Click here to access GIS' earnings press release.
On the positive side, GIS has exceeded the Street's earnings expectations for six straight quarters, demonstrating solid cost management. The company implements what it calls a "holistic margin management" strategy to help offset rising input cost inflation and to generate cost savings.
It's a broad-based initiative that includes eliminating costs across the supply chain, identifying inefficiencies in packaging, and improving ROI on its marketing efforts. GIS takes those savings and reinvests them into growth opportunities.
GIS' adjusted gross margin still fell by 50 bps to 35.3%, as it wasn't able to fully offset higher input costs. However, the company noted during its earnings call that it lapped a particularly strong number from the year ago period.
The more pressing concern is on the top line as GIS has missed analysts' expectations for four quarters in a row.
Furthermore, while revenue growth has been solid in the mid-single-digit range, growth has been entirely driven by its 2018 acquisition of pet food maker Blue Buffalo. In fact, organic net sales declined by 1% for the quarter, mainly due to lower sales volume.
There lies the concern. Once the impact of the Blue Buffalo addition plays out, GIS could struggle mightily to generate meaningful growth from its mature brands.
Like other packaged food companies such as Kraft Heinz (KHC), GIS faces mounting competitive pressures from fresh food delivery options such as HelloFresh, Blue Apron, and Plated, as well as from restaurant delivery like Uber Eats and Door Dash.
To combat this, GIS' strategy will include driving growth in its portfolio of natural and organic food brands, while also continuing to enhance its Blue Buffalo segment. It may also seek another acquisition to bolster its growth.
Key Takeaway: GIS has done an admirable job of identifying cost cutting areas in order to stabilize margins in a challenging environment. Its acquisition of Blue Buffalo was also a clear winner. But as growth tops out from that acquisition, investors are wondering how GIS will generate future growth, especially as mature packaged food companies face strong headwinds from changing consumer eating and buying habits.