General Mills saw its shares close down more than 5% yesterday (25 June) after the Cheerios and Old El Paso maker booked another quarter of declining organic net sales – and put up a set of forecasts for its new financial year that were below Wall Street expectations.
It’s been a testing year for the US group. General Mills had already flagged the clouds the company saw on the horizon back in December when it lowered its forecasts for two key profit metrics amid an “uncertain macro-economic backdrop for consumers”.
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Fast-forward three months and the Nature Valley snack bars owner cut its projections for adjusted operating profit and adjusted EPS again after a fiscal third quarter when sales were “below expectations”. At that point, the group also lowered its forecast for its organic net sales, which it said would decline year on year.
In May, General Mills revealed a “global transformation” programme in a bid to boost productivity, suggesting the initiative will be accompanied by job cuts.
Yesterday, the group did indeed report falling net sales on an organic basis. Reported net sales dropped 2% and down by the same percentage organically after a 3% decline in the fourth quarter.
“As we head into fiscal ’26, we expect the operating environment will remain volatile, with consumers pressured by widespread uncertainty from tariffs, global conflicts and changing regulations,” General Mills chairman and CEO Jeff Harmening told analysts yesterday.
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By GlobalDataInvestment plans dent projections
Central to the fall in General Mills’ share price was its guidance for its new financial year, which started on 26 May.
The Pillsbury brand owner expects its organic net sales to be within the range of a 1% decline and a 1% increase.
It is forecasting a 10-15% fall in both adjusted operating profit and adjusted EPS (on a constant-currency basis) year on year.
According to Bernstein analyst Alexia Howard, the consensus among Wall Street analysts was for “roughly flat” organic net sales, a 7% drop in adjusted operating profit and a 5% decrease in adjusted EPS. Hardly a rosy outlook anyway but General Mills’ projections hit sentiment.
However, among the equity analysts covering General Mills there is an acknowledgement the company needs to invest to try to breathe fresh live into its sales. “[The] guide reinforces market concerns of increasing price competition as General Mills seeks to return to volume growth and, while not ideal, we believe it is pragmatic,” Mizuho Securities analyst John Baumgartner says. “Many centre-store categories have priced well ahead of household income growth amid inflation and feature everyday prices exceeding consumers’ buying power.”
North America grocery central to spending
Of General Mills’ four reporting divisions, North America Retail remains its largest, accounting for 61% of the company’s net sales in the 2024/25 financial year.
However, that side of the group’s business has struggled in recent quarters. Fourth-quarter net sales dropped 10%, a significant contributor to the 5% decline reported over the year as a whole.
Consumer confidence in the US has made for difficult trading conditions for all packaged-food companies but some General Mills watchers feel the company’s moves to increase prices to offset cost pressure in the last 18 months went too far.
Efforts have already been made to revitalise part of General Mills’ stable of brands in North America, with signs investment in price helped sales of brands like Totino’s in the second half of the year just ended. The company is also pledging to invest in NPD.
“We have significant product news across each of our top ten US categories, compared to news on just three categories last year. And we expect to drive a twenty-five percent increase in sales from new products,” Harmening said.
“We are clear on the job to do in fiscal ‘26, which is to restore volume-driven organic sales growth.”
Pet food picking up steam
In General Mills’ 2023/24 financial year, the net sales from its pet-food division dropped 4%, a disappointment given the efforts – both via M&A and organically – the company had made to build its presence in the sector in recent years.
November last year saw the company swoop again, paying $1.45bn for Whitebridge’s North American cat-food and pet-treats business. Yesterday’s results filing showed the group has got its pet business gathering steam again. The Whitebridge deal was central to the Q4 and FY growth General Mills saw from its North America Pet business unit but, in the last three months of the fiscal year, volumes were up 3% organically.
“Pet food is a relative bright spot at present: Cat food is now growing at a mid-single digit rate and while Wilderness and treats aren’t yet all the way back to bright, the trends are moving in the right direction and organic sales growth trends are expected to build sequentially through the year,” Howard wrote in a note to clients.
However, not everyone is convinced by a significant announcement General Mills made this week on its pet-food business – taking Blue Buffalo into fresh pet food in the US. “We view Blue Buffalo’s foray into fresh dog food as a high-risk manoeuvre,” TD Cowen’s Robert Moskow said. “Freshpet’s strong distribution footprint and first mover advantage pose a significant obstacle to the brand’s expansion plans.”
Beyond the new financial year
The positive take is that General Mills might be set to see a year of lower profits in 2025/26 but the investment will prove worthwhile.
Optimists will say the spend on, for example, prices across the North America Retail division is showing signs of paying off already. The planned push into fresh pet food will see General Mills tap into one of the more buoyant parts of the category.
However, the company’s efforts don’t exist in vacuum. Other packaged-food manufacturers also facing pressure on demand will be ready to act (if they haven’t already) while there’s no certainty all of General Mills’ new products will land. Freshpet will be sure to guard its territory in the coveted fresh segment.
There are also the more fundamental issues to consider: think the rising adoption of GLP-1 weight-loss drugs and, in the US, the Trump administration’s Make America Healthy Again agenda.
“We believe that category trends across the store are very suggestive that weight loss drugs are having a major impact on eating behaviours, in addition to the value-seeking behaviour that the industry is favouring as an explanation of category weakness, especially in snacking and favouring proteins over carbs,” Howard says. “And with pill versions of GLP-1 drugs now slated to emerge early in calendar year 2026, we expect these pressures to get worse next year before starting to improve in 2027/8.”
General Mills has been among the US food majors to announce plans to phase out artificial additives in the crosshairs of the US government.
However, the regulatory landscape in the US means manufacturers must remain agile on a local level. In recent days, Texas passed legislation that will require food producers to place warning labels on items containing certain artificial colours and additives.
