General Mills (GIS 52.50, -2.88 -5.2%) makes better than two-year lows this afternoon, sparked on by the company’s Q1 earnings miss.
Put simply, GIS’s Q1 earnings were not up to snuff. Missing market expectations, the food company earned $0.71 per share and saw revenues dip 3.6% to about $3.77 billion in Q1.
Additionally, organic net sales were also down 4%, mostly due to volume declines in the North America Retail and Asia & Latin America segments. Further, gross margins declined 150 basis points to 34.8% of net sales. Adjusted gross margin, which excludes certain items affecting comparability, decreased 230 basis points to 35.1%, driven by higher input costs including currency-driven inflation on imported products, deleverage, and unfavorable trade expense phasing.
By segment, net sales for North America Retail were $2.44 billion, down 5% from the prior year, reflecting low single-digit declines in contributions from volume and net price realization and mix. Net sales in the U.S. cereal operating unit were down 7%, reflecting a reduction in customer inventory levels and unfavorable trade expense phasing, though cereal retail sales performance was much stronger, with sales in Nielsen-measured outlets down 1%. U.S. Snacks net sales declined 2% in the quarter, with declines on Fiber One partially offset by growth on Lärabar and Nature Valley. Segment operating profit of $533 million was down 15% due primarily to lower volume, unfavorable trade expense phasing, higher input costs, and an increase in advertising and media expense.
Q1 net sales for the Convenience Stores & Foodservice segment were essentially flat to year-ago levels at $447 million, due largely to growth in cereal and frozen meals offset by declines in yogurt and biscuits. Also, net sales for the Europe & Australia segment increased 3% to $492 million, with benefits from net price realization and mix and favorable foreign currency exchange, partially offset by a modest decline in contributions from volume while net sales for the Asia & Latin America segment totaled $392 million, down 8% from the prior year, mostly due to the timing shift in reporting calendar in fiscal 2017 and challenges related to an enterprise reporting system implementation in Brazil.
To wrap up earnings, GIS also reiterated its key full-year fiscal 2018 targets which include: Organic net sales declines in the range of 1-2%; constant-currency total segment operating profit between flat to up 1%; adjusted operating profit margins above year-ago levels; constant-currency adjusted diluted EPS up 1-2% from the base of $3.08 earned in fiscal 2017 (with currency translation estimated at a 1 cent benefit to full-year fiscal 2018 adjusted diluted EPS).