How Yogurt Will Craft The Story Of General Mills' Q1 Earnings

Investors should be looking toward yogurt, argues Deutsche Bank, as it will play a significant role in General Mills, Inc. GIS's first quarter F2017 numbers on September 21.

Deutsche Bank, which has a Hold rating on General Mills, expects operating EPS of $0.75 versus $0.76 consensus. The brokerage projects sales to fall 6.8 percent sales to $3.92 billion.

The company recently indicated its first-quarter organic sales would be below full-year guidance (down 0-2 percent) while EPS would be down versus year-ago levels ($0.79).

A Dollop Of Yogurt Goes A Long Way

The ongoing deflationary trends in the dairy sector and heightened competition have weighed on the company's yogurt sales. In addition, General Mills is overexposed to the struggling "light" category in yogurt.

Related Link: Kroger Attractive Long Term, Remains On Goldman's Conviction Buy List

"We expect investors to remain focused on key category trends (cereal, snacks) and progress made in share gains via renovation and innovation. We also anticipate an update on Yogurt performance given management's efforts to stabilize performance in the category," analyst Mario Contreras wrote in a note.

Noting that the company's yogurt innovation has delivered mixed results in recent years, Deutsche Bank estimates that yogurt accounted for roughly 13 percent of total U.S. retail sales in F2016.

"While General Mills' is taking logical steps to rejuvenate its yogurt portfolio, we maintain a cautious view given ongoing broader category challenges," Contreras added.

The analyst would also look for the company commentary on the progress toward its long-term margin goals as well as impact of the new portfolio segmentation strategy.

At time of writing, shares of General Mills were up 0.11 percent to $65.67. Contreras has a target price of $67.

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