Can General Mills Earnings Grow Faster Than Kellogg and ConAgra?

General Mills (GIS 0.77%) will release its quarterly report on Wednesday, and after sending the stock to new all-time highs during the summer months, investors have been a little more nervous about the company's prospects lately. With heavy competition from name-brand rival Kellogg (K 0.20%) and ConAgra's (CAG 0.84%) private-label Ralcorp subsidiary, General Mills will have to work harder to keep its earnings growth at a reasonable clip.

General Mills has been a favorite among conservative investors for years, with the stable demand for its Cheerios, Yoplait, and Pillsbury products offering security and a solid dividend for shareholders. But with Warren Buffett's participation in a buyout of Heinz and with ConAgra's purchase of Ralcorp last year, General Mills finds itself in an industry that is suddenly getting a lot more attention. What does the cereal giant have to do to keep growing? Let's take an early look at what's been happening with General Mills over the past quarter and what we're likely to see in its report.

Stats on General Mills

Source: Yahoo! Finance.

What's next for General Mills earnings?
Analysts have pushed down their estimates on General Mills earnings somewhat in recent months, cutting projections by $0.02 per share for the quarter ended in November and full-year fiscal 2014 and 2015 outlooks by a penny per share each. The stock has largely treaded water, rising about 2% since mid-September after pulling back from higher levels earlier in the summer.

General Mills had reasonable success coming into the quarter, with prior-quarter results showing modest revenue growth. Sales in the U.S. rose 4%, with higher prices making up the bulk of the growth on a 1% rise in volume. International sales soared 22%, due largely to acquisitions in Canada and Brazil. Earnings fell 16% from the year-ago quarter, although earnings per share were higher on an adjusted basis.

Yet General Mills faces a challenging environment in the food industry. Proposed regulations on genetically modified organisms could affect companies throughout the sector, with ConAgra pointing to tough conditions in pushing its full-year earnings guidance lower. General Mills has worked hard to introduce healthier fare that could meet consumers' more refined tastes, including Greek yogurt and oatmeal products, and thereby avoided having to guide its own projections downward. Still, the company has been at the center of controversy over Cheerios, as one group argues that the cereal brand doesn't indicate that some ingredients could contain GMOs.

As a result, General Mills and its competitors have adjusted their business models accordingly. Kellogg has introduced new varieties of its cereal products, with various options to meet the needs of those seeking more protein or certain nutrients and ingredients. Yet as overall demand for breakfast cereal products has waned, General Mills and Kellogg have both had to make workforce adjustments over the past year or two, and further efficiency-enhancing measures could be necessary for General Mills to boost earnings.

In the General Mills earnings report, watch for the company to describe any new innovations beyond the breakfast realm. With the potential for generic competition from ConAgra and a full-on assault from Kellogg, General Mills needs to work hard to justify what has become a fairly lofty valuation.

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