Market Overview

Morgan Stanley Believes General Mills Cost Management Will Drive EPS Growth Going Forward

Related GIS
Kellogg Discontinues Operations In Crisis-Hit Venezuela; 'Absolutely Unconstitutional,' Says Maduro
Why US Companies Don't Mind The WHO's Guideline To Kill Trans Fats By 2023
Taking A Look At Cheap Consumer Staples (Seeking Alpha)

General Mills, Inc. (NYSE: GIS) guided to solid margin expansion through FY18. Morgan Stanley’s Matthew Grainger said in a report, however, that while the guidance was encouraging, the concern was around the company relying on reduced reinvestment to boost margins, while it continued to struggle with topline growth.

The stock’s relative valuation “adequately captures these conflicting factors,” analyst Matthew Grainger stated. He maintained an Equal-Weight rating on the company, with a price target of $63.

4Q Results

General Mills reported its EPS at $0.66, beating the consensus estimate by $0.06, driven mainly by tax favorability. Organic sales growth once again was short of the company's long-term target of low-single-digit growth.

“As expected, a ~130 bps decline in gross margin combined with heightened media expenses resulted in an ~210 bps decline in operating margins,” Grainger wrote.

Margin Guidance

General Mills guidance reflected ~150 bps of margin expansion in FY17, versus ~90 bps in FY16. This is despite the fact that the guidance included only $150mn in incremental savings in FY17, almost 50 percent of the $275mn figure in FY16 as well as moderately lower HMM and similar input cost inflation.

“The F17 algorithm suggests more targeted reinvestment, an approach that GIS has employed with limited success given a historical ~60% correlation between YoY changes to media expenses and US Retail sales growth,” the analyst added.

Latest Ratings for GIS

May 2018Goldman SachsReinstatesSellNeutral
Mar 2018SusquehannaUpgradesNeutralPositive
Mar 2018Morgan StanleyMaintainsEqual-WeightEqual-Weight

View More Analyst Ratings for GIS
View the Latest Analyst Ratings

Posted-In: Matthew Grainger Morgan StanleyAnalyst Color Reiteration Analyst Ratings


Related Articles (GIS)

View Comments and Join the Discussion!