Behind the EPS Beat: How Share Buybacks Mask Challenges at General Mills

General Mills US3703341046

At first glance, General Mills delivered a solid quarterly performance, with both revenue and adjusted earnings per share surpassing consensus estimates. A deeper dive into the figures, however, reveals a more complex story. The company's operational health is under pressure, with organic sales contracting and net profit declining sharply. The key driver behind the EPS strength appears to be an aggressive share repurchase program, raising questions about the sustainability of the reported recovery.

The packaged food giant's results for its second quarter of fiscal 2026 presented a mixed picture. While revenue of $4.86 billion exceeded expectations of $4.78 billion, it represented a 7% year-over-year decline. This significant drop was heavily influenced by the divestiture of its North American yogurt business.

• Organic net sales decreased by 1%, indicating persistent volume pressure that pricing actions have been unable to fully offset.
• Adjusted earnings per share came in at $1.10, beating forecasts. In stark contrast, the actual reported net profit plummeted to $413 million, a 48% fall compared to the same period last year.
• The company's share buyback initiative has been substantial. Since June 2022, General Mills has repurchased approximately 73.1 million shares, reducing the share count by roughly 12.85%.
• Investors continue to receive a quarterly dividend of $0.61 per share, which the report indicates yields about 5.1%.
• On the operational front, a product recall was announced in Canada on December 22, 2025, for select Pillsbury Pizza Pops (Pepperoni and Bacon) with best-before dates from June 9 to June 14, 2026.

Trading at €40.84, the company's shares currently sit approximately 34% below their 52-week high.

The Buyback Effect on Earnings Per Share

The divergence between falling net income and rising EPS is a classic signal that capital management, rather than operational improvement, is propping up the key earnings metric. The substantial reduction in shares outstanding artificially inflates the per-share profit figure. With organic sales still in negative territory, the core business shows little sign of a meaningful turnaround. The recent product recall, while likely to have a limited financial impact, adds another layer of operational disruption.

Guidance and the Path Forward

Management reaffirmed its outlook for the full fiscal year 2026, projecting organic net sales in a range of -1% to +1% and declining profits on a constant-currency basis. This forecast underscores the vulnerability of the current valuation without a clear return to organic sales growth.

For a sustainable recovery to take hold, two concrete conditions must be met. First, the company needs to stabilize and return to positive organic growth. Second, net margins must recover based on operational performance, moving beyond the temporary lift provided by financial engineering like buybacks. Until these fundamental improvements materialize, the stock may be viewed less as a clear turnaround story and more as a value opportunity carrying structural risks.