General Mills: On Track For FY24 Despite Challenges, But Real Momentum Expected In FY25, Says Analyst

Mizuho Securities analyst John Baumgartner reiterated a Neutral rating on the shares of General Mills Inc GIS and lowered the price target from $80 to $70.

Q1's modest revenue & profit upside keeps GIS on track for FY24 guidance, and benefits from reduced corporate expense should be nearly capable of achieving the low-end EPS guide, said the analyst.

In recent months, Pet category volume erosion has been accentuated by trade-down from premium-priced items.

Not only was that evident in Q1's segment volume pressure (-5% versus -3% comp), but FQ2 expectations are also muted despite an even weaker volume comp from YAG de-load (-11%), opined the analyst.

Also ReadThese Analysts Slash Their Forecasts On General Mills After Q1 Results

The analyst remains bullish on multi-year growth potential, but the double whammy of cost inflation pass-thru and shift to larger package sizes augurs weaker volume and incremental investments that defer the EBIT recovery to FY25. 

About North American retail, the analyst thinks contribution from measured channels is weaker, but non-measured channels are stronger, and consumers are unsurprisingly resilient but increasingly cautious.

The analyst believes management's ambition, to end FY24 with volume close to flat, is achievable, but unlikely to inspire investors seeking names with positive EPS revision potential. 

Although the analyst sees a balanced risk/reward at current levels, GIS remains a stock to watch for FY25.

Strong reinvestment, on-trend innovation, and optimized promo campaigns should augur better Retail sales while Pet stands poised for potentially material margin recovery and revenue acceleration. 

The analyst expects GIS to benefit from larger quality promo in FY24, with endcaps and free-standing displays, and an emphasis on highly productive categories and seasonal offerings.

The analyst lowered EPS estimate for FY24 to $4.49 from $4.52.

Price Action: GIS shares are trading higher by 0.01% at $65.88 on the last check Thursday.

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