No inflationary surprises (GIS)
General Mills reported FQ3 EPS of $.84, exceeding consensus expectations of $.78 due to better margins and a slightly lower tax rate. An improvement in service levels aided sales and margins more than they had guided previously. Organic sales growth was 4% with price/mix up 7% (up from 5% sequentially) offset by volumes down 4%. Management described the pricing environment as having lower elasticity than historically and being similar to the prior quarter. Foodservice grew 22% in North America, but operating profits fell 13%. North American retail grew 1% with growth at breakfast offset by a decline in meals and baking solutions. Pets grew 16% driven by Blue Buffalo, but operating profit grew at half the rate of sales. International decreased 1% against double-digit comparisons.
Gross margins contracted 160bps, but were better than expected. Accelerating price increases drove the sequential improvement from a 400bps contraction in the prior quarter. General Mills’ input cost inflation outlook remains at 8-9% for the full year and double-digits in FQ4. Price/mix and HMM were offset by inflationary pressure and supply chain disruptions/deleverage. Adjusted operating margins contracted 90bps, but were 40bps better than expected. Management guided EPS growth to be flat to +2% from -2% to +1%. Organic sales growth is now expected to be 5% YOY from 4-5% previously. Inflationary pressures in line with expectations coupled with further price increases lead to a better outlook for margins. General Mills is on our long list.
Mild flu season (PRGO)
During the 10th week of the year, 1.7% of patient visits reported through ILINet were due to respiratory illness that included fever plus a cough or sore throat. The percentage increased 10bps from the prior week as seen in the following chart. 1.7% is below the baseline despite multiple respiratory viruses that are co-circulating. This flu season is higher than last year’s nearly non-existent season, but it is well below every year since 2015-6. This year’s flu season would be a disappointment any other year except compared against last year. It pushes out the cough & cold upside to next year for PRGO.
Return to the office (ACI)
CivicScience’s COVID Comfort Index was largely unchanged in the last week. Four of the six measures were flat or down from the prior week. The percentage of respondents who were comfortable with eating out was at the highest level since the pandemic at 70%, but flat with the prior week. The percentage who was comfortable working among others fell for the second straight week to 66%.
The survey captures broad consumer attitudes and not the attitudes of activity participants. At some point, we probably have to think if the return to pre-pandemic behavior has not happened yet it is structural. Movie theater attendance is at 80.8% of pre-pandemic times, but only 55% of respondents indicated comfort with going to a movie. TSA checkpoint travelers are at 87.5% of pre-pandemic levels, but only 53% of respondents indicated comfort with traveling. Incremental gains from here will probably take longer, except for working in the office. According to Kastle Office Systems office attendance in the top ten cities slipped in the most recent week. The sequential decline was due to the decline in the Texas cities that had the highest level of office occupancy.
