• Research

Sep 23, 2016

S3 BLACKLIGHT: Short Sellers Taking Bigger Bites out of General Mills

After over a year of disappointing sales figures short interest in General Mills (GIS US) is nearing the $1 billion mark. General Mills reported 1st Quarter earnings this week with EPS beating estimates by $0.03 but overall revenues falling 7.3% to $3.9 billion. All of General Mills ten product lines reported declining sales and all but “Snacks” have declined two years in a row. Following up this year’s disappointing sales effort general Mills is projecting flat sales growth in 2017.

Short interest in GIS remained below its $829 million 2015 average short interest as its stock price rose 24% in the first half of the year. Since the end of June General Mill’s stock price is down over 9% and short interest has climbed to $981 million, up 56% for the year. Most of the increase of short activity occurred in September, with $247 million of new shorts hitting the street, up 34% in just three weeks.

Our Blacklight Relative Velocity Indicator, a measure of real-time relative change in shorting activity, was trending sharply upward for the first two and half weeks of September but has flattened out over the last three trading days. Short sellers were determined to establish their positions prior to General Mills earnings release and are now holding steady.

While long term shareholders may be pleased with shrinking debt levels, relatively stable cash flows and an almost 3% dividend level, short sellers are looking at General Mill’s product lines and seeing poor continued performance in Yoplait Yogurt, Fiber One and cereals. The company’s decision to make some of its products more health conscious did add to sales. Changing sweeteners, adding gluten-free options, using antibiotic free chicken and enhancing flavor profiles resulted in increased sales for some of their products, and General Mills hopes that further tweaking will increase the popularity of all ten of its product segments.

The conviction of the recent short sellers will be tested if General Mills stock price finds a floor at this $64-$65 level and the stock rebounds back to near its $72.64 year to date high. Seeing the lull in shorting momentum over the last several days, short sellers may not have the resilience to hold onto their positions through a price driven short squeeze and $247 million worth of buy to covers may hit the tape with more momentum than when they were put on.

For more information on the above analysis, please contact:
Ihor Dusaniwsky, Head of Research, S3 Partners, LLC     Ihor.Dusaniwsky@S3Partners.net


The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.


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