Post Earnings Coverage as General Mills Doubles Profit

LONDON, UK / ACCESSWIRE / June 30, 2016 / Active Wall ST announces its post-earnings coverage on General Mills Inc. (NYSE: GIS). The company announced its Q4 FY16 and FY 2016 results on Wednesday, June 29, 2016. The Cheerios brand maker posted earnings and revenue results that beat Wall Street’s estimates, while the company also raised its cost savings projection to $600 million and boosted its quarterly dividend by 4%. Register with us now for your free membership and see our complete earnings coverage on this equity at:

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Earnings Reviewed

For the period ended May 29, 2016, General Mills reported a profit of $379.6 million, or $0.62 per share, up from $186.8 million, or $0.30 per share, in the year ago period. Adjusted earnings fell to $0.66 from $0.75 in the year ago period, topping analysts’ expectation of adjusted earnings of $0.60. Revenue declined 8.6% on y-o-y basis to $3.93 billion. Weak demand for its Yogurt brand, strong U.S. dollar, and the completion of the sale of Green Giant frozen foods line to B&G Foods Inc. (NYSE: BGS) weighed on its results. For Q4 FY16, U.S. retail segment net sales declined 12% to $2.2 billion, while international net sales fell 1% to $1.2 billion.

Reorganisation Helps Profitability in Cereals

General Mills has been under pressure lately as its U.S. sales and profits have been impacted by changing consumer food preferences. The Golden Valley-based food processing giant has tried to reorganize itself as consumers have become more conscious about their eating habits.

In September 2014 General Mills acquired organic snack maker Annie’s Inc. and in September 2015 it sold the Green Giant’s business. Furthermore, the company has refurbished its own cereal products line; it has made Cheerios gluten free, removed artificial colours and sweeteners from Trix, and introduced Annie’s organic cereals. This has shown on its top line for Q4 FY16 as U.S. retail sales of General Mills’ cereal rose 3%.

Cost Cutting Boosts Margin Target

To counter sluggish sales growth, General Mills is rapidly and aggressively cutting costs to increase profitability. The company has forecasted that by FY 2018 its cost-reduction and organizational efficiency initiatives, as well as administrative cost reductions will generate annual savings of $600 million, up from the prior target of $500 million, the company also said that it is taking further steps to streamline its operations. It now expects its adjusted operating profit margin to expand from the current 16.8% to 20% by FY 2018.

New Focus

General Mills said that it would be more stringent in investing in business upon the potential, the company said it would invest more heavily in what it terms as “growth” businesses which accounts for about 75% of the company’s overall revenue and operating profit, consisting of Cereal, natural and organic brands, yogurts, and Mexican food among others in the U.S. The company also announced that it will renew its focus on reducing products, consisting of Betty Crocker baking mixes, Pillsbury refrigerated dough and Progresso soup among others, which have slower growth, and prioritize the most profitable ones in what it terms the “foundational” category.

Outlook

Going forward, General Mills expects organic net sales for FY 2017 to be flat or down 2% y-o-y, and earnings per share to increase 6% to 8%. For FY 2018, the company expects earnings growth by low double digits.

Dividend

The maker of Betty Crocker and Bisquick food products raised its quarterly dividend by 4% to $0.48. The dividend is payable on August, 01, 2016 to shareholders of record on July 11, 2016.

Stock Market Reaction

General Mills shares surged 3.19% to finish the trading session at $67.86 on Wednesday, post its earnings release. Since the beginning of the year, the company’s shares have advanced 19.47% as compared to the S&P 500 which is up 1.31% during the same time frame.

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