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What???s in Store for General Mills (GIS) in Q1 Earnings?


General Mills Inc. GIS is set to report first-quarter fiscal 2017 results on Sep 21, before the market opens. Last quarter, the company delivered a positive earnings surprise of 10.00%.

Despite soft sales figures, this branded consumer foods company delivered positive earnings surprises in each of the last four quarters with an average positive surprise of 7.33%.

Let’s see how things are shaping up for this announcement.

Factors at Play

Sales and profits at General Mills’ U.S. Retail segment, which contributes 60% to its sales, have been soft due to weak demand amid changing consumer food preferences. Nevertheless, the company is focused on various restructuring initiatives that are offsetting sluggish top-line growth at General Mills.

For fiscal 2017, total segment operating profit growth is expected to be in the range of 6–8% on a constant-currency basis. Adjusted operating margin, which was 16.8% in fiscal 2016,is expected to expand approximately 150 bps, supported by restructuring and project savings, zero-based budgeting and a favorable mix.

Adjusted earnings per share (constant currency) are expected to grow in the range of 6–8% from the fiscal 2016 level of $2.92 per share. This translates into fiscal first-quarter adjusted earnings of $3.09–$3.15 per share.

However, the company has already indicated that its first-quarter fiscal 2017 organic sales will be below the full-year guidance (flat to down 2%), while EPS comes in below the year-ago quarter level, which had registered 36% growth in constant currency.

Again, though consumer-focused innovation and marketing as well as greater distribution of the natural and organic product portfolio drove revenues in segments like cereals and snacks in fiscal 2016, we believe a material improvement will need more time to materialize.

For the fiscal first quarter, the Zacks Consensus Estimate for earnings stands at 76 cents a share, reflecting a 3.8% year-over-year decrease. Meanwhile, our estimate for revenues is pegged at $3.90 billion, implying a 7.2% drop.

Price and EPS Surprise

Price and EPS Surprise | Quote

Earnings Whispers

Our proven model does not conclusively show that General Mills is likely to beat on earnings this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. However, that is not the case here as you will see below.

Zacks ESP: General Mills’ Earnings ESP is 0.00%. This is because the Most Accurate estimate of 76 cents is in line with the Zacks Consensus Estimate.

Zacks Rank: General Mills has a Zacks Rank #4. As it is, we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings season, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are some food stocks that you may consider, as they have both a positive Earnings ESP and a favorable Zacks Rank ahead of their upcoming releases:

Craft Brew Alliance, Inc. BREW has an Earnings ESP of +6.25% and a Zacks Rank #3. The company is expected to report third-quarter 2016 results on Nov 2.

Nu Skin Enterprises Inc. NUS has an Earnings ESP of +1.21%. The company is expected to report third-quarter 2016 results on Nov 3. It has a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Inter Parfums Inc. IPAR has an Earnings ESP of +6.38% and a Zacks Rank #2. The company is expected to report third-quarter 2016 results on Nov 14.

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