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General Mills, Inc. (GIS) is a leading global manufacturer and marketer of branded consumer foods, operating in over 100 countries across six continents . The company manages its business through four operating segments: North America Retail, International, Pet, and North America Foodservice . General Mills offers a diverse range of products, including ready-to-eat cereals, yogurt, soups, meal kits, snacks, baking mixes, frozen foods, and pet food . In fiscal 2024, the company generated approximately $20 billion in net sales, with an additional $1 billion from non-consolidated joint ventures .
- North America Retail - Offers a wide variety of grocery products, including ready-to-eat cereals, refrigerated yogurt, soup, meal kits, refrigerated and frozen dough products, dessert and baking mixes, frozen pizza and pizza snacks, snack bars, fruit snacks, savory snacks, and organic products.
- International - Provides products such as super-premium ice cream, frozen desserts, meal kits, salty snacks, snack bars, dessert and baking mixes, shelf-stable vegetables, and pet food products.
- Pet - Focuses on pet food products sold primarily in the United States and Canada, including dog and cat food made with high-quality natural ingredients.
- North America Foodservice - Includes ready-to-eat cereals, snacks, refrigerated yogurt, frozen meals, unbaked and fully baked frozen dough products, baking mixes, and bakery flour, sold to distributors and operators in various customer channels.
What went well
- Encouraging Progress in Volume Growth and Market Share: General Mills has made significant strides in accelerating volume growth and improving market share trends, particularly in North America Retail and Pet segments. Over 56% of priority businesses grew or held pound share in Q2, with improvements across all four segments.
- Strong Financial Performance in Q2 Fiscal 2025: The company reported a 7% increase in adjusted operating profit and a 12% increase in adjusted diluted earnings per share in constant currency for Q2 fiscal 2025. Adjusted gross margin increased by 130 basis points to 36.3%, driven by Holistic Margin Management (HMM) cost savings and higher volume.
- Strategic Portfolio Reshaping and Growth Investments: General Mills is actively reshaping its portfolio through strategic acquisitions and divestitures, including the proposed acquisition of Whitebridge Pet Brands, enhancing its position in the fast-growing premium pet food segment. These actions aim to improve the company's growth profile and deliver sustainable growth in fiscal 2026 and beyond.
What went wrong
- Adjusted operating profit is now expected to decline by 4% to 2% in constant currency for fiscal 2025. This lowered guidance reflects higher promotional investments and incremental expenses, potentially impacting profitability.
- Second-quarter organic net sales for the International segment were down 3%, driven by declines in China and Brazil. Continued double-digit traffic declines in Häagen-Dazs shops in China could further pressure international sales.
- Second-half adjusted operating profit is expected to be down roughly 8% in constant currency, due to reversal of favorable timing items, increased growth investments, and a partial reset of incentive compensation. This suggests weaker performance in upcoming quarters.
Q&A Summary
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Margin Outlook
Q: How will input costs and investments impact margins?
A: Input cost inflation increased to 4% , driven by higher ingredient and manufacturing costs, including lapsing advantageous contracts. They are driving 5% Holistic Margin Management (HMM) and remain confident in managing inflation. -
Back-Half Profit Decline
Q: What drives expected profit decline in H2?
A: They anticipate an 8-point decline in operating profit in the back half, due to reversal of timing benefits (3 points), incentive compensation reset (2 points), and additional investments (3 points). -
Targeted Investments
Q: Are incremental investments targeted or broad?
A: Incremental investments are targeted within specific categories like refrigerated baked goods, Totino's, and fruit snacks, not across all products. They believe these will provide the best return and will adjust as they learn. -
Investment Sufficiency
Q: Will current investments suffice for growth?
A: They are confident that targeted investments will yield returns, as initial efforts are working but require slightly more than anticipated. They will monitor responses and pivot if needed. -
Pet Segment Performance
Q: What's the outlook for the Pet segment?
