General Mills Inc (NYSE:GIS, ETR:GRM) reported better-than-expected profits for the fiscal third quarter but weak guidance saw shares of the consumer packaged goods giant fall in early trade on Wednesday.
Quarterly earnings per share (EPS) of $1.12 beat estimates of $1 but revenue of $4.8 billion was short of estimates of $4.96.
The company, whose brands include Nature Valley, Cheerios and Betty Crocker, cut its fiscal year 2025 outlook. It now expects adjusted EPS to decline between 7% and 8% or a range of $4.16 to $4.20, compared to earlier expectations of a 2% to 4% decline.
The company now expects organic sales to decline between 2% and 1.5%, compared to the previous expectation of flat to 1% growth.
“Though a guidance cut was largely expected given commentary from [General Mills' investor event] CAGNY, we think the magnitude of the cut was more drastic than expected,” Bank of America analysts wrote in a note.
The analysts repeated their ‘Buy’ rating on General Mills post-earnings.
They attributed the Q3 earnings beat to improved gross and operating margins, as well as lower interest expenses.
The Pet segment performed better than expected, despite an inventory destocking that impacted the overall numbers. However, both the Foodservice and International segments faced challenges, contributing to the company’s sales miss.
Looking ahead, the analysts expect the company to benefit from its strong position in the Pet category and could see stock appreciation as investors shift to more defensive stocks in uncertain economic times.
Solid growth prospects
Bank of America highlighted that while there are near-term challenges, General Mills’ solid medium-term growth prospects in key geographies and categories support its favorable outlook.
The company's free cash flow conversion is expected to remain strong at over 95%, and share repurchase activities are set to reduce the share count by approximately 4%.
They awarded the stock a $70 price target. Shares traded down 2.4% at $59.
“This [price target] is in line with food peer group which we think balances the near-term volume pressures with the positive medium-term growth prospects across key geographies and categories,” analysts concluded.