General Mills, Inc. (NYSE: GIS) was able to reign in costs and report better-than-expected earnings per share in its fiscal fourth quarter on Wednesday. Despite a more disciplined approach to spending, earnings were down sharply from a year ago, and the company’s lukewarm growth guidance isn’t inspiring the market.
General Mills reported adjusted fourth-quarter EPS of 79 cents, above consensus estimates of 72 cents. Revenue for the quarter was $3.89 billion, in line with consensus estimates and up 2 percent from a year ago.
North America sales volume was down 2 percent, but net sales were flat.
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“While our full-year profit results fell short of our initial plans, we finished the year delivering growth in sales, margins, profit, and EPS in the fourth quarter,” CEO Jeff Harmening says in a statement. “And I’m pleased with the continued progress we’ve made in cash generation, with our free cash flow up nearly 30 percent this year.”
Fourth-quarter gross margins were 36.5 percent, up from 34.7 percent a year ago. The company said margin expansion was driven by pricing shifts and productivity initiatives.
For the full fiscal year, General Mills reported $15.74 billion in revenue, up 1 percent. Gross margins were down 1.1 percent to 34.5 percent. Operating profit was also down 2 percent on the year to $2.51 billion.
Looking ahead, General Mills guided for fiscal 2019 EPS of between $3.02 and $3.11 compared to 2018 EPS of $3.11. The company said 2019 organic sales growth will likely be between zero and 1 percent excluding the impact of Blue Buffalo and between 9 and 10 percent including Blue Buffalo.
Bank of America analyst Bryan Spillane says the General Mills quarter was solid, but nothing to get excited about.
“EPS upside was driven by slightly stronger sales growth and lower [cost of goods sold], which offset a higher than expected [selling, general and administrative expense] and interest expense,” Spillane says.
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Spillane says operating profits and gross margins were better than he had anticipated, but he still sees little upside to GIS stock.
“While management has a realistic view of the marketplace and will focus on improving sales in FY19, we believe the market has priced in industry challenges and GIS’ steps to address them,” he says.
General Mills stock was up 1.3 percent on Wednesday. Bank of America has a “neutral” rating and $49 price target for GIS stock.
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General Mills, Inc. (GIS) Cuts Spending, Scores Earnings Beat originally appeared on usnews.com
