General Mills (GIS) Q4 Earnings Beat Estimates, Margins Grow

General Mills, Inc.’s (NYSE:GIS) cost-saving initiatives have helped it to come up with better-than-expected fourth-quarter fiscal 2017 results along with solid adjusted operating profit margin expansion. The company’s shares inched up 0.29% in pre-market trade on Jun 28.

Earnings Beat

The food giant reported fourth-quarter fiscal 2017 adjusted earnings per share of 73 cents, surpassing the Zacks Consensus Estimate of 71 cents by 2.8%. Earnings also improved 11% year over year. On a constant currency basis, earnings grew 14%.

Adjusted earnings exclude restructuring, project-related expenses and mark-to-market valuation effects. Including these items, reported earnings came at 69 cents per share, up 11% year over year.

Sales Surpass

Total revenues of $3.81 billion surpassed the Zacks Consensus Estimate of $3.75 billion by 1.6% but declined 3% year over year owing to lower organic sales. Also, sales were weak in the core U.S. Retail and other segments barring Convenience Stores & Foodservice division.

Organically, excluding currency and acquisitions/divestures, sales were down 3%.

Price/mix improved 4%, whereas volumes declined 7%. Foreign exchange headwinds did not impact quarterly revenues.

Margins Improved

Adjusted gross margin increased 70 basis points (bps) to 35.1%, as input cost inflation and lower volumes were offset by savings from cost-reduction activities.

Adjusted operating margin increased 220 bps to 16.8%, owing to higher adjusted gross margins, benefits from cost-savings initiatives and a 17% decline in advertising and media expense.

Segment Performance

Beginning third quarter of fiscal 2017, the company has been reporting results under four new business groups: North America Retail, which combines U.S. retail segment and Canada region in international segment; Convenience Stores & Food Service; Europe & Australia, which is currently another international region; and Asia & Latin America, which combines the remaining two current international regions.

This structural change aims at maximizing global scale, unlocking global growth opportunities and driving efficiency.

North America Retail: Revenues from this segment declined 3% year over year to $2.39 billion due to double-digit declines in the U.S. yogurt operating units. This was partly offset by growth in the U.S. Snacks unit. Organic sales were down 4%. Volumes dipped 8%, while price/mix added 4% to revenues.

Segment operating profit was up 9% year over year, attributable to lower advertising and media expense and higher pricing.

Convenience Stores & Food Service: Revenues were flat year over year at $488 million. Growth at the Focus 6 platforms, comprising cereal, yogurt, and biscuits, offset the decline in other frozen dough products.

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Organically, sales were flat, too. While volumes increased 2%, price/mix impacted revenues by 2% in the quarter.

Segment operating profit also remained unchanged from the year-ago level.

Europe & Australia: On a year-over-year basis, the segment’s revenues declined 14% to $487 million because of the reporting period difference in the year-ago period and unfavorable currency impact. Organically, sales were down 9%.

Foreign exchange headwinds dragged revenues by 5% in the quarter. Volumes were down 16% and price/mix had a 7% favorable impact on the quarter’s results.

Segment operating profit dropped 34% year over year. This was due to the reporting period difference and input cost inflation, including currency-driven inflation on products imported into the U.K. These were partially offset by benefits from cost-savings initiatives.

Asia & Latin America: Revenues were up 10% year over year to $440 million. Organically, sales grew 8%.

While volumes were up 2%, price/mix had a favorable impact of 6% on the quarter’s results.

Segment operating profit was down 17% year over year.

Fiscal 2017 Summary

The company’s earnings in fiscal 2017 came at $3.08, up 5% year over year and 6% on a constant-currency basis.

Total revenue declined 5.7% year over year to $15.6 billion in fiscal 2017. Adjusted gross margin advanced 50 bps to 36.1% and adjusted operating margin increased 130 bps to 18.1%.

Fiscal 2018 Guidance

Organically, year-over-year sales growth is expected to decline 1–2%.

Adjusted earnings per share (constant currency) are anticipated to grow 1–2% from the fiscal 2017 level of $3.08 per share. The company expects currency-related headwind of 1 cent on full-year fiscal 2018 adjusted earnings per share.

Total segment operating profit growth is estimated in the range of flat to 1%, on a constant-currency basis. Adjusted operating margin is expected to remain above the fiscal 2017 level of 18.1%.

General Mills carries a Zacks Rank #4 (Sell).