General Mills Inc.'s (GIS – Analyst Report) beat the Zacks Consensus Estimate for earnings in the second quarter of fiscal 2015. However, revenues missed the consensus mark as the consumer food company continues to battle weak demand in the u.s. and slowdown in some of the international markets.
Second-Quarter Earnings
Second-quarter adjusted earnings per share of 80 cents beat the Zacks Consensus Estimate of 76 cents by 5.3% — the first earnings beat after four back-to-back negative surprises. Earnings also beat management's guided range of 75–77 cents issued last month. We believe that a shift in timing of expenses led to the earnings beat.
Earnings, however, declined around 4% year over year as sales and margins remained weak. On a constant currency basis, earnings were flat.
Adjusted earnings exclude restructuring costs and certain other items.
General Mills, Inc – Earnings Surprise | FindTheBest
Weak Revenues and Margins
Total revenue of the global consumer food company declined 3% year over year to $4.71 billion and missed the Zacks Consensus Estimate of $4.84 billion by 2.7%.
In constant currency terms, sales declined 1% as U.S. sales continued to lag, while growth slowed in key emerging markets. General Mills, like other food companies, is battling weak global food industry trends.
Price/mix added 1% to revenues, same as the last five quarters. Volumes declined 2%, same as the last quarter. Foreign exchange dragged revenues by 2%.
Adjusted gross margin declined 80 basis points (bps) to 34.9% due to lower sales and unfavorable product mix.
Advertising costs declined 9%. Despite lower advertising costs, adjusted operating margin declined 40 bps to 17% due to lower sales and gross margins. However, we note that both gross and operating margins improved from the previous quarter.
Segment Performance
U.S. Retail: Revenues from the U.S. Retail segment declined 4% year over year to $2.86 billion due to decline in both price/mix and volumes. Price/mix declined 1%, while volumes declined 3% as a result of weak food industry trends.
