What's In Store For General Mills (GIS) In Q1 Earnings?

General Mills Inc. (NYSE:GIS) is set to report first-quarter fiscal 2018 results on Sep 20, before the market opens. Last quarter, the company delivered a positive earnings surprise of 2.82%.

This branded consumer foods’ company delivered a positive earnings surprise in three of the trailing four quarters, the average beat being 0.86%.

The chart below depicts the surprise history.

Factors to Consider

Although General Mills is making efforts to drive revenue growth through consumer-focused innovations and marketing initiatives in its key businesses, the company is expected to witness muted sales growth in the first quarter of fiscal 2018. This is due to continued volume declines in North America.

Sales and profits at the North America Retail segment, which accounted for about 65.3% of the company’s total sales in fiscal 2017, have been soft due to lower demand amid weak food industry trends and changing consumer preferences. Further, organically, year-over-year sales growth is anticipated to decline 1-2% in fiscal 2018.

However, much like the other food companies, General Mills, too is focusing on cost-cutting initiatives to boost margin amid soft sales. During the last-reported quarter, despite soft sales, the company’s adjusted gross margin increased 70 basis points (bps) year over year to 35.1%, helped by cost-saving measures. Even its adjusted operating margin grew 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.

The company has plans of delivering approximately $390 million in supply chain productivity savings in fiscal 2018 through its ongoing Holistic Margin Management (HMM) efforts. General Mills also expects to deliver about $160 million in incremental savings from other restructuring and cost-reduction initiatives, which equates to approximately $700 million in aggregate cost savings by fiscal 2018.

That said, an expected decline in volumes, primarily in North America, higher promotional expenses, as planned for the second half of fiscal 2018, and rising input costs are likely to remain a drag in the to-be-reported quarter.

For the fiscal first quarter, the Zacks Consensus Estimate for earnings is pegged at 77 cents, reflecting a decline of 1.7% year over year. Meanwhile, our estimate for revenues is pegged at $3.79 billion, implying a 3% decline.

Earnings Whispers

Our proven model does not conclusively show that General Mills is likely to beat on earnings this quarter. This 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% as the Most Accurate estimate and the Zacks Consensus Estimate are pegged at 77 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: General Mills’ Zacks Rank #2 increases the predictive power of ESP. However, we also need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into an earnings announcement, especially when the company is witnessing negative estimate revisions.

Stocks to Consider

Here are a few companies in the consumer staples sector that can be considered as our model shows that they have the right combination of elements to post an earnings beat in their upcoming releases.

Philip Morris International Inc. (NYSE:PM) has an Earnings ESP of +1.08% and a Zacks Rank #3. The company is expected to report its quarterly results on Oct 19.

Archer-Daniels-Midland Company (NYSE:ADM) has an Earnings ESP of +2.36% and a Zacks Rank #3. The company is expected to report its quarterly results on Nov 7. You can see the complete list of today’s Zacks #1 Rank stocks here.

Blue Buffalo Pet Products, Inc. (NASDAQ:BUFF) has an Earnings ESP of +10.11% and a Zacks Rank #3. The company is expected to report its quarterly results on Nov 9.

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