Analyst views on General Mills full-year results

Analyst views on General Mills full-year results

General Mills yesterday reported a drop in full-year profits as the steepest rise in input costs it has experienced in over 30 years weighed on earnings. However, some analysts believe the US company continues to operate a strong brand porftolio, while others point to yogurt as the linchpin to the its future growth.

Morningstar analyst Erish Lash

"Despite the unfavorable operating environment, we contend that the firm continues to exhibit the benefits of its competitive advantages, namely a strong brand portfolio and an extensive global distribution platform. While management's initial bottom-line guidance for fiscal 2013 lags our forecast slightly, we don't anticipate making any material changes to our $41 per share fair value estimate, even after taking the firm's muted outlook into account. Overall, we believe that the shares, which are trading at a price/earnings multiple of 14.5 times management's guidance, appear slightly undervalued."

Stifel Nicolaus analyst Chris Growe

"We believe the volume performance in the US retail division will be the key driver of the upside potential to earnings based on the success of the new products and the improvement in underlying trends. We now estimate EPS of US$2.66 in FY13 representing +4% growth. We also now introduce our FY14 EPS estimate of $2.92 which features +10% EPS growth courtesy of the benefit of acquisitions and solid underlying revenue growth.

"In assessing the outlook for top-line growth, we believe the yogurt category remains the linchpin to the company's sales and earnings growth prospects
in the US. Certainly the yogurt category is far more important to the company's growth in general given its ownership of Yoplait around the world including in some key growth markets for the business."

Barclays Capital analyst Andrew Lazar

"We believe that many investors (ourselves included) were surprised by the magnitude of the -7% YOY volume decline in GIS’ US Retail segment during F4Q. Importantly, GIS reports volume in terms of pounds, which means that it is skewed by some of the heavier items in the company’s portfolio (such as yogurt and baking products, both of which were weak during F4Q). On a unit – not pound – basis, volume declined a more moderate -2% YOY, which is also not ideal, but does at least reflect that some of the non-yogurt parts of GIS’ portfolio (such as snack bars in particular) are actually doing quite well. In FY13, GIS does expect base business pound volume to be up for the full fiscal year, though we would not expect pound volume growth to turn positive until F2Q or F3Q (whereas unit volume growth could potentially turn quicker, in our view)."

Robert Moskow - Crédit Suisse AG, Research Division

"The commodity cost inflation outlook is very unstable. You can see corn prices starting to shoot up again. But on the other hand, I get calls from a lot of investors who think that General Mills might have a lot of gross margin expansion similar to what happened in fiscal '10."