Despite soft sales figures, this branded consumer foods company delivered positive earnings surprises in three of the last four quarters, with an average positive surprise of 3.52%.
Let’s see how things are shaping up for this announcement.
Factors at Play
For the fiscal third quarter, the Zacks Consensus Estimate for earnings is pegged at 71 cents a share, reflecting a 9.2% year-over-year increase. Meanwhile, our estimate for revenues is pegged at $3.82 billion, implying a 4.5% decrease.
Sales and profits at General Mills’ U.S. Retail segment, which contributes 60% to its sales, have been soft due to weak demand amid changing consumer food preferences. The company’s U.S. Retail sales declined 8.3% in the first half of fiscal 2017. Meanwhile, the strengthening U.S dollar and the restructuring of the snacks business in China might impact General Mills’ International segment revenues in the to-be-reported quarter.
The company also expects its organic sales growth to drop 4% in fiscal 2017. Widening gap in promotional activities between General Mills and that of its peers in the Yogurt and Soup categories is expected to negatively impact the company’s sales during the second half of fiscal 2017.
Also, net sales for the “Growth” businesses – which represent approximately 75% of sales and operating profit – are now expected to decline at a low single-digit organic rate in fiscal 2017 versus the prior guidance of improvement of lower single digit. In fiscal 2017, General Mills expects its EPS to rise in the range of 5–7% from $2.92 in fiscal 2016.
To counter the tepid sales growth, the company is focused on various restructuring initiatives that are offsetting sluggish top-line growth at General Mills.
We believe the third quarter performance will be driven by product innovation, renovation and the implementation of HMM (Holistic Margin Management). The company remains on track to generate $1.2 billion in cost-of-goods savings from HMM and $500 million in savings from its incremental efficiency and cost savings initiatives between fiscal 2015 and fiscal 2017, including global supply chain and organizational restructuring as well as the implementation of zero-based budgeting.
Our proven model does not conclusively show that General Mills is likely to beat earnings estimates this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.
Zacks ESP: General Mills’ Earnings ESP is 0.00%. This is because the Most Accurate estimate and the Zacks Consensus Estimate is currently pegged at 71 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: General Mills has a Zacks Rank #3 which increases the predictive power of ESP. However, the company’s 0.00% ESP makes surprise prediction difficult.
Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Stocks to Consider
Here are some consumer staples stocks that you may consider, as they have both a positive Earnings ESP and a favorable Zacks Rank:
McCormick & Company, Incorporated (MKC – Free Report) has an Earnings ESP of +5.33% and a Zacks Rank #3. The company is expected to report its quarterly results on Mar 28. You can see the complete list of today’s Zacks #1 Rank stocks here.
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