GIS breaks above its 200-sma after beating top and bottom line, reaffirming 2024 outlook
2min read In the first half of fiscal 2024, General Mills experienced a mix of higher product prices contributing 4 percentage points to its year-over-year sales growth, offset by a 3-percentage point decline due to reduced unit volumes. The company's ability to maintain its recent price increases, which have supported earnings, may be challenged by a recovering sales volume amid a backdrop of slowing inflation. Wall Street remains cautious, with many analysts holding a neutral outlook and setting stock price targets near current levels.
Shares of GIS are down 24% from their peak in May of 2023. However, the stock rallied 12% in the days leading up to this report. Investors appear happy with the results as the stock is pressing above its 200-sma ($68) in early trade. Holding above this level will be important. The one potential drag will be the decline in volume which suggests consumers remain pinched by inflation costs.
In its latest earnings report for the third quarter (Feb) of fiscal year 2024, General Mills (GIS) delivered diluted earnings per share (EPS) of $1.17, surpassing the consensus estimate of $1.05 by $0.12. The company's revenues decreased 0.5% year-over-year (YoY) to $5.1 billion, marginally beating expectations of $4.97 billion.
General Mills' organic net sales were 1% below the strong YoY results of the previous year, which had grown in double digits. However, on a 2-year compound growth basis, organic net sales were up 7%.
An improved Price mix partially offset lower volumes. North America Retail price mix was up 3% while volume declined -21% YoY. Pet price mix increased 2% while volume dropped 5%. International price mix was flat while volumes declined 4%. In tital, price mix increased sales by 2% which was offset by a decline of -2% in volume.
General Mills' net sales for the North America Retail segment were largely flat YoY at $3.2 billion, with favorable net price realization and mix offsetting lower pound volume. The Pet segment's net sales decreased 3% to $624 million, due to lower pound volume, partially offset by favorable net price realization and mix. The North America Foodservice segment experienced a 1% increase in net sales to $552 million, while the International segment's net sales dropped 3% to $680 million, driven by lower pound volume.
The adjusted gross margin improved by 20 basis points to 34.0% of net sales, driven primarily by Holistic Margin Management (HMM) cost savings, favorable net price realization and mix, and favorable mark-to-market effects. These gains were partially offset by higher other supply chain costs, input cost inflation, and supply chain deleverage.
The company reaffirmed its full-year fiscal 2024 outlook, expecting organic net sales to remain flat to decline by 1%, while adjusted EPS to increase by 4-5% in constant currency. Free cash flow conversion is expected to be at least 95% of adjusted after-tax earnings.
The company continues to face challenges such as the economic health of consumers, input cost inflation, and supply chain environment. Despite these headwinds, General Mills is confident in its Accelerate strategy to drive sustainable, profitable growth and top-tier shareholder returns over the long term. The strategy focuses on four pillars: bold brand building, relentless innovation, unleashing scale, and standing for good.
In conclusion, General Mills' third-quarter earnings report for fiscal 2024 demonstrates the company's resilience in the face of various challenges. With a reaffirmed financial outlook for the full year and continued focus on its Accelerate strategy, the company is well-positioned to navigate these difficulties and deliver value to shareholders.