General Mills: Q2 Sales +4%, FY 2023 Guidance Raised Despite ‘Volatile’ Environment

General Mills posted strong top line and bottom line numbers in its Q2 FY2023 earnings report, despite “ongoing volatility” in the operating environment.

The Minnesota-based consumer brands company announced Q2 sales were up 4% year-over-year to $5.2 billion. Operating profit remained relatively unchanged at $800 million, while adjusted operating profit was up 7% in constant currency compared to last year.

General Mills CEO and chairman Jeff Harmening attributed the positive numbers to the company’s investment in brand building, innovation and the reshaping of its portfolio.

“We’re competing effectively once again in fiscal 2023, building on four consecutive years of strong market share performance. We are holding or gaining share in 37 of our priority businesses through the first half, but that includes a share decline in cereal,” said Harmening in a prepared statement. “On a two-year basis, our market share in cereal is still up. After adjusting for that change, we are holding or gaining in 54 percent of our priority businesses.”

The company has adjusted its financial guidance for 2023 to reflect the impact of ongoing supply chain disruptions and its continued focus on top line growth.

While navigating cost inflation and the supply chain crisis, General Mills announced it would take on another set of price increases, slated to go into effect in February.

“As we look across a longer horizon, I don’t want to play Nostradomus with inflation rates,” said Harmening during the call. “As we look at our business, we’ll continue to look at pricing. But the key is that the pricing has to be justified.”

Although operations remain strained, General Mills brands continue to drive growth, reporting an 11% increase to $3.4 billion in North American retail sales during the quarter. Net sales for its U.S. Snacks business went up 18%, meals and baking solutions rose 10% and morning foods increased 10%. Overall, the company’s North American net sales grew 13% in Q2, driven by positive price mix, partially offset by lower volume.

Meanwhile, second quarter sales for the international segment were down 27% to $672 million, driven by lower volume.

According to General Mills CFO Kofi Bruce, there were several events that impacted the company’s year-over-year comparisons for Q2, including the acquisition of frozen pizza crust brand TNT Crust, as well as the divestitures of its European yogurt business, its international dough business and its Helper and Suddenly Salad Business in North America.

“The economic situation in Europe is more challenging than it is [in the U.S.], particularly driven by energy prices and unemployment that’s a little higher than it is here,” said Bruce during the earnings call. “Elasticity in Europe tends to be a little bit higher and it plays itself out across categories whether it’s cereal, bars or ice cream.”

General Mills’ management remains optimistic as it heads into the new year. It has slightly increased its guidance for FY2023, accounting for continued supply chain and labor challenges, the impact of divesting its European yogurt and dough businesses and to reflect a strong focus on top line growth.

The most notable adjustment is the company’s organic net sales, which is now projected to increase from 8% to 9%, a jump from its previous expectation of 6% to 7% growth. Operating profits are expected to increase 3% to 5% in constant currency, up from the previous range of zero to 3%.

For the full year, the company expects input cost inflation of 14% to 15% of total cost of goods sold, HMM cost savings of 3% to 4% of cost of goods sold, moderately lower supply chain disruptions compared to the year prior and increased investment in brand building and other growth opportunities.

“As we look at our revised guidance within the range of possibilities, and while we’re not giving specific guidance on gross margin, we’re very comfortable we’re making good progress against our long term goal of getting our margin back to pre-pandemic levels. We’re still about 150 basis points back there,” said Bruce during the call.