General Mills Inc. Earnings Cheat Sheet: Margins Shrink as Net Income Drops

Rising costs hurt S&P 500 (NYSE:SPY) component General Mills Inc. (NYSE:GIS) in the second quarter as profit dropped from a year earlier. General Mills is a manufacturer and marketer of branded consumer foods sold through retail stores. It also supplies branded and unbranded food products to the food service and commercial baking industries.

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General Mills Earnings Cheat Sheet for the Second Quarter

Results: Net income for the processed and packaged goods company fell to $444.8 million (67 cents per share) vs. $613.9 million (92 cents per share) a year earlier. This is a decline of 27.5% from the year earlier quarter.

Revenue: Rose 13.6% to $4.62 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: GIS reported adjusted net income of 76 cents per share. By that measure, the company fell short of mean estimate of 79 cents per share. Analysts were expecting revenue of $4.6 billion.

Quoting Management: Chairman and Chief Executive Officer Ken Powell said, “General Mills second-quarter results show good net sales growth worldwide. Our Yoplait acquisition fueled a more than 50 percent increase in total international sales. Strong levels of net price realization and product innovation drove sales increases for our established International operations, and for our Bakeries & Foodservice and U.S. Retail business segments. Significantly higher input costs pressured our margins, as expected. But in total, performance for the quarter and year-to-date has us on track to meet the key financial targets we have set for fiscal 2012.”

Key Stats:

Gross margin shrank 5.7 percentage points to 34.4%. The contraction appeared to be driven by increased costs, which rose 24.5% from the year earlier quarter while revenue rose 13.6%.

Revenue has risen the past four quarters. Revenue increased 8.9% to $3.85 billion in the first quarter. The figure rose 1.8% in the fourth quarter of the last fiscal year from the year earlier and climbed 0.5% in the third quarter of the last fiscal year from the year-ago quarter.

The company has now seen net income fall in each of the last two quarters. In the first quarter, net income fell 14.1% from the year earlier quarter.

The company fell short of estimates last quarter after beating the mark the quarter before with net income of 64 cents versus a mean estimate of net income of 62 cents per share.

Looking Forward: The outlook for the company’s results in the upcoming quarter is unfavorable. The average estimate for the third quarter is 60 cents per share, down from 61 cents ninety days ago. At $2.61 per share, the average estimate for the fiscal year has fallen from $2.62 ninety days ago.

Competitors to Watch: Ralcorp Holdings, Inc. (NYSE:RAH), Kellogg Company (NYSE:K), Kraft Foods Inc. (NYSE:KFT), ConAgra Foods, Inc. (NYSE:CAG), Diamond Foods, Inc. (NASDAQ:DMND), The Hain Celestial Group, Inc. (NASDAQ:HAIN), The Hershey Company (NYSE:HSY), Nestle SA Reg Shs. Ser. B Spons (NSRGY), TreeHouse Foods Inc. (NYSE:THS), Slancho AD Svishtov (SLR), and Pepsico Inc (NYSE:PEP).

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(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)