My Rating of General Mills, Inc. (New York Stock Exchange: GIS) shares are hold.
In my previous article on GIS, written on July 8, 2022, I evaluated General Mills’ stock outlook as the company reached new highs. About two months after my company update was published, General Mills’ stock performance (-0.63%) was broadly in line with the S&P 500’s performance (-0.38%), which represented my justify the hold rating.
Given that General Mills will report the company’s financial results for the first quarter of 2023 (YE May 31) in just a few days, we decided to publish a new article on GIS that previews upcoming earnings.
Based on my analysis, I’ve come to the conclusion that General Mill’s performance in the next first quarter will be satisfactory. But I’m not ready to upgrade his GIS rating to pending. We take into account private-label competition and refinancing risk when evaluating companies as investment candidates. Therefore, we decided to keep the GIS hold rating.
GIS Q1 2023 earnings release date
GIS announced on August 31, 2022 that the company’s first quarter 2023 earnings will be released on Wednesday morning, September 21, 2022, before the market opens.
Analyst Expectations for General Mills’ Upcoming Earnings Announcement
The market expects General Mills to do pretty well in the first quarter of 2023, and there are three key takeaways to support this claim.
The first is that GIS has a proven track record of exceeding expectations.
General Mills’ actual quarterly EPS has beaten Wall Street expectations in 14 of the last 16 quarters. This means that GIS has historically provided realistic management guidance that can be achieved in most cases.
As a result, sell-side analysts are confident General Mills will meet its full-year 2023 guidance of generating positive net income growth after adjusting for foreign exchange impacts and inorganic trading. It is very likely that there are
General Mills 2023 Management Guidance
The second point is that sell-side analysts believe General Mills is well positioned to generate a positive top line and earnings per share or EPS growth in the first quarter of this fiscal year.
GIS’ revenue is expected to grow +3.9% year-over-year to $4.72 billion in the first quarter of fiscal 2023, according to Wall Street consensus figures, compared to the company’s first quarter fiscal 2022 year-over-year growth. Equals base sales +4.0%.
Separately, analysts expect General Mills’ earnings to grow +1.2% year-over-year to $1.00 per share in the first quarter of 2023.
More importantly, in the current difficult business environment, positive revenue and growing net income are seen as a decent set of outcomes for any company.
The third point is that Wall Street is becoming more positive about the outlook for GIS next quarter.
In the past three months, seven of the 19 analysts covering General Mills have revised upward their GIS EPS forecasts. By contrast, he was the only two analysts to lower their final estimates for the company. During this period, General Mills’ consensus EPS forecast for the first quarter of fiscal year 2023 increased +1.2%. Also, GIS’s median consensus sell-side target was revised up +9% from $68 at the end of May 2022 to $74 today. S&P Capital IQ financial data.
The key question now for General Mills is whether the company’s actual financial performance for the first quarter of 2023 will meet market expectations, which is addressed in the next section.
My forecast is GIS inline revenue
General Mills’ latest investor event is the 2022 Barclays’ (BCS) Global Consumer Staples Conference, which took place a week and a half ago on September 6, 2022. There is a relevant insight that can be drawn from GIS management’s comments on this. event.
Two key factors, highlighted below, are important in determining whether General Mills’ first quarter 2023 financial results are in line with investor expectations.
One of the factors is the persistence of increasing sales volume.
At the recent Barclays Global Consumer Staples Conference, GIS said that “volumes remain fairly strong” for General Mills and other food companies, based on a review of “scanner data from the past 13 weeks.”
Increased food consumption at home and increased market share may be the drivers of GIS volume growth in the first quarter of fiscal year 2023. As the economy slows and consumers tighten their purse strings, more people are choosing to eat at home rather than eating out. This is a definite plus for processed food companies such as General Mills. On a separate note, General Mills said at a Barclays investor event that the company continues to capture market share in “eight of the top 10 categories in the US.” category.
Another factor is the relaxation of supply chain constraints.
General Mills emphasized at the Barclays Global Consumer Staples Conference on 6 September 2022 that “our supply chain is serving our customers and consumers better than we did six months ago.” His GIS management comments at a recent investor conference are also supported by third-party analysis. As shown in the figure below, the ING Research study outlined in the September 13, 2022 article shows improvements in food companies’ supply chains in areas such as logistics and raw materials.
An analysis of the current state of the various factors affecting the U.S. food supply chain
In conclusion, we don’t expect any major surprises when General Mills releases its first quarter 2023 results on Wednesday.
Concerns about refinancing and private-brand competition
As discussed in the previous section, while we are positive about General Mills’ prospective Q1 2023 results, we still have two concerns about GIS.
As of May 29, 2022, GIS’s “current portion of long-term debt” amounted to a substantial $1.674 billion, according to the company’s fourth-quarter 2022 earnings press release. Debt refinancing is primarily denominated in euros (Europe generally has lower interest rates compared to the US) and in the current environment of rising interest rates, debt refinancing is always tricky.
On another note, the threat of private label in an inflationary environment where consumers are looking to stretch their budgets cannot be ignored. Tracking Down Trends”, titled “Trade Downs in Grocery Stores (64% of consumers traded down in July vs. 53% in May 2022)” was shown to be observed. )” is based on the company’s survey of U.S. consumers. MS said in the report that General Mills was one of the few food companies that “raised prices significantly above their own brands.” In other words, assuming the economy continues to weaken, private label brands and players could pose an increasing threat to his GIS.
At the end
I still assign a hold rating to General Mills. On the positive side, I’m not worried that GIS will not be profitable when it publishes future results. On the downside, GIS carries certain risks (refinancing, private label, etc.) that could depress the share price if they materialize.