Morgan Stanley Reiterates Overweight Rating on General Mills

In a report published Wednesday, Morgan Stanley reiterated its Overweight rating on General Mills

. Morgan Stanley noted, “GIS reported F1Q13 adjusted EPS of $0.66, which comes as a modest surprise given the company's recent reiteration of EPS down YoY vs. F1Q12 ($0.64). The upside to our MS forecast and consensus appears largely due to stronger organic operating profit growth (+5%, vs. MS +2%), driven by stronger profitability in international and lower than expected SG&A, as well as modest positive variances on both interest expense (~$0.01) and the tax rate (~$0.01). For the time being, net sales trends remain sluggish in US Retail (down 1%), and the benefit from an aggressive new product pipeline is not yet fully apparent in either reported results or measured channel sales trends. However, we note volume trends did show sequential improvement, organic sales growth in Mills' international segment remains robust, and operating margins – although clearly impacted by investment timing – were ahead of our expectations in all segments. While we are hesitant to read too much into this quarter's EPS overdelivery, we would expect a modest positive response, given low expectations for the quarter and the implications for FY EPS visibility. We remain Overweight given our expectation of sequentially improving volume trends, and undemanding sentiment/valuation.” General Mills closed on Tuesday at $39.31.