General Mills: Price Hikes Improve Margins; Consumers Remain “Resilient But Cautious”

Price hikes helped General Mills drive sales past analysts’ expectations and improve margins despite consumers’ growing caution, according to the company’s Q1 2024 earnings report released today.

In the quarter ended August 27, the parent company of Cheerios and Yoplait posted net sales of $4.9 billion, a year-over-year increase of 4%, bolstered by price hikes of an undisclosed amount. Organic net sales also increased 4%.

Gross margin in was up 540 basis points to 36.1% of net sales in Q1 thanks to favorable market-to-market effects and net price realization and mix, partially offset by higher input costs.

“We delivered growth on the top and bottom lines in the first quarter amid an evolving external environment characterized by moderating inflation, stabilizing supply chains and a resilient but increasingly cautious consumer,” said GM chairman and CEO Jeff Harmening in a press release. “Looking ahead, we will remain focused on executing our Accelerate strategy and driving strong growth for our brands.”

Net losses were down significantly at $3 million compared to losses of $26 million in Q1 2023.

In Q4, the Minneapolis-based company’s North America Retail Segment saw net sales increase 3% to $3.1 billion driven by favorable price realization and mix. According to the earnings report, GM’s net sales were up in the high single-digits for the U.S. Snacks division and up low single digits for U.S. Morning Foods.

“Price point is up dramatically versus pre-pandemic […] we don’t expect to see deep discounting as our retailers’ model doesn’t add up at the end of the day. So we’re seeing a bit more frequency but price point is up,” Jon Nudi, Group President, North American Retail, told investors during today’s call. “As a result of that, we don’t expect to see deep discounting as it just doesn’t line up with our retailers’ model.”

Meanwhile, GM’s North America Foodservice Segment reported net sales of $536 million, up 8% year-over-year, as a result of higher pound volume.

When asked by an analyst whether the company expected a significant amount of growth in the cereal category over the next few years, Harmening cited 20% sales growth over the last five years and the fact GM has two of the biggest brands in the category in Cheerios and Cinnamon Toast Crunch.

“My expectation for our cereal business is that we grow a little bit every year and hopefully take a little bit of share every year,” he told investors.

Pillsbury’s parent company believes the largest factors impacting its performance in fiscal 2024 will be the economic health of consumers, moderating inflation of input costs, and an increasingly stable supply chain environment.

To address these factors, GM plans to drive sales through marketing, innovation, in-store support and net price realization generated through its Strategic Revenue Management (SRM) system, most of which will be carried over from SRM actions in fiscal 2023.

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

Looking ahead, GM has reaffirmed its full-year outlooks. During the 2024 fiscal year, Pillsbury’s parent company forecasts organic net sales will increase 3 to 4%. Meanwhile, adjusted operating profit and adjusted diluted EPS are expected to rise 4 to 6%.

“We will remain focused on executing our Accelerate strategy and driving strong growth for our brands […] with confidence in our plans and ability to adapt to continued change in the consumer landscape,” Harmening said in a prepared statement.