Will General Mills (GIS) Earnings Turn Around in Q1?

General Mills Inc. GIS is set to report first-quarter fiscal 2014 results on Sep 17, before the market opens.

Last quarter, it delivered a negative earnings surprise of 5.63%. In fact, General Mills has posted negative surprises in three of the past four quarter while delivering in-line results in the fourth. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

General Mills had a poor run in fiscal 2014 missing the Zacks Consensus Estimate for both earnings and revenues for three quarters in a row.

Weak volume trends due to slowdown in food industry trends; higher-than-expected input cost inflation; currency headwinds and high promotional costs have been hurting General Mills' profits.

First-quarter adjusted earnings per share are also expected to decline year over year due to increased merchandising and product launch costs.

General Mills' top line was dismal in fiscal 2014 due to sluggishness in its two most important categories — cereals and yogurt.

General Mills' yogurt sales declined in both fiscal 2014 and 2015 due to category headwinds emanating from significant dairy inflation. Decent performance by the Greek yogurt segment was overshadowed by weakness in the core/original Yoplait product line.

Moreover, the core cereals business is not doing too well due to weak category growth resulting from insufficient advertising by the cereal companies. Lower demand for cereals due to competitive pressures from alternatives including yogurt, eggs, bread and peanut butter is hurting category growth.

We do not expect either of the flagship businesses to show any significant improvement in the upcoming quarter as well.

In view of the disappointing performance in fiscal 2014, the company laid out aggressive plans for the upcoming fiscal year that include strong innovation and marketing, productivity savings and further cost cuts to sharpen efficiency and growth focus. However, the benefit from the plan should be realized more toward the latter half of the year.

Earnings Whispers?

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

Zacks ESP:  The Earnings ESP is 0.00%.

Zacks Rank: General Mills' Zacks Rank #3 (Hold) when combined with a 0.00% ESP makes surprise prediction difficult.

We caution against stocks with Zacks Rank #4 and 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Other stocks that have both a positive Earnings ESP and a favorable Zacks Rank are:

BJ's Restaurants, Inc. BJRI, with an Earnings ESP of +15.39% and a Zacks Rank #2 (Buy).

Chipotle Mexican Grill, Inc. CMG, with an Earnings ESP of +1.56% and a Zacks Rank #1 (Strong Buy).

Papa Murphy's Holdings, Inc. FRSH, with an Earnings ESP of + 14.29% and a Zacks Rank #2.

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