General Mills Performs like a Growth Stock After Strong Earnings Report
General Mills, Inc.(NYSE: GIS) reported better-than-expected Q3 earnings Wednesday.
Sales of its core brands, such as the aforementioned Cheerios, along with Progresso soups, and Haagen-Dazs ice cream rose for the first time since 2011, according to Reuters.
Further, GIS shares are up 19 percent this year. Much of that, says Edward Jones analyst Jack Russo, is in response to the Berkshire Hathaway (NYSE: BRK-B) and 3G Capital, H.J. Heinz (NYSE: HNZ) deal, which has boosted share values for many food companies.
Russo says General Mills has been performing better in cereal and yogurt, businesses that have been challenged in recent years due, in part, to increased commodity costs.
"It looks like they're reinvesting back into the business,” Russo said. As a result, the company says sales by volume rose 1 percent for the first time in two years. This despite the fact that company raised prices on many of its products.
Although General Mills clearly sees the consumer environment improving, there will be challenges going forward.
Higher taxes and commodity costs have caused the company to raise its full-year outlook by only a penny per share. In addition, it said Q4 earnings would be lower than a year ago.
The packaged food industry has suffered in the U.S., mostly due to economic uncertainty. GIS has faced unique additional challenges, including pressure on its Yoplait yogurt by emerging Greek brands. The cereal division has also faced increased competition from competitors.
Sales for both segments were down in Q3, but General Mills indicated that trends were improving. The company says it expects high single-digit earnings growth over the long term.
Meanwhile, The Street’sJim Cramer picked GIS as one of his Top Stock Picks, saying that the cereal giant has what it takes and has been delivering for its shareholders year after year.
Jefferies continued to maintain a Hold on GIS, but has raised its price target to $44. BMO Capital maintained Outperform, and raised the price target to $50. Deutsche Bank maintained a Buy rating and set a new price target of $53. Stifel Nicolaus reiterated a Buy rating and raised the price target to $51.
General Mills shares reached a high of $48.02 Wednesday, closing at $46.57, up $1.19 or a little over 2.5 percent on the day.
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