General Mills (GIS 59.85, -0.42) is lower by 0.7% after reporting a slim earnings beat and reaffirming its guidance for the fiscal year.
The food producer reported above-consensus earnings of $0.72 per share on a 5.2% year-over-year decline in revenue to $3.79 billion, which was short of market expectations.
The decline in sales was primarily due to gaps in pricing and promotional activity in main U.S. businesses. Gross margin increased 60 basis points to 34.5% while adjusted operating margin increased 100 basis points to 16.9%. Margins improved thanks to favorable mark-to-market effects and cost-saving measures.
Similar to net sales, organic sales fell 5.0% to $3.79 billion. The drop was due to volume reductions in the North American retail segment, which was partially offset by positive net price realization and product mix.
The company reshuffled its global organizational structure during the third quarter, and it now has four operating segments. North America Retail reported net sales fell 7.0% with volume contributing nine percentage points to the decline while price/mix removed two percentage points from the rate of decline. Double-digit declines in U.S. Meals & Baking and U.S. Yogurt units were largely responsible for the decline.
Europe & Australia reported net sales fell 3.0%. A five-percentage point decline due to currency translations was partially offset by a one percentage point gain in volume and a one percentage point increase in price/mix. Unfavorable currency exchange rates offset growth in Haagen-Dazs ice cream, Old El Paso Mexican products, and Nature Valley snacks.
Convenience Stores & Foodservices reported net sales declined 1.0% as a two-point drop in price/mix offset a one point improvement in volume. Declines on certain frozen dough products offset growth for the Focus 6 platforms (cereal, biscuits, yogurt).
Asia & Latin America reported net sales were flat. Price/mix declined by three percentage points, but that was entirely offset by a three-point gain from foreign exchange translations. The benefit from foreign exchange translations and growth in Haagen-Dazs ice cream were offset by restructuring of a snacks business in China, the impact of divestitures and acquisitions in fiscal 2016, and economically-driven declines in Latin America.
Looking ahead, General Mills reaffirmed its guidance for the full year, expecting earnings will grow between 5.0% and 7.0%, coming in between $3.07 and $3.12 per share, which is ahead of current market expectations. Organic net sales are expected to be down about 4.0%.
Shares of General Mills spiked to a new all-time high of $72.95 last July, but that spike was retraced shortly thereafter, as shares returned to the bottom half of last year's range. The stock has struggled so far in 2017, having surrendered 3.1% since the end of 2016.