General Mills Results Preview

 | Jun 24, 2014 | 9:00 AM EDT
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On Wednesday, packaged foods giant General Mills (GIS) reports fiscal 2014 fourth-quarter results. Last quarter, the company was beset by a whole series of unfortunate events and missed the consensus estimate; investors are hoping for better performance this time around.

Severe winter weather disrupted the retail, convenience store and food service segments of the business. The resulting disruption caused volumes to decline 1%, which made operating profit tumble 10% to $690 million, way below last year's level.

Revenue fell 1.2% to $4.38 billion vs. the $4.42 billion consensus estimate. Foreign currency translation reduced sales by 1%. Weak performance from Yoplait Greek yogurt hurt U.S. yogurt sales. In fact, sales declined all quarter. General Mills responded to the Greek yogurt slowdown by announcing 16 new flavors. General Mills has been investing heavily in the yogurt business and it could begin to pay off in the fourth quarter, as those new products hit the store shelves.

For the first nine months of the year, sales are up 2% to $13.6 billion, but operating profit is down 3% to $2.4 billion. The company is expecting a strong finish to the year. Earnings per share are projected to grow 8% to $0.69. Fourth quarter revenue is pegged at $4.423 billion. For the year, investors are looking for revenue of $18.075 billion and earnings per share of $2.87. Gross margin should end the year at 35.9%.

Over the last few years, revenue growth has slowed sharply. In fiscal 2012, for example, General Mills put up 12% revenue growth. Fiscal 2014 revenue should be up a disappointing 1.7%.

As revenue growth has slowed, the company has ramped up its share buyback program. So far, in fiscal 2014, General Mills has bought back 29 million shares and jacked up the divided 8%. Between share repurchases and dividends, the company has returned $1.4 billion to shareholders.

Next year is supposed to be better. Analysts think the top line will grow 3.1% to $18.6 billion and earnings per share will reach $3.10.

With a predictable stream of share buybacks and a 3% dividend, the stock should continue to move higher. It is up 41% in the last two years.

Until the Federal Reserve begins to raise rates, investors will continue to hide in a stock like General Mills. Unexciting growth, but solid dividends will keep them coming back for more.

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