Why These 9 Food Stocks Will Likely Underperform S&P 500 in 2017

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Part 4
Why These 9 Food Stocks Will Likely Underperform S&P 500 in 2017 PART 4 OF 10

Why General Mills Doesn’t See Much Growth on the Horizon

Revisiting GIS’s recent financial performance

General Mills (GIS) stock has fallen 15.9% on a YTD (year-to-date) basis as of September 26, 2017, and a trend reversal isn’t likely to happen soon. General Mills continues to report declining sales, which reflects lower volumes of yogurt and cereals in North America, primarily in the US (SPY), and less shelf space at retail stores. Notably, the company has posted a sales decline in the past nine quarters.

To add to its problems, the company’s profitability, which earlier benefitted from cost savings and productivity measures, also took a hit in fiscal 1Q18 as lower volumes, increased input costs, and higher advertising expenses dented its margins, and in turn, its EPS.

Why General Mills Doesn&#8217;t See Much Growth on the Horizon

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What does the future hold?

General Mills projects a slight improvement in its sales and profitability as the year progresses. The company’s management expects sales to pick up in the later part of the current fiscal year driven by innovation-led products and higher promotions. Meanwhile, the company’s margins are likely to see improvements on the back of increased cost savings and an anticipated decline in margin headwinds.

However, we believe the company’s sales could remain weak as sluggish demand in North America, declining shelf space at retail stores, increased competition, and an unfavorable mix could remain a drag.

In addition to lower volumes, higher input costs, a planned increase in promotions, and rising advertising expenses could hurt margins and, in turn, EPS.


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