General Mills (GIS) Tops Earnings and Expects Stable Costs in 2013

On Wednesday, food conglomerate General Mills (GIS: Charts, News) impressed Wall Street with quarterly earnings that topped analyst expectations. For its first quarter, the parent company of Cheerios, Progresso and Yoplait reported earnings of 82 cents per share, or $548.9 million.

On an adjusted basis, that excluded a tax benefit and the higher value of commodity positions, General Mills actually earned 66 cents per share, topping analyst estimates of 62 cents on the same basis. Revenue came in a $4.05 billion, slightly missing analysts' forecasts of $4.08 billion. This was a 34% jump in non-adjusted earnings and a 5% increase in revenue from the prior year quarter. Daily Chart Although General Mills is most widely known for its cereals, the company also sells other packaged food products as well as branded and unbranded food products to the food service industry. General Mills sells its products in 15 countries and markets them through local distributors in 130 countries. General Mills attributed its gains to the acquisitions of Food Should Taste Good, Yoplait Ireland, Yoplait International and Parampara Foods as strong contributors to its top and bottom lines. Food Should Taste Good, acquired in February 2012, is a natural snack foods company based in Needham Heights, Massachusetts. By the end of fiscal 2012, General Mills purchased 50%-51% stakes in several Yoplait subsidiaries to increase its exposure to the yogurt market. By fiscal 2013, the company expects its acquisitions of Yoplait Canada and Yoki Alimentos (Brazil) to further contribute to its annual revenue and earnings. Company wide, sales volume increased 9%, but its top line was adversely impacted by a strong U.S. dollar during the quarter, due to weakness in Europe and Asia. In a previous forecast, General Mills stated that it expected cost inflation, which impacts the cost of raw commodities, to rise between 2% to 3% during fiscal 2013. This is a substantial improvement over fiscal 2012, when cost inflation surged by 10%, crippling its margins due to the soaring costs of fuel and grains. Stable prices are expected to keep product prices stable for most of the year. The company also sold more lower priced items than higher priced ones during the quarter. General Mills stood by its previous full-year outlook, expecting earnings of $2.65 per share for the year. CEO Ken Powell noted that gross margins and volumes improved sequentially from the previous quarter. "In our core U.S. market, we are seeing slow improvement in price and volume trends across our retail food categories." Shares of General Mills trade at 13.9 times forward earnings with a 5-year PEG ratio of 2.2. Although shares are fundamentally undervalued, the stock is unlikely to climb substantially in the near future, but should be considered a safe dividend play in uncertain times as the market climbs to a 5-year high. The stock has traded in a narrow range over the past twelve months, due to its low beta of 0.16, rising 6.8% over that period and remaining between $36.75 and $41.06. The stock, generally considered a conservative income stock, pays a quarterly dividend of 33 cents per share, a 3.3% yield at current prices. Other News About (GIS) General Mills Profit Beats; Company Backs Outlook General Mills impresses the Street, shares rally. General Mills Net Jumps, Ascena Retail Net Drops General Mills expects stable prices throughout 2013. Other Stocks in the News Piper Jaffray Reiterates Overweight Rating, Raises PT on McDonald's Corporation Piper Jaffray super-sizes its rating on McDonald's. Starbucks Bears Beton Continued Technical Troubles Starbucks is bouncing back, but bears are betting against the rising stock. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Sep 20, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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