General Mills (GIS, Financial) saw a modest earnings beat in Q4 (May), but fell short on revenue, capping off a tough year. The stock has corrected by around 30% over the past year, largely due to high inflation pushing consumers to seek value, impacting GIS's customer base.
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In Q4, GIS experienced a 2-point volume compression, marking the ninth consecutive drop. Despite a 4-point drop in price/mix, volumes still fell, suggesting that consumers are not only looking for lower prices but also quality. This raises questions about GIS's brand loyalty.
- Management is focusing on enhancing value, with various innovations in progress across its brands. GIS is also testing different package sizes, including larger packs for some products and smaller ones for others.
- The combination of lower prices and volumes led to a 6.3% decline in net sales to $4.71 billion, the steepest year-over-year decrease since Q4 2021. This resulted in FY24 organic revenue growth landing at the low end of the negative 1% to flat forecast.
- North America Retail and Pet segments lagged in Q4, with net sales dropping 7% and 8% year-over-year, respectively. GIS is working on a turnaround plan for its Pet business, but another weak quarter for North America Retail could test investors' patience. Competition is intensifying as global supply chains stabilize, enabling smaller competitors and private labels to improve in-store availability.
- GIS's FY25 financial goals did not indicate a quick turnaround. The company projected organic net sales to either stay flat or increase by just 1% year-over-year, with adjusted EPS growth stagnating at the midpoint of its negative 1% to positive 1% forecast, despite the success of its Holistic Margin Management (HMM) cost-savings plan.
FY24 was turbulent, and this instability is expected to carry into FY25. GIS aims to rebuild and lay the groundwork for growth over the next four quarters, focusing on brand innovation, cost reduction, and cash generation. The company has already announced a 2% dividend increase. However, with many challenges ahead, investors may remain cautious in the near term.