A: The Pet business is improving, with Life Protection Formula growing high single digits, and Wilderness improving from down 18% last year to down mid-single digits this year. They expect to return to growth in H2 and are gaining pound share. -
Inventory Levels in Pet
Q: Are there inventory issues in Pet?
A: Inventory levels at key customers are now at expected levels, and no issues are anticipated in H2. -
Regulatory Environment Impact
Q: How will regulations affect the business?
A: They have experience navigating regulations and will comply with new laws. For California's certified colors law effective in 2027, 85% of their cereal portfolio is already compliant; the rest will be by 2027. -
M&A Activities Impact
Q: How will recent deals affect the model?
A: The yogurt divestiture will be low single-digit dilutive, while the White Bridge acquisition is minimal. Proceeds from the yogurt sale will fund share repurchases, maintaining leverage around 3x net debt-to-EBITDA. The White Bridge acquisition closed today. -
Häagen-Dazs China Sales
Q: What's happening with Häagen-Dazs in China?
A: Experiencing double-digit declines due to a tough macroeconomic environment and lower traffic. Focusing on retail and foodservice channels with better margins and have closed underperforming stores. -
U.S. Cereal Business
Q: How is the U.S. cereal business performing?
A: Showing improvements, growing pound share through campaigns like the Kelcey Brothers promotion and Chex party mix. Plan to continue similar strategies in H2. -
Category Growth
Q: Are categories growing as expected?
A: Categories are normalizing to pre-pandemic levels, growing around 1%. They aim to stimulate growth through competitiveness and remarkable products. -
Pet Segment Margins
Q: Will Pet segment margins keep improving?
A: Achieved margin gains through HMM integration and internalizing volume. Expect to continue margin progress but gains may not be as large as recently. -
Timing Benefits Reversal
Q: How will timing benefits reversal affect Q3?
A: Most of the 6-point benefit from timing items in Q2 will reverse in Q3, impacting profits.
Guidance Changes
Annual guidance for FY 2025:
- Organic Net Sales: flat to up 1% (no change from prior guidance flat to up 1% )
- Adjusted Operating Profit: down 4% to down 2% (lowered from down 2% to flat )
- Adjusted Diluted EPS: down 3% to down 1% (lowered from down 1% to up 1% )
- Free Cash Flow Conversion: at least 95% of adjusted after-tax earnings (no change from prior guidance at least 95% )
- HMM (Holistic Margin Management) Cost Savings: 5% of COGS (raised from 4%–5% )
- Input cost inflation: 4% of COGS (no prior guidance)
- Second Half Adjusted Operating Profit: down roughly 8% (no prior guidance)
- With input cost inflation still forecasted at 3%-4% and price/mix pressures due to mix reductions, how do you plan to manage margins if you cannot pass on additional costs to consumers?
- Considering the stranded overhead from the yogurt divestiture that will take up to two years to eliminate, what specific measures are you implementing to address these costs, and how confident are you in achieving the projected timeline?
- You've mentioned a focus on bolt-on acquisitions in the $1 billion to $2 billion range; can you detail which strategic areas or categories you're targeting and how these acquisitions will deliver expected growth and synergies amid a competitive M&A landscape?
- Given the shift toward increased at-home food consumption coupled with continued value-seeking behavior, how are you adapting your product portfolio and marketing strategies to capitalize on this trend without compromising the perceived value of your premium brands?
- Despite improvements, customer service levels and supply chain reliability are only approaching pre-pandemic levels; what are the remaining bottlenecks, and what actions are you taking to achieve sustainable improvements across all segments of your business?
Q1 2025 Earnings Call
- Issued Period: Q1 2025
- Guided Period: FY 2025
- Guidance:
- Organic Net Sales: Expected to range between flat and up 1% .
- Adjusted Operating Profit: Expected to range between down 2% and flat in constant currency, including a 2-point headwind from resetting incentive compensation to target levels .
