EU CONSUMER STAPLES: General Mills | 4Q (to May) results
(GIS: Baa2/BBB)
It ended FY25 with EBIT down 7%, missing its initial guidance from last year for flat to -2% fall. For FY26, it expects a steeper -10–15% decline which is partly being blamed on recent divestiture & acquisitions. The lower end of guidance will likely be enough to push leverage beyond BBB thresholds (>4x) with the rise in leverage seemingly ignored given at pace equity pay-outs. While the curve (in particular 32s) offer some pickup versus BBB-rated F&B peers, we remain cautious.
- 4Q sales -3% (v -2%, p/m -1%) driven by the weakness in core North America (-10%). That was offset by Pet (+12%) and International (+12%) strength.
- 4Q margins fell sharply: gross -220bps, adj. EBIT -540bps at 11.1% (latter driving adj. EBIT -22% y/y).
- It leaves FY sales at $19.5b, -2% y/y (v -1%, p/m -1%) and adj. EBIT at $3.4b (-7%) on a 17.2% margin (-90bps).
- FCF at $2.3b (down from $2.5b) while equity pay-outs totalled $2.5b (down from $3.4b last year).
- We see net debt at $13.8b (+$1.3b y/y) - the rise alongside falling earnings has moved adj. leverage from net 3.0x to 3.6x. S&P and Moody's threshold is net/gross 4.0x.
- The NA yogurt business sale (for total $2.1b) will only fully close on June. Proceeds are tabled for buybacks in full.
FY26 (to May) guidance:
- organic sales -1% to +1% (with another -4% drag from divestitures and FX)
- adj. EBIT down -10% to -15%
- Qtrly dividend rate moved up from $0.6 to $0.61 (~$335m/qtr)
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EGBS: Brief Uptick In BTP and OAT Futures, BTP/Bund Inches Below 100bp
Seeing a little leg higher in BTP and OAT futures, the former now positive on the day (+8 ticks to 120.31) and the latter closing the opening gap that provided resistance a little earlier (-3 ticks at 124.76).
- Haven’t seen an obvious trigger for the moves, with headline flow and broader activity muted. Expect that to continue through the European afternoon with the US out today.
- The 10-year BTP/Bund spread once again inches below the 100bps handle, now 2bps narrower today. As with the last few weeks, focus will be on whether the spread can sustain a move below the psychological handle.
EUROPEAN INFLATION: EUR 5y5y Inflation Swap Still Close To 2%
EUR traded inflation swaps are little changed relative to a month ago. The 5y5y HICP ex-tobacco inflation swap remains close to 2% at 2.09%, while 1-, 2- and 5-year swaps are comfortably below the 2% handle.
- The trade agreement between the US and China in early May saw market-implied EUR inflation expectations rise, as it implied a reduced risk of disinflationary trade diversion from China into the Euro-area compared to when tariffs were at triple-digit levels.
- However, the combination of soft Eurozone data (May flash PMIs and Q1 negotiated wages) and US President Trump’s latest threats of tariffs as high as 50% on the EU has prompted a renewed softening of traded inflation metrics.
- The May 2025 HICP ex-tobacco inflation swap fixing is currently 189bps.
