General Mills’ Stock Drops After Q4 Sales Fail to Meet Analysts’ Projections

General Mills’ stock dropped 5.17% yesterday after the company reported a decline in profit and net sales that failed to meet analysts’ forecasts during its Q4 earnings report.

In the quarter ended May 28, price hikes helped the parent company of Cheerios and Yoplait posted net sales of $5 billion, a year-over-year increase of 3%. Meanwhile, organic net sales increased 5% but were offset by lower organic pound volume, including a headwind from a reduction in retailer inventory in North America Retail.

Now that the supply chain has begun to stabilize, retailers are feeling less pressure to hold onto “safety stock” said Jon Nudi, president, North America Retail at General Mills, during a call with investors on Wednesday.

During the call, executives said they do not view the reduction in inventory as a General Mills-specific trend or a red flag but rather a temporary obstacle. According to CEO Jeff Harmening, it is “truly a couple of customers trying to get their inventories back to a good place” as the carrying cost of inventory is higher and interest rates are up.

In Q4, the company reported North American Retail net sales of $3.1 billion, a 2% increase year-over-year. For fiscal 2023, North American Retail segment profit was up 18% to $3.2 billion, offset by higher input costs and lower volume and higher SG&A expenses including media spend, which was 35% higher than pre-pandemic levels.

According to the press release, net sales growth was broad, featuring increases of 13% in U.S. snacks, 10% percent in U.S. meals & baking solutions and 7% in U.S. morning foods.

Several transactions had a significant impact on the comparability of financial results between fiscal 2022 and fiscal 2023: the acquisition of the TNT Crust foodservice business and the divestitures of the Helper main meals and Suddenly Salad side dish businesses in Q1 2023. The results also reflected the negative impact of a voluntary recall on certain Haagen-Dazs ice cream products on the company’s international segment.

Looking ahead, the company expects the largest factors impacting its performance in fiscal 2024 to be the economic health of its consumers, the moderating rate of input cost inflation and the increasing stability of the supply chain environment.

“We know from spending time with consumers that they are increasingly cautious about their financial future,” said CEO Jeff Harmening in a prepared statement. “This caution could have an impact on their at-home versus away-from-home food choices, the channels they shop and the brands they choose.”

To combat these hurdles, Pillsbury’s parent company is prioritizing adapting to new environments, improving supply chain efficiencies and maintaining capital allocation discipline.

These actions are part of General Mills’ Accelerate strategy unveiled in February 2021. The four pillars of the plan include brand building, undertaking innovations, unleashing scale and maintaining business strength.

The GM board also approved a 9% dividend increase effective with the August 2023 payment. The quarterly dividend of $0.59 per share will be payable August 1 to shareholders of record July 10.

During its next fiscal year, General Mills forecasts organic net sales will increase 3 to 4% through strong marketing and additional price increases. Meanwhile, adjusted operating profit is expected to rise 4 to 6% from $3.5 billion in fiscal 2023 and adjusted diluted EPS is projected to grow 4 to 6% from $4.30 in 2023.

The company plans to “focus on continuing to compete effectively, driving efficiency in our operations and maintaining our disciplined approach to capital allocation, which we expect to result in financial performance that meets or exceeds each of our key long-term goals,” said Harmening in a prepared statement.