General Mills Inc. GIS is set to report third-quarter fiscal 2015 results on Mar 18, before the market opens.
Last quarter, it delivered a positive earnings surprise of 5.26%. Let’s see how things are shaping up for this announcement.
Factors to Consider
Sales and profits in General Mills’ U.S. Retail segment were below expectations in the first half of 2015 due to weak food industry trends. The company’s core cereals business is underperforming due to weak category growth. Lower demand for cereals due to competitive pressures from alternatives including yogurt, eggs, bread and peanut butter are hurting category growth. Some international markets, especially the emerging countries, are also experiencing a slowdown.
However, General Mills’ second-half results are expected to be better than the first as management expects sales and profits in the U.S. Retail segment to improve. Management aims to improve the segment’s performance in the second half through new products, renovation of existing brands and better execution of marketing and customer programs.
Management’s priorities for the second half include increased investments in cereal to foster growth, turning the U.S. yogurt business around and driving profits at the better-for-you snacks business.
Moreover, easy comparison with the year-ago period, incremental cost savings and decline in commodity costs should lead to better profits in second half. Milk costs have declined after the third quarter of calendar 2014. Additionally, incremental sales from the Annie’s acquisition (Oct 2014) should add to third-quarter top line.
Net sales in the second half are expected to grow at a mid single-digit rate in constant currency. Constant currency adjusted operating profit is expected to grow at a high single-digit rate. Constant currency adjusted diluted EPS is expected to grow at a double-digit rate.
Earnings Whispers
Our proven model does not conclusively show that General Mills is likely to beat earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. That is not the case here, as you will see below.
Zacks ESP: The Earnings ESP is 0.00%.
Zacks Rank: General Mills’ Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.
We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
Stocks to Consider
Here are some other food stocks that have both a positive Earnings ESP and a favorable Zacks Rank: