General Mills Q1 Earnings Beat Estimates Despite Year-Over-Year Declines

General Mills reported first-quarter fiscal 2027 adjusted earnings of 75 cents per share, exceeding the Zacks Consensus Estimate of 72 cents, even as the figure fell 13% year over year in constant currency. The company’s net sales declined 3% year over year to $4,389.5 million, surpassing the consensus estimate of $4,344 million, while organic net sales remained essentially flat from the prior-year period. Profitability metrics contracted due to higher input costs and lower volume, which were partly offset by favorable net price realization and mix. Adjusted gross margin dropped 90 basis points to 33.3% of net sales, and adjusted operating profit fell 11% in constant currency to $634 million. The adjusted operating margin declined 130 basis points to 14.4%, slightly above the expected 14.3%.

Segment performance varied across the company’s operations. North America Retail sales declined 7% year over year to $2,451.8 million, a figure that includes a 4-point headwind from the U.S. yogurt divestiture. Sales in the Big G Cereal & Canada category fell at a double-digit rate, while U.S. Snacks declined at a mid-single-digit rate and U.S. Meals & Baking Solutions remained flat. North America Pet sales were essentially flat at $612.8 million, with cat food sales increasing at a double-digit rate and pet treats growing at a low-single-digit rate, offset by a high-single-digit decline in dog food sales. North America Foodservice sales increased 1% to $523.1 million despite a 2-point headwind from the yogurt divestiture, driven by growth in cereal and frozen meals. International sales grew 4% to $794.3 million, aided by a 1-point benefit from foreign currency exchange and organic growth in distributor markets, India, and China.

General Mills reaffirmed its fiscal 2027 guidance, projecting organic net sales growth of down 1.5% to up 0.5%. Adjusted operating profit is expected to decline 8-13% in constant currency, with adjusted earnings projected between $3 and $3.20 per share. The company anticipates free cash flow conversion of approximately 95% of adjusted after-tax earnings and continues to target at least $750 million in savings from its Holistic Margin Management initiative and other cost actions. The firm projects that the prior year's extra week, the return of incentive expenses to normal levels, and assets sold in fiscal 2026 will create roughly nine points of pressure on operating profit and eleven points on earnings per share. The net impact of divestitures, foreign exchange, and the extra week is expected to reduce reported sales growth by about 4%.

Since the earnings release, General Mills shares have added about 1%, outperforming the S&P 500 over the past month. However, Zacks Investment Research notes that estimates revisions have trended downward during this period, indicating a downward shift in analyst sentiment. The stock currently holds a Zacks Rank #3 (Hold), with an aggregate VGM Score of D. This rating reflects a subpar Growth Score of D and an F Momentum Score, though it maintains a B grade on the value side, placing it in the top 40% for value investors. Zacks expects an in-line return from the stock over the next few months.