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Why General Mills’ Sales Growth Rate Could Decelerate

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Acquisition drove sales higher

General Mills (GIS) posted stronger-than-expected sales during the third quarter of fiscal 2019. Incremental sales from its acquisition of Blue Buffalo, higher net price realizations, and a favorable mix drove the company’s top line. Meanwhile, its organic sales benefited from higher pricing and mix.

In comparison, other major packaged food companies also benefited from recent acquisitions. Conagra Brands’ (CAG) fiscal 2019 third-quarter sales recorded stellar growth on the back of its Pinnacle Foods acquisition. Meanwhile, the J.M. Smucker Company’s (SJM) fiscal 2019 third-quarter sales reflected a significant contribution from its Ainsworth acquisition.

The Campbell Soup Company’s (CPB) top line registered strong double-digit growth in the last reported quarter thanks to its acquisition of Snyder’s-Lance and Pacific Foods. Meanwhile, the Kellogg Company (K) is benefiting from the consolidation of Multipro’s operations.

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Outlook 

We expect General Mills’ top lien to mark high-single-digit growth in the fourth quarter of fiscal 2019 driven by acquisitions. However, its base business continues to struggle owing to weakness in its organic volumes. Meanwhile, General Mills’ top line growth rate is projected to slow in fiscal 2020 as the company annualizes its Blue Buffalo acquisition and faces tough comparisons.

Analysts expect General Mills’ top line to mark low-single-digit sales growth in fiscal 2020. Meanwhile, General Mills’ top line is expected to mark a 1.1% increase in the first quarter of fiscal 2020. Moreover, its net sales are projected to increase 2.1% in the second quarter.

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