December 20, 2017 / 12:44 PM / 9 months ago

UPDATE 2-Cereal demand helps General Mills beat sales estimate

* Q2 rev $4.20 bln vs. est of $4.08 bln

* Raises FY 2018 organic sales forecast (Adds analyst comment, details from conference call; updates share price)

Dec 20 (Reuters) - General Mills Inc raised its full-year organic sales growth forecast and posted second-quarter sales above Wall Street estimates, helped by new products such as Cheerios peanut butter cereal and strong demand for Nature Valley granola bars.

With new players entering the competitive packaged food industry, General Mills has been sprucing up its organic offerings to expand beyond its packaged foods portfolio.

The company said on Wednesday it expects initiatives such as the launch of two flavors in its Shreds cereal and adding more fruit to its Original Style Yoplait yogurt to fuel sales growth in the second half of the year.

The company has also been spending to spark positive growth in the cereal business, which rose 7 percent in the second quarter.

The rise, along with a 5 percent increase in sales in the snacks unit, helped offset a decline in the company’s yogurt category.

“We do not think most investors expected a sales beat to this degree, nor did many investors anticipate a revenue guidance raise quite yet ... we expect the better sales numbers to win the day,” J.P. Morgan analyst Ken Goldman wrote in a note.

The company’s revenue rose 2 percent to $4.20 billion, beating the average analyst estimate of $4.08 billion, according to Thomson Reuters I/B/E/S.

However, the company’s gross margins fell 2.6 percentage points to 34.4 percent due to higher input and advertising costs, while General Mills also lowered expectations of its full-year operating profit margins to be below year-ago levels.

“Though fundamentals were a bit better than expected, they are not yet ‘good’, by our read, and much depends on a significant improvement in 2H,” Goldman added.

The company said it now expects fiscal 2018 organic sales growth to be between flat and down 1 percent, better than its prior forecast of a decline of 1 percent to 2 percent.

Excluding items, the company earned 82 cents per share in the quarter ended Nov. 26, in line with analysts’ average estimates.

Shares of General Mills were marginally up at $57.73 in late morning trade on Wednesday. (Reporting by Gayathree Ganesan in Bengaluru; Editing by Maju Samuel)

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