GIS Earnings Preview- Another update on consumers
2min read General Mills (GIS) is scheduled to report its Q1 (August) earnings tomorrow morning, with the current FactSet consensus expecting EPS of $1.06, a 7% year-over-year decline, and revenue of $4.80 billion, a 2% drop. While the earnings release is likely to be overshadowed by the Federal Reserve’s upcoming decisions, it will provide important insights into consumer behavior, particularly as General Mills navigates ongoing macroeconomic challenges. The company’s guidance for FY25, which includes organic net sales growth of 0% to +1% and adjusted EPS growth between -1% and +1%, will also be a key focus for investors.
General Mills has seen a recent surge in its stock, up roughly 20% since its disappointing Q4 results in June, as investors rotate into consumer staples amid weakness in tech and discretionary sectors. However, the company has faced nine consecutive quarters of volume declines, and despite easing inflation, volumes did not recover even as prices dropped in Q4. Analysts will be paying close attention to whether General Mills can reverse this trend, especially after the company mentioned seeing a 3.5-point improvement year-over-year in Q1 across its categories, signaling a potential recovery in demand.
In addition to its core packaged food business, General Mills is focusing on turning around its Pet segment, particularly its Blue Buffalo brand, which management has been optimistic about. The company’s Foodservice division, which provides a stable revenue stream through contracts with K-12 schools, has also shown growth despite broader industry weakness. Investors will be watching closely for updates on these segments, as well as any revisions to FY25 financial targets, to gauge whether General Mills is on track to regain competitiveness and drive future growth.
On September 3, General Mills (GIS) reaffirmed its annual guidance during the 2024 Barclays Global Consumer Staples Conference. The company maintained its forecast for fiscal year 2025, expecting organic net sales growth of 0% to +1%, adjusted EPS in constant currency between -1% and +1%, and adjusted operating loss in constant currency ranging from -2% to 0%. This reaffirmation indicates confidence in the company's performance outlook despite broader economic uncertainties.
General Mills posted a modest earnings beat in Q4 but fell short on revenue expectations, capping off a challenging year marked by a 30% stock decline. The company faced continued pressure from inflation, leading to a trade-down effect as consumers sought lower-priced alternatives. This resulted in a 2-point volume decline, marking the ninth consecutive quarterly drop. Notably, despite reducing prices by 4 points in Q4, the company still saw volume losses, indicating that price cuts alone were not enough to retain customer loyalty. The company’s net sales fell 6.3% year-over-year to $4.71 billion, the largest drop since Q4 2021, driven by poor performance in its North America Retail and Pet segments, which saw declines of 7% and 8%, respectively.
Looking ahead to FY25, General Mills anticipates a slow recovery, with organic net sales forecasted to remain flat or rise by just 1% and adjusted EPS growth expected to stagnate. Despite ongoing efforts in cost-cutting through its Holistic Margin Management (HMM) plan and a 2% dividend increase, the company acknowledges that simply lowering prices won't be enough to regain consumer demand. GIS is focusing on brand innovation, package adjustments, and further cost reductions to rebuild its business. However, given the persistent challenges and modest outlook, investors may remain cautious in the near term.