- Adjusted Diluted Earnings Per Share: Expected to range between down 1% and up 1% in constant currency .
- Free Cash Flow Conversion: Expected to be at least 95% of adjusted after-tax earnings .
- HMM (Holistic Margin Management) Savings: Expected to deliver approximately 4% to 5% savings in the cost of goods sold .
- Capital Expenditures: Expected to total approximately 3.5% of net sales .
Q4 2024 Earnings Call
- Issued Period: Q4 2024
- Guided Period: FY 2025
- Guidance:
- Organic Net Sales: Expected to range between flat and up 1% .
- Adjusted Operating Profit: Expected to range between down 2% and flat in constant currency, including a 2-point headwind from resetting incentive compensation to target levels .
- Adjusted Diluted EPS: Expected to range between down 1% and up 1% in constant currency .
- Free Cash Flow Conversion: Expected to be at least 95% of adjusted after-tax earnings .
- Net Interest Expense: Expected to increase to approximately $525 million .
- Adjusted Effective Tax Rate: Expected to be roughly 21%, up about 1 point from the prior year .
- Benefit Plan Non-Service Income: Expected to decrease to approximately $55 million .
- Share Repurchase Activity: Expected to reduce average diluted shares outstanding by roughly 3% .
- Capital Expenditures: Expected to total approximately 3.5% of net sales .
- Input Cost Inflation: Forecasted at 3% to 4% of cost of goods sold .
- HMM Cost Savings: Expected to be 4% to 5% of cost of goods sold .
Q3 2024 Earnings Call
- Issued Period: Q3 2024
- Guided Period: FY 2024
- Guidance:
- Organic Net Sales: Expected to range between down 1% and flat for the full fiscal year .
- Adjusted Operating Profit: Expected to increase 4% to 5% in constant currency for the full fiscal year .
- Adjusted Diluted Earnings Per Share: Expected to increase 4% to 5% in constant currency for the full fiscal year .
- Free Cash Flow Conversion: Expected to be at least 95% of adjusted after-tax earnings for the full fiscal year .
- Capital Investments: Expected to be roughly 4% of net sales for the full fiscal year .
- Average Diluted Share Count: Expected to reduce by approximately 3% in fiscal 2024 due to share repurchases .
- Additional Assumptions: A meaningful headwind from the comparison against favorable trade expense timing in the previous year's fourth quarter, representing a roughly 3-point headwind to net sales growth and a double-digit headwind to adjusted operating profit growth . Continued input cost inflation on the cost of goods sold, which they plan to address with continued strong Holistic Margin Management (HMM) cost savings .
Q2 2024 Earnings Call
- Issued Period: Q2 2024
- Guided Period: FY 2024
- Guidance:
- Organic Net Sales: Expected to range between down 1% and flat .
- Adjusted Operating Profit: Expected to increase 4% to 5% in constant currency .
- Adjusted Diluted Earnings Per Share (EPS): Expected to increase 4% to 5% in constant currency .
- Free Cash Flow Conversion: Expected to be at least 95% of adjusted after-tax earnings .
- Input Cost Inflation: Expected to be 5% of the cost of goods sold, driven primarily by labor inflation .
- HMM Cost Savings: Expected to be 5% of the cost of goods sold .
- Average Diluted Shares Outstanding: Expected to be reduced by roughly 3% .
Recent developments and announcements about GIS.
Financial Reporting
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Revenue and Profit Performance: The company reported net sales of $5.2 billion, up 2%, with organic net sales increasing by 1%. Adjusted operating profit rose by 7% in constant currency, and adjusted diluted earnings per share increased by 12% in constant currency, driven by higher volume and HMM cost savings, despite input cost inflation and higher SG&A expenses .
