General Mills (NYSE:GIS) has analysts at UBS upbeat about its upcoming earnings release where the company’s financial year 2024 guidance will be a point of focus.
The packaged food giant, whose portfolio of more than 100 brands includes the likes of Cheerios, Lucky Charms, Betty Crocker, Pillsbury, and Häagen-Daz, is set to report its fourth quarter fiscal 2023 earnings on June 28, 2023.
The UBS analysts expect General Mills (NYSE:GIS) to report earnings per share of $1.09, above the Street’s guidance of $1.07.
However, they noted that the company’s growth is expected to fall short of Nielson consumption, as it has in five of the last seven quarters, as retailers reduce their inventory levels.
On its 2024 financial year guidance, the analysts believe General Mills (NYSE:GIS) will project earnings per share of about $4.60 at the midpoint, above the Street’s estimate of $4.48.
“Within this guidance, it will be important for management to address the pace of pet recovery as it remains the biggest debate on the stock,” the analysts wrote.
They expect the company to deliver a solid 2024 financial year operationally but noted several headwinds which they believe will have a negative impact of $0.10 to earnings per share.
“We estimate that lower pension income will be a about $30 million headwind for GIS in FY24 as interest rates move up,” they noted.
“For interest expense, the company has several tranches of debt that mature over the next 12 months. We expect them to be refinanced at higher rates, driving an about $40 million headwind.”
The UBS analysts awarded the stock a ‘Buy’ rating and a US$96 price target. General Mills shares are currently trading at US$81.14.
They noted that General Mills shares had underperformed over the last month as investors sought to sell and/or short packaged food stocks trading at peak valuation multiples.
“We believe the likely path is the company continues to beat and raise over the next few quarters allowing it to grow into its multiple driven by: (1) better than expected pet growth, (2) improved pet profitability, (3) positive low single-digit growth in NA retail over the long term, and (4) improved profitability in international on the back of the yogurt divestiture and lapping the ice cream recall,” they wrote.
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