What to look for when General Mills (GIS) reports Q2 results next week

These days, retail companies and store operators struggle to strike the right balance between cutting costs and maintaining growth, as rising inflation and falling consumer confidence weigh on sales volumes and eat into margins. General Mills, Inc. (NYSE: GIS) is one of the few companies that defied the stock market selloff and maintained a steady uptrend this year. Beating the odds, the company’s stock rebounded from a slump mid-year and reached a record high last week.

Q2 Report on Tap

After entering fiscal 2023 on an upbeat note, the Minneapolis-based consumer staples company is all set to report November-quarter results on December 20 before the market opens. Market watchers, in general, are bullish on its performance in the most recent quarter – it is estimated that adjusted earnings grew 7% to $1.06 per share on revenues of $5.19 billion, which is up 3.40% year-over-year. Going by the company’s impressive track record of delivering better-than-expected quarterly earnings, the trend will likely continue this time too.

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General Mills Q1 2023 Earnings Call Transcript

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Encouraged by the recent improvement in operating conditions, the management recently said full-year sales would grow faster than initially estimated. However, the cost-related strain on margins would cause earnings to come in below the prior-year levels. The options available to the management, to ease the situation, are to reduce costs and increase prices. But upward price revisions need to be done with caution since it would put pressure on smaller retailers and grocery stores that account for a major share of the company’s sales, and impact volumes.

While there is enough reason to believe that the stock would remain stable ahead of the earnings and beyond, its growth prospects are dampened by the twin challenges of inflation and supply chain disruption. Meanwhile, income investors will find General Mills’ dividend yield of about 3% appealing. On the positive side, GIS continues to be a safe bet for investors who wish to buy and hold it for the long term.

Investing in GIS

The fact that General Mills has so far weathered the challenges, aided by its successful business model, shows the company is set to stay on the growth path next year. The rapidly growing Blue Buffalo and Totino’s businesses, which sell pet food and frozen pizza respectively, experience strong demand despite the macro headwinds, prompting the management to expand production capacity for them. Also, the company’s iconic brands like Haagen-Dazs, breakfast cereal Cheerios, and Betty Crocker continue to dominate the consumer food market in the respective segments.

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General Mills’ CFO Kofi Bruce said while responding to analysts’ questions at the last earnings call, “as we entered the year, we expected a very modest improvement in the level of supply chain disruption. The quarter effectively played out in line with those expectations and with the expectations we set at the beginning of the year, which are we are still expecting a categorically higher level of supply chain disruption than our historical experience.”

Key Numbers

In the first three months of the fiscal year, double-digit sales growth in the main operating segments more than offset weakness in the overseas business, lifting total sales by 4% to $4.7 billion. As a result, adjusted profit moved up by 13% to $1.11 per share.

Shares of General Mills have gained about 27% this year. After closing the last session slightly higher, the stock traded lower early Wednesday.