Why General Mills’ Sales Could Stay Muted in Q1

  • General Mills is set to announce its first-quarter results on Wednesday.
  • We expect the company’s sales growth to decelerate sequentially, but for its lower interest expenses to boost its earnings.

General Mills (GIS) is slated to report its first-quarter fiscal 2020 results in two days. We foresee the company’s revenue staying muted and plunging sequentially. General Mills faces a tough YoY (year-over-year) comparison due to its Blue Buffalo acquisition. Its planned divestitures and currency headwinds could limit its sales growth further.

J.M. Smucker (SJM) has disappointed investors with lower-than-expected first-quarter results and a guidance cut. Weak volumes and lower pricing in the coffee and peanut butter segments led the company to miss Wall Street’s estimates by a wide margin. In the first quarter, J.M. Smucker’s net sales fell by about 6% YoY.

Unlike SJM, we expect General Mills’ organic sales to improve modestly, backed by its Blue Buffalo acquisition. We also foresee its bottom line growing healthily YoY despite soft sales. Its wider margins and lower interest expenses could boost its bottom line. However, the company’s EPS could be dragged down by its higher outstanding share count.

What analysts project for General Mills in Q1

In the first quarter, Wall Street expects General Mills’ revenue to fall slightly YoY to $4.1 billion due to tough comps, currency rates, and divestitures. The company’s North American retail division (its largest segment by revenue) has been grappling with weak volumes. Also, its pricing fell in the fourth quarter.

While net pricing could hurt the North American retail segment’s performance, its volumes are up against easy YoY comparisons and could grow. The company’s investments in brand building and improvement in the cereal, yogurt, and snack categories could further support volumes.

General Mills’ Asia & Latin America division is also up against tough comps. The segment’s organic sales jumped 8% in last year’s first quarter, reflecting higher volumes and pricing. Analysts expect organic growth to stay low in Asia & Latin America.

Wall Street expects cost savings to boost the company’s margins. It expects General Mills’ adjusted EPS to rise 8.5% YoY to $0.77 in the first quarter thanks to the company’s improved margins and lower interest expenses.

This year, General Mills stock has risen 38.6% and outperformed broader markets. However, its expected soft sales and EPS growth in the second half of fiscal 2020 could limit its stock.