectations of lower interest expenses, management raised its bottom-line view. The company now envisions adjusted earnings per share (EPS) growth (at cc) of 6-8%, up from a 3-5% increase anticipated earlier.

What’s Driving General Mills?

General Mills has been benefiting from its Consumer First strategy as well as key global growth initiatives to drive sales. To this end, the company is focused on solid innovation, efficient customer marketing and strong in-store execution to sharpen its competitive edge. Additionally, the company is focusing on improving the U.S. Yogurt business, expanding presence in the emerging nations, stabilizing distribution channels and enhancing price mix.

Further, General Mills is especially gaining from its Pet segment, which includes Blue Buffalo Pet Products (acquired in fiscal 2018). During the third quarter, revenues in the segment came in at $383.5 million, up 11% year over year on the back of volume growth as well as favorable net price realization and mix impacts. A double-digit rise in the segment’s biggest product lines — Life Protection Formula and Wilderness — fueled growth. Further, expansion in the Food, Drug and Mass (FDM) and a favorable price mix were key drivers. Encouragingly, courtesy of an extra month of the Pet segment, the company expects to see an improvement in organic sales growth in the fourth quarter of fiscal 2020. Management anticipates sales in the Pet segment to grow 8-10% on a like-for-like basis in fiscal 2020.

All said, we believe that General Mills is set to remain in investors’ good books.

Don’t Miss These Solid Picks

The Hain Celestial Group, Inc. HAIN, with a Zacks Rank #2, has a trailing four-quarter positive earnings surprise of 7.02%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Campbell Soup Company CPB has a long-term earnings growth rate of 6.1% and a Zacks Rank #2.

Darling Ingredients DAR, with a Zacks Rank #2, delivered a positive earnings surprise in the last reported quarter.

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