General Mills (NYSE: GIS) reported Q3 EPS of $0.72, $0.01 better than the analyst estimate of $0.71. Revenue for the quarter came in at $3.79 billion versus the consensus estimate of $3.82 billion.

Third Quarter Results Summary

• Reported net sales declined 5 percent to $3.79 billion. Organic net sales also declined 5 percent, primarily reflecting volume reductions in the North America Retail segment partially offset by benefits from positive net price realization and mix.
• Gross margin increased 60 basis points to 34.5 percent of net sales, reflecting benefits from cost-savings initiatives and favorable mark-to-market effects. Adjusted gross margin, which excludes certain items affecting comparability, increased 20 basis points to 35.0 percent, driven by cost-savings efforts more than offsetting the impact of volume deleverage and modest input cost inflation.
• Operating profit totaled $542 million, down 7 percent from year-ago levels due to higher restructuring charges related to the recent global reorganization. Operating profit margin of 14.3 percent was down 30 basis points. Adjusted operating profit margin increased 100 basis points to 16.9 percent, reflecting higher gross margins, lower administrative expense, and an 8 percent reduction in media and advertising expense.
• Total segment operating profit of $662 million was down 2 percent in constant currency.
• Net earnings attributable to General Mills totaled $358 million. Diluted EPS of $0.61 increased 3 percent, driven by a lower tax rate and 3 percent fewer average diluted shares outstanding.
• Adjusted diluted EPS, which excludes certain items affecting comparability of results, totaled $0.72 in the third quarter, up 11 percent from the prior year. Constant-currency adjusted diluted EPS increased 8 percent.

"Our third-quarter results finished in line with our expectations and keep us on track to deliver the guidance we updated last month," said General Mills Chairman and Chief Executive Officer Ken Powell. "Our net sales declined due primarily to gaps in pricing and promotional activity in key U.S. businesses. Our cost savings efforts helped us expand our adjusted operating profit margin and drive growth in adjusted diluted EPS. Looking ahead, we are highly focused on improving our topline performance while continuing to expand our margins. We've added support in the fourth quarter to strengthen key business lines, and we're pursuing global growth priorities that will further improve our sales trends beyond fiscal 2017."

Outlook

• General Mills reaffirmed its key full-year fiscal 2017 targets:
• Organic net sales are expected to decline approximately 4 percent.
• Constant-currency total segment operating profit growth is expected to be in a range of down 1 percent to up 1 percent.
• Adjusted operating profit margin is targeted at 18 percent of net sales or higher, which translates to at least 120 basis points of expansion versus year-ago levels.
• Constant-currency adjusted diluted EPS is expected to increase 5 to 7 percent from the base of $2.92 earned in fiscal 2016. The company estimates currency translation will have an immaterial impact on full-year fiscal 2017 adjusted diluted EPS.

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