General Mills (GIS) Surpasses Q3 Expectations, Eyes Steady Growth Ahead

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General Mills (GIS, Financial), known for household brands like Betty Crocker and Bisquick, has seen its shares rise by 2% as it breaks free from a prolonged downturn with its third-quarter (Feb) results. For the first time since the first quarter of 2023 (Aug), the company surpassed adjusted EPS estimates by a significant margin and reported a notable increase in top-line results, a positive change from its second-quarter (Nov) performance. General Mills also confirmed its fiscal year 2024 forecasts for organic net sales and adjusted EPS growth in constant currency remain on track.

Key highlights from the report include:

  • Despite a 0.5% year-over-year revenue drop to $5.1 billion in Q3, an improvement from the 2.3% decrease in Q2, challenges persist with a 12th consecutive quarter of volume contraction.
  • The Pet segment struggled, with a 5-point drop in volumes leading to a 3% net sales decline, although there were signs of improvement in its core Blue Buffalo sales and wet pet food line.
  • North America Retail, the company's largest segment, saw flat sales growth due to price inflation offsetting a 2-point volume dip. Over 40% of its priority businesses maintained or increased market share.
  • Mixed results across other segments, with Foodservice experiencing growth and no volume decline, while International sales fell by 3% year-over-year due to a 4-point volume decrease, largely influenced by stagnant economic conditions in China.
  • Benefiting from its Holistic Margin Management (HMM) cost-savings plan and favorable supply chain developments, General Mills reported an 8% increase in adjusted EPS year-over-year to $1.17 and a 20 basis points expansion in adjusted gross margins to 34.0%.
  • The company's FY24 financial targets remain unchanged, anticipating organic net sales growth of negative 1% to flat year-over-year and adjusted EPS growth of +4-5% in constant currency.

General Mills (GIS, Financial) has shown resilience with a series of sequential improvements in the third quarter, providing a glimmer of hope for investors after a six-month period of stagnant share performance. Despite overcoming significant challenges, the company still faces near-term hurdles, including an unfavorable comparison in the next quarter expected to impact net sales growth by 3 points and ongoing inflation concerns. The effectiveness of its Holistic Margin Management strategy in mitigating these issues will be crucial for sustaining the stock's recent upward trend in the short term.


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