An “improvement” was the operative word for General Mills as it peers into the fourth quarter and new fiscal year financial performance.
That was the view of chairman and CEO Jeff Harmening yesterday (18 March) as he reported across across-the-board third-quarter declines in organic sales, volumes, operating profit and EPS at the US food group.
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Despite his optimism, shares in General Mills dropped 3% to $37.59 as the Pillsbury and Nature Valley brand owner stuck with its forecast that the company will see decreases in all but one of those metrics for the year as a whole. The stock is now down 18% over the last year, with a more protracted 25% drop in the past six months.
Reporting General Mills’ results for the quarter to 22 February, Harmening said in his prepared remarks he expects the “continued market-share momentum to translate into improved top- and bottom-line results in Q4”, adding: “With three quarters of difficult financial results behind us, we are poised to deliver stronger performance going forward.”
Further out, he said: “And as we look ahead to fiscal ‘27, with the headwind from base price adjustments behind us and with plans to further advance the remarkability of our brands, we’re confident that we can deliver improved organic sales growth while continuing to generate industry-leading cost efficiency”.
Organic sales fell 3% in the third quarter and were down 8% in reported terms at $4.4bn. Group volumes dropped 11 percentage points with a more pronounced 19-point-decline in North America retail.
Adjusted operating profit dropped 32% on a constant-currency basis to $547m, while adjusted diluted EPS lost 37% to $0.64.
Harmening explained: “We entered fiscal 2026 with a bold strategy to increase investment to improve the remarkability of our brands and restore organic sales growth. While we expected this reinvestment approach – along with the impact of divestitures and timing headwinds – would pressure our sales and earnings through our first three quarters, we also expected it to drive stronger competitiveness and set the stage for a return to growth once we moved past the reinvestment phase.
“And that’s what we are seeing: clear signs of progress on key fundamentals including household penetration, baseline sales, distribution, and market share.
“These are important metrics that give us confidence that better results are ahead for General Mills.”
Analysts were not so optimistic, with Mizuho Securities’ managing director John Baumgartner heading up a research note: “Work still in progress; bright spots but not enough to move sentiment.”
Baumgartner put forward the potential risks from the Middle East crisis, including renewed inflation linked to fuel, freight and food inputs.
“Although General Mills’ household penetration is growing and market shares are recovering, elevated energy prices and renewed inflation may only heighten consumer value-seeking and limit the slope for a return to absolute growth,” he suggested.
“At best, we believe that macros will continue to limit near-term visibility and maintain investors’ focus on volume recovery and brand-building return on investment.”
Robert Moskow at TD Cowen was equally downbeat in a follow-up note as the investment bank lowered its forecast for General Mills’ EPS to $37 from $45.
“Management described their inflation outlook for FY27 as consistent with their 4% guidance for FY26. However, the Iran war has started to impact the cost of raw materials like plastic packaging and freight on a spot basis,” he wrote.
“We see risk to the upside for inflation from these factors and not enough pricing power to offset them. We lower our estimates for FY27 EPS to reflect margin pressure from incentive comp, weak sales, and rising costs, which they are unlikely to offset with price increases.”
General Mills predicts organic net sales will be down 1.5% to 2% in fiscal 2026 and both adjusted operating profit and adjusted diluted EPS to decline 16% to 20% in constant currency.
