General Mills (NYSE:GIS), Inc. GIS posted fourth-quarter fiscal 2021 results, wherein both top and bottom lines declined year over year but surpassed their respective Zacks Consensus Estimate. Results were affected by tough comparisons with the year-ago period’s initial pandemic-led demand surge and an additional week of results. However, recovery in away-from-home food demand remains an upside.
That said, management expects input cost inflation in fiscal 2022, while it remains focused on countering these challenges with its saving and pricing actions. Also, General Mills remains on track with its Accelerate strategy to aid growth. Though at-home food demand is likely to decline year over year, it is expected to remain higher than the pre-pandemic level, thanks to elevated cooking and baking at home. The company remains focused on capitalizing on these opportunities on the back of its strong brands, innovation and capacity to generate growth.
Quarterly Highlights
The company’s adjusted earnings per share of 91 cents tumbled 19% year over year on a constant-currency (cc) basis. The year-over-year downside can be accountable to reduced adjusted operating profit. Nonetheless, the bottom line surpassed the Zacks Consensus Estimate of 83 cents.
Net sales of $4,523.6 million fell 10% year over year, which included a headwind of 5 points related to an additional week of results in the year-ago period, as well as a 2-point positive impact from currency movements. Organic net sales fell 6% due to reduced organic pound volume, which in turn was a result of tough comparisons with the year-ago period’s spike in the at-home food demand due to the coronavirus outbreak.
On a two-year compound growth basis (or compared to the pre-pandemic level), organic net sales rose 4%. The top line came ahead of the Zacks Consensus Estimate of $4,331 million.
Adjusted gross margin contracted 160 basis points (bps) to 34.5% due to adverse manufacturing leverage.
Adjusted operating profit fell 18% at cc to $740 million due to reduced adjusted gross profit dollars. These were somewhat offset by lower SG&A expenses. Adjusted operating profit margin contracted 140 bps to 16.3%.
Segmental Performance
North America Retail: Revenues in the segment came in at $2,640.1 million, down 17% year over year. The downside was due to comparisons with the year-ago period’s initial demand spike due to the pandemic, as well as a headwind of 6 points associated with an additional week in the year-ago period. Organic sales also fell 13% due to soft organic pound volume, somewhat made up by better organic net price realization and mix.
Convenience Stores & Foodservice: Revenues surged 25% to $493.2 million, thanks to better comparison with the year-ago period’s decline in away-from-home food demand owing to the pandemic. This was partly negated by headwinds related to an additional week in the same period last year. Organic sales jumped 33%.
Europe & Australia: The segment’s revenues rose 2% to $538.9 million, including favorable currency impacts of 10 points and an adverse impact of 6 points related to an additional week of results in the year-ago period. Sales fell 2% year over year on an organic basis due to tough comparisons with the demand surge in the year-ago period.
Asia & Latin America: Revenues rose 17% from the year-ago quarter’s figure to $407 million on elevated at-home food demand induced by the pandemic; a revival in away-from-home food outlets like Haagen-Dazs in Asia and positive currency movements. This was partly negated by headwinds related to an additional week of results in the year-ago period. Organic sales grew 22%.
Pet Segment: Revenues came in at $444.4 million, down 20% year over year due to tough comparisons with the year-ago period, which included results of an additional month as well as escalated pandemic-led stock up demand from pet parents.
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Other Financial Aspects
The company ended the quarter with cash and cash equivalents of $1,505.2 million, long-term debt of $9,786.9 million and total shareholders’ equity of $9,773.2 million. General Mills generated $2,983.2 million as net cash from operating activities in fiscal 2021. Capital investments amounted to $531 million in the fiscal.
Further, the company paid out dividends worth $1.25 billion and bought roughly 5 million shares for $301 million. On Jun 29, General Mills announced a dividend of 51 cents per share, which is payable on Aug 2, 2021, to shareholders of record as of Jul 9.
Other Developments & Outlook
Constant-currency sales from joint ventures of Cereal Partners Worldwide dipped 2% in the quarter. In Haagen-Dazs Japan, sales improved 12% at cc from the prior-year quarter’s figure.
In fiscal 2022, management expects at-home food demand to decrease on a year-over-year basis in most of the company’s core markets, while the same is likely to be greater than pre-pandemic levels. At the same time, the company expects continued recovery in away-from-home food demand, though it is not likely to fully reach pre-pandemic levels in fiscal 2022.
As nearly 85% of General Mills’ net sales reflect at-home food occasions, the abovementioned factors indicate reduced year-over-year aggregate consumer demand across categories in fiscal 2022.
Moving to costs, the company expects total input cost inflation to be around 7% of the cost of goods sold in fiscal 2022. However, management remains on track to counter the inflationary woes with its solid HMM cost savings, which are anticipated to be 4% of the cost of goods sold.
Also, favorable net price realization stemming from the company’s Strategic Revenue Management capacity is likely to aid in countering cost woes. As part of the Strategic Revenue Management, the company has already unveiled pricing actions in most parts of its portfolio.
All said, full-year organic net sales are expected to decrease 1-3% in fiscal 2022, due to soft consumer demand. Adjusted operating profit at cc is anticipated to fall 2-4% from $3.2 billion recorded in fiscal 2021. Adjusted earnings per share at cc is envisioned between flat and 2% down compared with $3.79 reported in fiscal 2021.
Compared to the fiscal 2019 pre-pandemic level, the midpoint of these guidance ranges indicates a three-year compound annual growth of about 2% each for organic net sales and adjusted operating profit (at cc), and 5% for adjusted EPS at cc.
This Zacks Rank #3 (Hold) stock has increased 3.9% year to date compared with the industry’s growth of 7.3%.
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