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What to Expect from General Mills's Fiscal 3Q17 Earnings

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Part 3
What to Expect from General Mills's Fiscal 3Q17 Earnings PART 3 OF 6

Why Analysts Expect General Mills’s Margins to Expand in Fiscal 3Q17

Fiscal 3Q17 estimates

Analysts expect General Mills (GIS) to post a gross margin of 36.4% in fiscal 3Q17, up from 34.8% in fiscal 3Q16. The company’s EBITDA1 margin is expected to touch 20.1%, up from 19.6% in fiscal 3Q16. Analysts expect General Mills to post a net margin of 10.9%, up from 9.9% in fiscal 3Q16.

 

Why Analysts Expect General Mills&#8217;s Margins to Expand in Fiscal 3Q17

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Factors that could drive General Mills’s margins

General Mills’s (GIS) expansion is expected to be driven by holistic margin management (or HMM) and other cost-saving measures. These initiatives include zero-based budgeting, globalizing of sourcing, and improvement in buyer expertise and supplier leverage. These measures are expected to lower the cost of sales from 66.1% of total sales to 64.5% of total sales.

However, analysts expect the company’s SG&A (sales, general, and administrative) expenses to rise from 18.9% to 19.4%, which is expected to offset some of the expansion in its EBITDA margins.

Compared to fiscal 3Q16, the company’s D&A (depreciation and amortization) expenses and interest expenses are also expected to rise as a percentage of total revenues in fiscal 3Q17. The increase in these expenses is expected to offset some of the growth in net margins.

Peer comparisons

During the same period, Kellogg (K), B&G Foods (BGS), and Pinnacle Foods (PF) posted net margins of 10.5%, 4.7%, and 10.9%, respectively. In the corresponding quarter of the previous year, these companies posted net margins of 8.9%, 7.3%, and 11.4%, respectively.

Outlook

For the next four quarters, analysts expect General Mills (GIS) to post gross margins, EBITDA margins, and net margins of 37.9%, 22.2%, and 12.5%, respectively. In the corresponding quarters of the previous year, GIS posted gross margins, EBITDA margins, and net margins of 35.6%, 21.2%, and 11.2%, respectively.

Next, we’ll look at General Mills’s fiscal 3Q17 estimates.

  1. earnings before interest, tax, depreciation, and amortization
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