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Will General Mills’ Q3 Earnings Revive the Stock?

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Food stocks continue to underperform

Similar to 2017, major food manufacturer stocks in the United States continue to underperform the S&P 500 Index (SPY). Weak demand for their traditional product, margin headwinds, and business reinvestment to spur demand continue to hurt these companies’ stocks. As for General Mills (GIS), the company’s stock continues to disappoint in 2018 and is down about 12.3% on a YTD (year-to-date) basis as of March 12.

In fact, most of the company’s peers continue to underperform the broader market and are trading in the red. For instance, Hershey (HSY), Campbell Soup (CPB), and Kraft Heinz (KHC) have registered a YTD decline of 11.0%, 9.4%, and 12.9%, respectively.

On the contrary, Conagra Brands (CAG), Mondelēz (MDLZ), J. M. Smucker (SJM), and Kellogg (K) stock are up 1.0%, 3.7%, 4.9%, and 2.7%, respectively, on a YTD basis. However, most of them lag the benchmark index (SPY), which has grown 4.1% during the period.

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What to expect from GIS’ Q3

Analysts expect General Mills’ top line to decline in fiscal 3Q18, reflecting continued challenges in yogurt sales. This fall might not go down well among investors, as the company’s top line returned to growth during the last reported quarter after marking a decline in the past nine quarters.

Despite the weak top-line projection, analysts expect the company’s bottom line to return to growth, driven by higher pricing, benefits from cost savings, and a lower outstanding share count. However, margin headwinds stemming from increased input costs and higher freight could remain a drag. Continue to the later parts of this series for a detailed discussion of sales and EPS expectations.

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