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Why Are Analysts Expecting General Mills’ Margins to Expand in Fiscal 2Q17?

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Dec. 4 2020, Updated 10:53 a.m. ET

Fiscal 2Q17 estimates

Analysts are expecting General Mills (GIS) to post a gross margin, EBITDA (earnings before interest, tax, depreciation, and amortization) margin, and a net margin of 37.1%, 22.9%, and 12.4%, respectively. By comparison, the company posted 35.5%, 21.4%, and 11.3%, respectively, in fiscal 2Q16.

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Factors that could drive General Mills’ margins

The expansion of margins is expected to be driven primarily by improvements in operations across different segments, and divestment of Green Giant. The company has undertaken several costs reduction initiatives, such as zero-based budgeting, and reduction in media spending, which are also expected to contribute toward the expansion of General Mills margins.

During its fiscal 1Q17 earnings call, the company had stated that it was focusing on abolishing excessive capacities of business that are unprofitable. This could also improve General Mills margins in fiscal 2Q17.

However, analysts are expecting the SG&A (selling, general, and administrative expenses), depreciation and amortization expenses, and interest expenses to increase marginally as a percentage of total revenue, which are expected to offset some of the gains in the company’s margins.

Peer comparisons and outlook

During the same period, Kellogg (K), B&G Foods (BGS), and Pinnacle Foods (PF) posted net margins of 10.4%, 11.5%, and 8.3%, respectively. In the corresponding quarter of previous year, the companies had posted net margins of 9.1%, 10.6%, and 8.6%, respectively.

For next four quarters, analysts are expecting General Mill to post gross margins, EBITDA margins, and net margins of 37.3%, 22.5%, and 12%, respectively. In the corresponding quarters of the previous year, the company had posted 35.3%, 20.7%, and 10.9%, respectively.

Next, we’ll look at analysts EPS estimate for fiscal 2Q17.

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