General Mills (GIS 44.16, -3.61) is near eight-week lows at this juncture, down nearly 7.6%, after management reaffirmed full year fiscal 2019 targets despite the company’s first quarter beat. What's more, falling gross margins and a worse than expected performance out of the company's largest business, North America Retail, pressures the stock on Tuesday.
For the first quarter General Mills reported adjusted earnings per share (EPS) of $0.71, a result which came in better than the Street had expected. Sales came up short of market expectations despite revenue growth of 8.6% year-over-year to $4.09 billion.
Organic net sales increased modestly, reflecting benefits from organic net price realization and mix across all four legacy operating segments, partially offset by lower organic volume in the North America Retail, Convenience Stores & Foodservice, and Europe & Australia segments.
Adjusted gross margin fell 160 basis points to 33.6%, driven by input cost inflation and a 130 basis point headwind from a one-time purchase accounting charge related to the Blue Buffalo acquisition, partially offset by favorable net price realization and mix and benefits from productivity initiatives.
- First-quarter net sales for General Mills' North America Retail segment decreased 2% to $2.39 billion, with lower contributions from volume partially offset by benefits from net price realization and mix. Net sales were also negatively impacted by the comparison to the year-ago period that included co-packing sales related to the North American Green Giant divestiture. Net sales declined 4% in the U.S. Snacks operating unit and 2 percent each in U.S. Meals & Baking and U.S. Yogurt. Net sales in the Canada operating unit were down 2% in constant currency, while U.S. Cereal net sales increased 1%.
- The Convenience Stores & Foodservice segment reported a 4% net sales increase to $463 million, with mid single-digit growth for the Focus 6 platforms led by snacks and frozen meals.
- First-quarter net sales for the Europe & Australia segment increased 2% to $501 million, driven primarily by benefits from net price realization and mix. Nature Valley and Fibre One snack bars and Häagen-Dazs ice cream led net sales performance in the quarter.
- First-quarter net sales for the Asia & Latin America segment increased 2% to $399 million, driven by volume growth and benefits from net price realization and mix, partially offset by unfavorable foreign currency exchange. Net sales increased across the segment including in China, Brazil, and India, and across product platforms, led by Häagen-Dazs ice cream, Wanchai Ferry frozen dumplings, Yoki and Kitano meals and snacks, and Pillsbury snack bars.
- First-quarter net sales for the Pet segment totaled $343 million. On a pro forma basis, Pet segment net sales increased 14%, with positive contributions from volume growth and positive net price realization and mix.
General Mills also reaffirmed its key full-year fiscal 2019 targets. Specifically, the company still sees organic net sales growth in the range of flat to up 1%. Including the impact of the Blue Buffalo acquisition, net sales are expected to increase 9-10%. Constant-currency adjusted operating profit is expected to increase 6-9%from the base of $2.6 billion reported in fiscal 2018. Constant-currency adjusted diluted EPS are expected to range between flat and down 3% from the base of $3.11 earned in fiscal 2018. The company expects free cash flow conversion of at least 95% of adjusted after-tax earnings.
Today’s losses put GIS in even worse shape on the year, as the stock was down 19.5% into this morning’s print. Shares found some support this morning in the 50-day simple moving average (45.61), but fell through that level as the company’s conference call progressed. Consumer packaged goods peers HAIN -2.31%, CPB -2.17%, KHC -1.99%, SJM -1.57%, K -1.53%, HRL -1.47%, HSY -0.81%, MDLZ -0.45%, too, trade lower in sympathy.