General Mills’ financials improved
General Mills (GIS) reported mixed fiscal fourth-quarter results this morning. However, the company’s improving financials should please investors. General Mills reported net sales of $3.9 billion, which was a shade lower than what analysts expected but a 2.2% improvement YoY (year-over-year).
The company’s stronger-than-expected performance on the profitability front should make investors pretty happy. General Mills reported adjusted earnings of $0.79 per share, which beat analysts’ expectation of $0.72 and increased 8.2% YoY. GIS was trading 2.7% higher this morning during the pre-market session.
Moreover, the company’s profit margins expanded during the fiscal fourth quarter, which is a big positive—especially given the higher-than-expected inflation in commodity prices and transportation costs.
General Mills’ adjusted gross margin expanded by 70 basis points to 35.8%. Its adjusted operating margin jumped by 170 basis points to 18.5%. Higher net price realization, productivity, and cost savings supported the company’s margin growth.
Going forward, General Mills remains confident about sales, thanks to its Blue Buffalo acquisition. The company expects its top line to record 9% to 10% growth in fiscal 2019, driven primarily by the addition of Blue Buffalo Pet Products. Moreover, higher sales and improved pricing are likely to support profit margins. Branded packaged food makers Conagra Brands (CAG), J.M. Smucker (SJM), Hershey (HSY), and Kellogg (K) are also relying on acquisitions to accelerate sales growth.
General Mills impressed with its fiscal fourth-quarter results, but organic sales marked only 1% growth, reflecting weak volumes. Moreover, management’s outlook states that organic sales are likely to remain flat or increase 1% in fiscal 2019, which indicates continued softness in the base business.
The Blue Buffalo acquisition is expected to weigh on earnings in fiscal 2019. They’re projected to remain flat or decline 3%. Higher interest expenses relating to the funding of the acquisition remain a drag.