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Why General Mills’ EPS Growth Rate Might Not Impress

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Recent performance

General Mills (GIS) has impressed with its bottom line performance recently despite significant pressure on its earnings from inflation in input costs, higher interest expenses, and an increased outstanding share count. General Mills has exceeded analysts’ earnings estimates in the past five quarters, which is encouraging.

The bottom lines of food companies, including General Mills, the Campbell Soup Company (CPB), Conagra Brands (CAG), the J.M. Smucker Company (SJM), and the Kellogg Company (K) are taking hits from increases in input and logistics costs. Debt taken on to finance acquisitions has resulted in higher interest expenses, which has pressured the company’s adjusted EPS further.

Despite challenges, General Mills exceeded analysts’ estimates thanks to its margin expansion. General Mills’ profit margin expanded, reflecting higher pricing and mix, which cushioned its EPS. Meanwhile, a lower effective tax rate and cost savings further supported its EPS.

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Outlook

General Mills’ bottom line is expected to decline in the fourth quarter of fiscal 2019, reflecting increased interest expenses and a higher outstanding share count. Barring a near-term decline, analysts expect General Mills’ earnings to return to a growth trajectory and stabilize in fiscal 2020.

However, the rate of growth is likely to remain low as the company annualizes the benefits of its Blue Buffalo acquisition. Meanwhile, inflation in input costs could further limit its growth rate.

Analysts expect General Mills’ EPS to mark a 4.3% decline in the fourth quarter of fiscal 2019. Its EPS are expected to mark an increase of 5.1% in fiscal 2020.

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