• It's Here!

    Etf Pro

    Get the big financial market moves right, bullish or bearish with Hedgeye’s ETF Pro.

  • It's Here

    MARKET EDGES

    Identify global risks and opportunities with essential macro intel using Hedgeye’s Market Edges.

General Mills is on the tape with Q4 2013 and FY results. Q4 EPS was in line with consensus at $0.53 and the top-line beat at $4.41B vs $4.32B. For the FY, adjusted EPS totaled $2.69 vs $2.56 a year ago and net sales rose 7% to $17.8B. The stock is trading down to ~ $48 (nearly where it was at when it released its Q3 results) and we have concerns about its business mix and 2014 outlook.

While net sales grew 7% in for FY 2013, 6% was composed of new business acquisitions (primarily Yoki), masking weakness in its base business. Certainly 2013 was a strong year of investment, but the company did not see profitability in yogurt (Yoplait) despite heavy investment and the cereal category remains a laggard, both of which compose two of its top three business segments.  We think that due to this underlying weakness, particularly in the U.S., and given its forecast for a 3% COGS headwind in FY 2014, the company will be challenged to meet and beat its expectations, as we expect only modest improvement from its yogurt segment, and are projecting a slower recovery in volumes across the entire business compounded by muted to slowing growth globally.

 What we liked:

  • International sales profit of +24% with growth across every region; outperformance from Latin America (+116%) despite devaluation of the Venezuela bolivar
  • Net sales of Bakeries & Foodservices in FY declined -1%, but operating profit rose 10% to $315M
  • 2014 to maintain 7% FCF yield; increase dividend by 15%; and buy back 2% of the stock

What we didn’t like:

  • Gross Margin declined on the quarter from 37.2% to 34.8% and for the FY from 36.9% to 36.1%
  • FY U.S. retail sales up a mere 1% to $10.6B, with Y/Y net sales weakness in Yoplait (-5%), Frozen Foods (-3%), and Big G (-0.2%)
  • Reliance on margin management to combat 3% COGS headwind in 2014

Below we outline our quantitative levels on GIS. The stock is currently trading between its immediate term TRADE and intermediate term TREND levels. We maintain a bearish bias.

GIS – Not Much To Like - ww. gis

Matthew Hedrick

Senior Analyst