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Management’s Forward Guidance: General Mills expects organic net sales for fiscal 2025 to range between flat and up 1%, with adjusted operating profit expected to decrease by 2% to 4% in constant currency. Adjusted diluted EPS is projected to decline by 1% to 3% in constant currency. The company anticipates free cash flow conversion to be at least 95% of adjusted after-tax earnings .
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Market Conditions and Strategic Initiatives: The company is focusing on accelerating organic sales growth by enhancing consumer experiences and investing in brand building. It is also working on improving its market share, particularly in the North America Pet segment, which saw a 5% increase in organic net sales . General Mills is addressing challenges in the Refrigerated Dough segment by increasing media support and product renovations .
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Analyst Questions and Management Responses: During the earnings call, management discussed the impact of timing-related items on Q2 results, which are expected to reverse in the second half. They also addressed the macroeconomic challenges in China affecting the Häagen-Dazs business and outlined strategies to mitigate these issues by expanding distribution channels .
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Revenue and Profit Performance: The company is focusing on accelerating organic sales growth and volume growth, with improvements seen in volume and share trends across various segments. However, increased investments in the business are impacting profit outlook for the latter half of the year .
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Management’s Forward Guidance: GIS is confident in its strategy and investments aimed at improving momentum in the back half of the year, despite the impact on profits. The company is focusing on bringing more value to consumers through product renovation, brand building, and promotional support .
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Market Conditions and Strategic Initiatives: The company is experiencing a prolonged value-seeking behavior among consumers, which is influencing their strategic initiatives. They are investing in advertising and promotional activities to drive growth in key categories such as pet food and U.S. cereal .
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Analyst Questions and Management Responses:
- Analysts inquired about the sustainability of declines in the Häagen-Dazs business and the company's strategy in China. Management indicated a focus on profitable stores and growth in retail and food service channels .
- Questions were raised about input cost inflation, which has been adjusted to 4% for the year. The company is leveraging digitization in its supply chain to mitigate these costs .
- Analysts also asked about the regulatory environment, to which management expressed confidence in navigating changes due to their agile R&D team .
- Gross margin improved by 250 basis points to 36.9% of net sales, driven by cost savings and favorable market effects, despite input cost inflation .
- The North America Pet segment saw a 5% increase in net sales, driven by higher volume, although offset by unfavorable price realization and mix .
- The North America Foodservice segment experienced an 8% increase in net sales, with growth in breads, cereal, and frozen meals .
- The International segment's net sales increased by 1%, with a notable contribution from the Edgard & Cooper acquisition, although organic net sales declined by 3% .
Earnings Call
General Mills (GIS) has released its fiscal 2025 second-quarter earnings call transcript, highlighting several key points:
Overall, General Mills is making strategic investments to drive long-term growth despite a challenging macroeconomic environment, with a focus on enhancing product value and market share across its segments.
Earnings Call
The company GIS recently held its earnings call for the second quarter of fiscal 2025. Here are the key points from the call:
Overall, GIS is making strategic investments to enhance competitiveness and drive growth, while managing challenges such as input cost inflation and regulatory changes.
Earnings Report
General Mills has released its fiscal 2025 second-quarter earnings results, showing a net sales increase of 2% to $5.2 billion, with organic net sales up 1% . The company's operating profit rose by 33% to $1.1 billion, and the diluted earnings per share (EPS) increased by 39% to $1.42 . Adjusted operating profit and adjusted diluted EPS also saw growth, increasing by 7% and 12% respectively in constant currency .
The results were influenced by certain timing benefits, such as increased retailer inventory due to the Thanksgiving holiday shift, which are expected to reverse in the second half of the fiscal year . General Mills has updated its full-year fiscal 2025 outlook to reflect increased investment aimed at improving volume and market share trends .
The company is executing its Accelerate strategy, focusing on building brands, innovating, scaling, and standing for good, to drive sustainable growth and shareholder returns .
Significant Trends:
General Mills is focused on delivering value to consumers and investing in brand building to support long-term growth, despite a dynamic external environment .