General Mills Falls Off the Shelf with Its Q2 Earnings Release

On Wednesday, Dec. 18, General Mills  (NYSE: GIS  ) reported less than attractive second-quarter results for fiscal 2014. The food manufacturer and distributor for several reputable brands such as Cheerios, Nature Valley, Pillsbury, and many others missed Wall Street estimates for both second-quarter earnings and revenue. Thus far, fiscal 2014 is proving to be quite the challenge for General Mills. Its performance, both domestically and internationally, has major implications for Foolish investors.

Dishing out the details
Compared to last year's second-quarter fiscal results, General Mills had no gains to show for itself. However, the food company did acknowledge ahead of time that it expected second-quarter results to wind up in the lower-end of the overall performance spectrum. Unfortunately, General Mills earned less-than-expected adjusted earnings of $0.83 a share, missing the consensus estimate by $0.05.

Revenue stayed in place from the same period a year ago at approximately $4.88 billion, whereas net income increased by 1.5% to $549.9 million thanks to international sales and lower advertising costs. On a positive note, the company raised prices on its products, and marketing expenses declined. Higher raw material costs, foreign currency costs, poor U.S. retail sales, and no changes in volume carried negative implications. 

Competing for food sales
Two of General Mills' direct competitors include Kellogg (NYSE: K  ) and Mondelez  (NASDAQ: MDLZ  ) . All three companies manufacture and market food products across the globe. Kellogg is known for its cereals and ready-to-eat foods such as cookies, crackers, pastry goods, and other snacks. Unlike Kellogg, Mondelez manufactures and markets foods like coffee, candy, beverages in powder form, and other items. Mondelez was formerly known as Kraft Foods Group.


Below are two tables detailing each company's most recent quarterly revenue and net income compared to the same quarter a year prior.

Company Name

Most Recent Quarterly Revenue for 2013

Same Quarter in 2012 Revenue

Most Recent Quarterly Net Income for 2013

Same Quarter in 2012 Net Income

General Mills

$4.88 Billion

$4.88 Billion

$549.9 Million

$541.6 Million

Kellogg

$3.716 Billion

$3.720 Billion

$326 Million

$318 Million

Mondelez Inc

$8.47 Billion

$8.33 Billion

$1.02 Billion

$652 Million

Company Name

Full Year EPS Estimate

General Mills

$2.90

Kellogg

$3.76

Mondelez

$1.56

By studying the top chart, it is obvious that Mondelez had the most growth year-over-year for both revenue and net income, while General Mills and Kellogg experienced quite the opposite. Kellogg is expected to earn the most in annual EPS. In fact, in its fourth quarter which ends at the end of December 2013, Kellogg's fourth-quarter earnings are expected to reach $0.82 a share whereas Mondelez is expected to earn $0.44 a share in its fourth quarter also ending at the end of December. All in all, these three competitors appear to have a pretty large EPS gap between them, with $0.85 to $1.34 per share separating each from the other.

Looking ahead
General Mills announced in its second-quarter earnings release that it has mixed views for the second half of the fiscal year. However, the company does expect stronger EPS over the next six months due to a decrease in raw material costs along with an increase in retail sales as it prepares to release a new strand of products to its brand offerings.

Although General Mills is hopeful about the second half of the fiscal year as it has an easier match-up to last year's second half, it did slightly tweak its full year EPS estimate to $2.87-$2.88 at best, anticipating that it will not earn $2.90. General Mills is taking more caution as it anticipates that the impact of foreign currency could be greater than previously expected.

Foolish takeaway
General Mills had a rough second quarter in comparison with last year's period, but things could turn around in the next six months. Foolish investors would be wise to do more research on General Mills, especially looking at the company's history to gain insight into how fast it has recovered in past situations like this one. For now, do not jump to any conclusions about the company's future, and take the time to closely analyze other metrics to see how General Mills compares to its competitors.

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