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General Mills (GIS) to Gain From Blue Buffalo in Q4 Earnings

Zacks Equity Research

General Mills, Inc. GIS is scheduled to release fourth-quarter fiscal 2019 results on Jun 26. This provider of branded consumer foods has outperformed the Zacks Consensus Estimate by average of 11.1% in the trailing four quarters.

Let’s see what’s in store for the company this time around.

General Mills, Inc. Price and EPS Surprise

General Mills, Inc. Price and EPS Surprise

General Mills, Inc. price-eps-surprise | General Mills, Inc. Quote

What to Expect?

The Zacks Consensus Estimate for the fourth quarter has remained stable in the past 30 days at 76 cents compared with 79 cents reported in the year-ago quarter. Further, the consensus mark for revenues is $4,231 million, implying growth of 8.8% from the year-ago quarter’s reported figure.

Factors Driving the Quarter

General Mills’ top line is likely to gain from Blue Buffalo’s inclusion in the quarter to be reported. Notably, the company had taken over this pet products company last year and is on track to integrate the same. Blue Buffalo has emerged into one of the leading brands in the pet food category and is aiding revenue growth. Management anticipates sales from Blue Buffalo and segment operating profit to grow at a significant pace in the fourth quarter, courtesy of distribution expansion in the Food, Drug and Mass (FDM) channel.

Markedly, the Zacks Consensus Estimate for revenues at the Pet segment is pegged at $407 million for the quarter under review, suggesting sequential growth from roughly $347 million reported in the third quarter.

Apart from this, General Mills is poised to gain from other core strategies to drive sales growth. To this end, the company is focused on solid innovations, efficient customer marketing and strong in-store execution to sharpen competitive edge. The company also focuses on driving growth across four differential global platforms, which include Haagen-Dazs ice cream, snack bars, Old El Paso Mexican food, and General Mills’ natural and organic food brands. Finally, the company’s commitment toward reshaping its portfolio via buyouts and divestitures is expected to yield results, evident from the aforementioned acquisition of Blue Buffalo.

However, the company anticipates facing tough year-over-year comparisons in the quarter under review. This is expected to impact sales to some extent.

Will Saving Efforts Battle Cost-Related Challenges?

General Mills has been battling input cost inflation for a while now. High input costs weighed on the performance of the company’s segments during the third quarter of fiscal 2019. Management expects cost inflation to persist in fiscal 2019, stemming from increased logistic costs, and higher costs of grains, packaging and other commodities.

This clearly raises concerns for the quarter to be reported. Nevertheless, we expect General Mills to get some respite from its strong cost-saving measures. The company expects to achieve cost savings through increased efficiency, reduced complexity through SKU optimization, supply-chain optimization and continued expansion of zero-based budgeting across the business, which will result in accelerated margin expansion. Additionally, the company is on track with its Holistic Margin Management (HMM), which is expected to aid margin expansion for Blue Buffalo in the fourth quarter. Also, management had earlier stated that it expects cost of goods HMM savings of roughly $450 million in fiscal 2019, which gives out positive signals for the to-be-reported quarter as well.

What the Zacks Model Unveils

Our proven model shows a beat for General Millsthis earnings season. For this to happen, a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

General Mills carries a Zacks Rank #2, which along with its Earnings ESP of +1.18% makes us reasonably confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Constellation Brands STZ has an Earnings ESP of +4.42% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy HELE has an Earnings ESP of +0.60% and a Zacks Rank #2.

Phillip Morris PM has an Earnings ESP of +4.40% and a Zacks Rank #3.

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