Cinnamon Toast Crunch cereal maker General Mills (Ticker Symbol: GIS) released its quarterly sales numbers, coming out below average estimates and sending the stock lower on Wednesday. Net sales rose 7% to $4.16 billion but fell short of Wall Street analysts’ expectations of $4.24 billion. However, the cereal making giant reported an earnings per share beat of .83 cents per share vs. Wall Street analysts’ expectations of .77 cents per share. General Mills reported net earnings of $570.2 million which is up from $354.4 million in the second quarter of last year.
The 7% rise in sales was due to an over 30% increase in sales from Blue Buffalo pet foods. General Mills bought Blue Buffalo last year as an attempt to diversify its portfolio and branch out from its primary snack, yogurt, and cereal products. The ongoing movement towards healthier foods has been hurting packaged food companies like General Mills. The company has been making an attempt to create healthier breakfast and snacking options. General Mills has released healthier yogurt choices, adding lower sugar options and fruits that are high in antioxidants.
Above is a chart of General Mills’ stock over the past two and a half years. The stock had a rough start to the year in 2017. General Mills proceeded to grind lower over the course of the next three quarters. The stock finally found some price support just below the $50.00 price level in the fourth quarter of 2017. General Mills’ stock then rallied, retracing nearly 50% of its previous move lower. After failing to break out above its all-time high, the stock formed a double top reversal pattern. This happens when the price of a particular stock sets a high price, has a moderate decline, and then retests that high failing to break above it. The pattern is confirmed once it breaks below the low between the two prior highs.
General Mills proceeded to trade lower going into 2018, led by a negative earnings gap in the second quarter of 2018. In that same quarter, the stock bottomed, forming a bullish divergence pattern, as indicated on the chart by the green arrows, where the stock makes a lower low in price but the Relative Strength Index makes a higher low. Traders and investors sometimes look at divergences for a possible pause within the current trend, as occurred in General Mills case. The stock spent the next two quarters trading in a $10 dollar trading range. The stock has had a great start to 2019. General Mills broke above its 2018 downtrend in the first quarter of 2019 and reclaimed both its 100 and 200-day Moving Averages. Currently, the stock is finding support just above its 100-day Moving Average.
(Chart above courtesy of www.tipranks.com)
Based on a survey of 4 analysts offering 12-month price targets, the average price target for General Mills’ stock is $52.25. According to that number, the stock is priced right in line with Wall Street’s analysts’ average price targets and could be considered at value around current levels near $51.30.
The move to healthier options still wasn’t enough for General Mills to shake this quarter’s results. The company’s move into the pet care space is a good hedge against their dwindling snacks and cereal business. Investors in the space should look to Kellogg’s (Ticker Symbol: K) earnings release on August 1st for fresh news within the sector.