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General Mills Fails to Impress in Q1 2019, Stock Down 7.6%

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Why GIS stock fell after Q1 2019 earnings

General Mills (GIS) stock fell 7.6% after its mixed fiscal 2019 first-quarter[1. The fiscal 2019 first quarter ended on August 26.] results on September 18. Its weak performance also took a toll on the stock prices of other major packaged food companies. Kellogg (K), Kraft Heinz (KHC), Campbell Soup (CPB), J.M. Smucker (SJM), and Conagra Brands (CAG) fell 1.8%, 2.1%, 2.2%, 1.1%, and 1.2%, respectively.

General Mills’ top line marked high-single-digit growth, reflecting incremental sales from its recent acquisition. However, reported net sales were marginally shy of analysts’ expectation. Its bottom line came in better than what management expected and surpassed analysts’ estimate.

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General Mills’ organic sales showed marginal improvement, reflecting higher pricing and a favorable mix. However, that failed to lift investor sentiments since underlying volumes remained weak. Its margins continued to disappoint as input cost headwinds more than offset the benefits of higher pricing.

Sales and margin headwinds could likely hurt the company’s upcoming fiscal 2019 second-quarter financials. Its net sales growth could mark a sequential decline due to the tough YoY (year-over-year) comparisons for Blue Buffalo and a weak underlying business.

General Mills’ margins are expected to contract YoY in its fiscal 2019 second quarter due to continued inflation in input costs and higher logistics costs. The company is increasing prices, which should support its margins. However, the benefits of higher pricing are likely to cushion its margins in the second half of fiscal 2019.

Soft organic sales, sluggish margins, and higher interest costs could likely affect its bottom line, which management expects to stay flat or mark a YoY decline in fiscal 2019.

Stock performance

General Mills stock is down 25.6% YTD (year-to-date) and has significantly underperformed the broader markets. The S&P 500 Index has grown 8.6% YTD.

In comparison, Kraft Heinz, Campbell Soup, and J.M. Smucker have fallen 26.6%, 16.7%, and 11.1%, respectively, YTD. Kellogg and Conagra Brands have risen 7.9% and 0.2%, respectively.

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