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General Mills Stock Falls, Q3 Sales Miss Estimates

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General Mills (NYSE:GIS) stock fell over 7.5% in the pre-market trading session today. The company delivered mixed earnings results. The company reported its earnings for the third quarter of fiscal 2020 before the market bell. General Mills also reported mixed earnings results in the previous quarter.

In comparison, J.M. Smucker (NYSE:SJM) posted better-than-expected earnings in the third quarter of fiscal 2020 (ending December). Campbell Soup (NYSE:CPB) raised its profit forecast for fiscal 2020 (ending July). Meanwhile, Conagra Brands (NYSE:CAG) slashed its sales and earnings guidance for fiscal 2020 (May-ending) amid weak consumption trends.

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General Mills’ earnings

General Mills posted better-than-expected earnings in the third quarter fiscal 2020 (ending February 23, 2020). The company’s adjusted EPS of $0.77 was ahead of Wall Street analysts’ estimates of $0.76 per share in the third quarter. However, the adjusted earnings fell by 6% YoY (year-over-year) on a constant currency basis. Lower gross profits and operating income and higher tax rates pulled down the bottom-line growth. The higher share count due to share repurchases also hurt the company’s earnings growth.

The adjusted gross margin contracted by 30 basis points in the third quarter due to higher input costs and other supply chain costs. However, the adjusted operating profit margin fell by 130 basis points due to higher selling, general, and administrative expenses. The company also received lower ice cream net sales contributions in Asia in February, which hurt the adjusted operating profit results in the third quarter. General Mills’ cost savings initiatives under the Holistic Margin Management program, favorable pricing, and mix benefited the margins.

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Q3 revenues

General Mills posted revenues of $4.18 billion, which were almost flat YoY. However, the revenues were below Wall Street analysts’ expectations of $4.21 billion. Notably, the company’s organic sales were also flat. The lower organic volumes were offset by favorable pricing and mix.

General Mills earned higher revenues from its Pet segment. The organic sales grew 11% YoY in the Pet segment in the third quarter driven by double-digit sales growth from the Life Protection Formula and Wilderness product lines. However, organic sales declined in the North America Retail and Convenience Stores & Foodservice segments. Meanwhile, the organic sales in Europe & Australia and Asia & Latin America declined by 2% and 5%, respectively. The coronavirus also hurt Häagen-Dazs sales in Asia in February.

Mixed fiscal 2020 outlook

General Mills CEO Jeff Harmening expects the coronavirus outbreak to have a mixed impact on its sales and earnings for fiscal 2020. The company thinks that consumers in North America and Europe will buy products amid coronavirus fear, which would increase the demand for its products. However, the coronavirus will continue to hurt traffic at Haagen-Dazs shops and in foodservice. General Mills doesn’t expect supply chain disruptions for fiscal 2020.

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For fiscal 2020, General Mills expects organic net sales growth of 1%–2%. The company will benefit from an extra week in fiscal 2020. Analysts expect fiscal 2020 (ending May) sales of $17.2 billion, which implies a 1.9% growth from last year. For the fourth quarter, analysts forecast sales of 9.6% to $4.6 billion. Wall Street analysts expect sales to decline by 0.7% in fiscal 2021.

General Mills also expects constant-currency adjusted earnings to rise by 6%–8% in fiscal 2020. Previously, the company projected earnings growth of 3%–5%. Analysts expect an adjusted EPS of $3.38—up by 4.8% YoY. Analysts also expect the company’s fourth-quarter earnings to rise by around 5% to $0.87 per share. Wall Street analysts expect General Mills’ earnings to grow at a slower rate of 1.2% in fiscal 2021.

Analysts’ recommendations on General Mills stock

Among the 19 analysts covering General Mills, three recommend a “buy,” 15 recommend a “hold,” and one recommends a “sell.” Currently, analysts have given the stock a 12-month target price of $55.83, which is at a 6.4% discount to Tuesday’s stock price.

Notably, General Mills stock gained 11.78% on Tuesday and closed at $59.67. The stock also hit its 52-week high of $60.00 yesterday. At Tuesday’s closing price, General Mills has a market capitalization of $36.1 billion. The company has gained around 12.5% year-to-date due to the defensive nature of the stock amid coronavirus fears. Investors tend to shift to defensive stocks amid an uncertain economic environment.

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