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Do you see a pattern here? Is it a good sign for the economy that consumers are eating more cereal and TV dinners?
09/23/2009 12:52 pm EST
This morning General Mills (GIS) reported fiscal first quarter earnings of $1.28 a share, a huge 25 cents a share better than Wall Street was expecting. And the company raised its guidance for the full fiscal 2010 year by $4.40 to $.5 a share, up from earlier company estimate of $4.20 to $4.25.
Maybe it’s too much to put this surprise together with yesterday’s stronger than expected earnings from ConAgra Foods (CAG) and say that in these tough economic times consumers are eating what’s easy, simple, and affordable.
Cereal fits that bill—even if you calculate the cost per bowl. So too do the TV dinners that formed the backbone of ConAgra’s over-performance in the quarter.
So too do meals at McDonald’s (MCD), which has kept reporting month to month growth in sales even as restaurants in the slightly more expensive casual dining segment report drops in sales.
Two caveats for investors.
First, good news from companies that are catering to consumers’ desire and need to spent less is great for the companies involved but not so great for the economy as a whole. It still adds up to a reluctance to spend. It would be a much more optimistic sign for the economy as a whole if we were seeing growth from luxury goods makers.
Second, as has been true of almost all companies reporting results this quarter, the earnings picture at General Mills was much more impressive than the sales results. Revenues climbed just 0.6% from the first quarter of fiscal 2009 and came in a tiny $30 million ahead of the Wall Street estimate of $3.49 billion.
The biggest story at General Mills was the decline in costs and not the rise in sales. And it’s a rise in sales that we need to see to prove that this recession is truly over.
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