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Why General Mills’ Top Line Growth Could Slow Down

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What Wall Street expects

General Mills’ (GIS) top line is gaining from incremental sales from its Blue Buffalo acquisition. During the company’s last reported quarter, acquisitions and divestitures added ~8% to its net sales growth rate. However, continued softness in its organic volumes remained a drag. General Mills’ organic sales fell 1%, reflecting a 3% fall in organic volumes.

Other major packaged food companies, including the Kellogg Company (K), the Hershey Company (HSY), Conagra Brands (CAG), and the J.M. Smucker Company (SJM), are also benefiting from their recent acquisitions.

Wall Street expects General Mills’ top line to continue to benefit from its Blue Buffalo acquisition in the next couple of quarters. Analysts expect the company’s net sales to increase 8.0% and 9.3% in the third and fourth quarters of fiscal 2019, respectively.

However, the company’s sales growth rate is expected to slow down in fiscal 2020. Analysts expect General Mills’ top line growth to decelerate to the low single digits in fiscal 2020 as the company annualizes its Blue Buffalo acquisition and faces tough year-over-year comps.

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Outlook

General Mills’ management expects acquisitions to contribute meaningfully to its top line growth in fiscal 2019. Meanwhile, its organic sales are expected to stay flat or increase 1%.

We believe that the company’s sales will benefit from its Blue Buffalo acquisition in the near term. Brand investments and expanded distribution should also support its top line growth. However, adverse currency rates are likely to remain a drag.

The company’s underlying volumes could remain weak amid a consumer shift toward healthy food and softness in cereals and yogurt. Tough comparisons could hurt its net sales growth rate in fiscal 2020.

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