General Mills Releases Mixed Earnings

Lucky Charms cereal maker General Mills, Inc. (Ticker Symbol: GIS) released its quarterly sales numbers this week, coming out above average estimates and sending the stock initially lower but has since been recovering. The cereal making giant reported an earnings per share beat of .79 cents per share vs. Wall Street analysts’ expectations of .77 cents per share.  The Golden Valley, Minn.-based company reported a revenue miss of $4.0 billion vs. Wall Street analysts’ expectations of $4.09 billion. The company did see advancement in its North American retail sales and also in its pet unit.

General Mills’ largest competitor, The Kellogg Company, (Ticker Symbol: K) commonly known as Kellogg’s, released earnings last month that were better than the street was looking for.  Kellogg’s reported an earnings per share beat of $1.01 per share vs. .92 cents per share that Wall Street analysts’ were looking for.

Additionally, Kellogg’s reported a revenue beat, reporting revenue of $3.52 billion vs. $3.41 billion that was the average of Wall Street analysts estimates. Kellogg’s stated that its outlook for the year remains unchanged and they are expecting between 1% and 2% sales growth.

Above is a chart of General Mills’ stock over the past two-and-a-half years. The stock had a negative start to the year in 2017, led by mediocre earnings and guidance reports. General Mills proceeded to grind lower over the course of the next three quarters, finding resistance at its 100-day moving average multiple times.  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 yearly highs, 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. The stock spent the next two-quarters trading in a $10 dollar trading range between roughly $40.00 and $50.00.  The stock has had a great start to 2019 led by an earnings release late in the fourth quarter of 2018.  General Mills broke above its 2018 downtrend in the first quarter of 2019 and reclaimed both its 100- and 200-day moving averages. The stock found price support around its 100-day moving average multiple times throughout the second and third quarters of 2019. Currently, the stock is trading positive for the year and above both its major daily moving averages.

(Chart above courtesy of ​www.tipranks.com​)

Based on a survey of seven analysts offering 12-month price targets, the average price target for General Mills stock is $54.67. According to that number, the stock is priced at a slight discount relative to Wall Street’s analysts and could be considered undervalued around current levels near $54.14.

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.

Investors in the space should look to competitor Kellogg’s next earnings release on October 29th for fresh news within the sector.

 


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