What Do Analysts Think Of General Mills?

General Mills, Inc. GIS reported better-than-expected Q3 earnings, while revenues came in line. Better performance on the margin front helped the company offset soft revenue growth.

The consumer food company reported earnings of $0.65 per share, $0.03 above the Street's consensus. Revenue of $4.002 billion came in pretty much in line with expectations for $ 4.049 billion. Net sales declined 8 percent for the quarter.

Adjusted gross margin increased 160 basis points due to benefit from cost savings initiatives.

General Mills reiterated its 2016 full-year outlook. Net sales in constant currency are expected to decline at a low single-digit rate from the 2015 levels. Constant-currency adjusted diluted EPS is expected to grow at a low single-digit rate from the base of $2.86 earned in fiscal 2015.

Let's see what the analysts said about the results.

Goldman Sachs: Neutral, Price Target $59

The brokerage said while the headline margin-driven beat was encouraging, underlying performance at General Mills and management's forward outlook raises cause for concern. Better gross margins have been an offset, but guidance suggests gross margin gains have likely peaked as input cost benefits fade and spending to bend its share trend ramps.

"In this context we view consensus expectations into next year and beyond as too optimistic and expect GIS' earnings growth to remain stifled despite sizeable share repurchase assumptions," analyst Jason English wrote in a note.

Morgan Stanley: Equal-Weight, $56 Price Target

Matthew Grainger noted near-term earnings visibility remains high, but sustainability of EPS growth into fiscal 2017 uncertain.

The combination of modest organic sales growth and ongoing cost savings should support Q4 EPS at the high end of Mills' fiscal 2016 guidance. However, Mills' 2017 outlook remains less clear as the company will need to balance its incremental about $150 million in cost savings realization with greater reinvestment behind both targeted merchandising and new product.

Citi: Buy, Target Price raised to $70 from $64

David Driscoll is of the view that General Mills' Q3 continued to highlight the generation of significant cost savings that are critical for margin improvement and as fuel for re-investment intended to help drive future top-line growth. Notably, F4Q16 and fiscal 2017 are expected to see improved top-line growth, and fiscal 2017 should show solid margin progression.

"GIS only requires +100bps of additional margin expansion over the next 4 years to reach its F20target. As such, given the ample cost savings opportunities that await, this suggests potential upside to GIS' LT margin target," Driscoll said.