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Why General Mills Missed Fiscal 1Q18 Earnings Estimate

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Sep. 21 2017, Updated 4:17 p.m. ET

EPS versus estimate

General Mills (GIS) reported lower-than-expected fiscal 1Q18 bottom line results on September 20, 2017. Its adjusted earnings of $0.71 per share missed analysts’ estimate of $0.76 and fell 9.0% on a YoY (year-over-year) basis. Lower volumes and increased input costs took a toll on the company’s EPS (earnings per share).

Other main food manufacturers in the United States (SPY) reported strong EPS growth despite lower sales, thanks to productivity and cost-saving measures. Conagra Brands (CAG), Kraft Heinz (KHC), Campbell Soup (CPB), and Kellogg (K) reported improved bottom line performances during their last reported quarters. However, J.M. Smucker (SJM) continued to struggle with its bottom line as sales deleverage and increased costs continued to take a toll on its performance.

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What impacted General Mills’ EPS?

General Mills’ fiscal 1Q18 bottom line was negatively impacted by volume deleverage, mainly in the North America Retail and Asia & Latin America segments. Higher input costs due to currency-related inflation on imported products, unfavorable trade expense phasing, and increased advertising and media expenses further pressured the margins and, in turn, the EPS.

However, the company’s focus on reducing COGS (cost of goods sold) through its HMM (holistic margin management) program positively impacted its bottom line during the reported quarter. Reductions in interest and tax expenses and lower share count further supplemented the bottom line.

Outlook

General Mills’ management reaffirmed its fiscal 2018 EPS guidance despite a dismal 1Q18 performance. Management expects sales to improve during the second half of the current fiscal year, which will supplement the bottom line growth. Margin headwinds are anticipated to subside in the coming quarters, which will further cushion the EPS growth rate. The company’s bottom line is also expected to benefit from increased cost savings. For fiscal 2018, General Mills expects adjusted EPS to rise 1.0%–2.0% on a currency-neutral basis.

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