Wall Street's Appetite For General Mills Stock Mixed Post Q1 Report

General Mills, Inc. (NYSE: GIS) reported this week an earnings miss, which prompted a sell-off in the maker of Cheerios and other food products. But the stock's 6-percent decline in reaction to the earnings report is being seen by some on the Street as an attractive buying opportunity.

Citi: Buy The Dip

General Mills' earnings report contained two notable positive read-outs, which imply the stock's decline is overblown, Citi's David Driscoll commented in a research report. First, the company reaffirmed its constant currency P&L guidance, and second, the earnings miss in the earnings report was attributed to the pacing of trade expense accruals.

Meanwhile, other foodmakers including J M Smucker Co (NYSE: SJM) and B&G Foods, Inc. (NYSE: BGS) similarly reported share declines in their businesses — but in these two companies' cases, the companies both cut their revenue and earnings per share guidance. By comparison, not only did General Mills maintain its outlook, but it even cited evidence that its revenue trends are improving.

"We see the sell-off as an opportunity with catalysts coming in both the next two quarters," the analyst added.

Related Link: As Grocery Stores Cut Cereal Shelf Space, Refrigerated And Frozen Foods Are Wanted Products

Credit Suisse: Concerns Remain

General Mills' first-quarter earnings report fell short of consensus estimates and management's comments reaffirm ongoing concerns, Credit Suisse's Robert Moskow commented in a research report.

The company's management team acknowledged that a 4-percent organic sales decline seen in the quarter was in line with what they had expected, Moskow explained. Also, a 230-basis-point decline in gross margins was attributed to the timing of trade promotion accruals.

However, management said that a 14 percent decline in operating profit exceeded internal expectations and a decline in the yogurt category showed signs of spilling over into Foodservice. On top of that, management's emphasis on higher price realization despite weak volume trends is another concern that can't be ignored.

"Management pointed to 2% higher retail prices (ex-yogurt) as measured by Nielsen," the analyst explained. " But if pricing is to remain so high, then who captures the value from the company reinvestment in trade spending? The grocer? And why wouldn't higher prices exacerbate General Mills' volume declines in big categories like cereal, yogurt, dough, and soup as consumers get more access to lower-priced private label options."

Bottom line, General Mills' ongoing "structural headwinds" which places the stock in the "do not touch category."

Moskow maintains a Neutral rating on General Mills' stock with an unchanged $53 price target.

Related Link: Cautious Call On Kellogg; Shares Downgraded On Risk To Shelf Space

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