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Will Weak Q3 Earnings Drag General Mills Stock Down?

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General Mills

General Mills (GIS) is expected to report its third-quarter results on March 20. Analysts expect the company to sustain the momentum in its net sales and record high single-digit growth. General Mills’ net sales will likely benefit from the incremental sales from its Blue Buffalo acquisition. The company’s investments in brands, expanded distribution channel, and new products could drive the net sales growth rate.

However, organic volumes could remain pressured, which reflects continued weakness in the base business. Negative currency rates will likely hurt the net sales growth rate.

General Mills’ profit margins are expected to take a hit from higher input and transportation costs. However, higher pricing, an improved mix, cost savings, and benefits from the acquisition of Blue Buffalo will likely cushion the third-quarter margins.

The company’s adjusted earnings are expected to fall on a YoY (year-over-year) basis, which reflects weakness in the base business and higher interest expenses related to debt taken to finance its recent acquisition. The higher outstanding share count will likely remain a drag.

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Stock performance

So far, General Mills stock has outperformed the broader markets in 2019. General Mills stock has risen 20.5%. The company’s strong second-quarter performance, especially on the margins and earnings front, drove its stock higher. In comparison, Mondelēz (MDLZ), J.M. Smucker (SJM), Conagra Brands (CAG), Campbell Soup (CPB), and Hershey (HSY) shares have risen 17.7%, 10.3%, 7.2%, 8.8%, and 3.9%, respectively.

In contrast, Kraft Heinz (KHC) and Kellogg (K) stock have fallen 25.3% and 5.0%, respectively, on a year-to-date basis. The S&P 500 has risen 11.0%.

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