General Mills Shows Signs of Recovery as Sales Volume Improves

General Mills US3703341046

The latest quarterly report from food manufacturing giant General Mills presented a mixed picture. While both revenue and profit declined compared to the prior year, the company's results still managed to surpass market expectations. A strategic shift towards price reductions in North America appears to be yielding initial results, with the company reporting a return to volume growth in that critical market. The central question for investors now is whether this approach can provide enough stability for the company's pressured profit margins.

For its fiscal second quarter, General Mills reported adjusted earnings per share (EPS) of $1.10. This figure came in above the range of analyst estimates, which had clustered around $1.02 to $1.03. However, it also represented a significant 21% drop from the adjusted EPS reported in the same period last year, highlighting ongoing cost and structural challenges.

Net sales totaled $4.86 billion, exceeding the consensus forecast of $4.78 billion. On an annual basis, revenue was down 7%, a decrease largely attributed to the divestiture of its North American yogurt business. Under standard GAAP accounting, diluted EPS saw a 22% increase to $3.00, driven primarily by a one-time gain of approximately $1.05 billion from the aforementioned sale.

Management reaffirmed its full-year guidance for fiscal 2026, projecting adjusted EPS in the range of $3.58 to $3.79. This outlook aligns closely with the current market consensus estimate of $3.65.

Strategic Pivot and Market Sentiment

Behind these figures lies a deliberate change in strategy. In an effort to recapture market share from competing private-label brands, General Mills implemented price cuts across roughly two-thirds of its North American product portfolio. This tactical move is showing early signs of success, with sales volume growing in eight of the ten largest categories within the key North America Retail segment.

Key operational highlights from the quarter include:
* The Pet segment posted an 11% revenue increase, bolstered by the recent acquisition of Whitebridge Pet Brands.
* The company plans to boost its innovation spending by 25% for the remainder of the fiscal year.
* Holistic Margin Management (HMM) initiatives, aimed at achieving savings equivalent to about 5% of cost of goods sold, are intended to alleviate ongoing margin pressure.

The analyst community responded with measured caution. Evercore ISI reduced its price target from $54 to $51, while Wells Fargo maintained a $51 target and Bernstein set theirs at $54. In subsequent trading, the company's shares advanced approximately 3.4%, as investors expressed relief at the apparent stabilization of sales volume. Despite this short-term positive reaction, the stock's market capitalization has seen considerable erosion over a longer period.

Shares are currently trading at €41.72, which places them about 33% below the 52-week high.

Path to Sustained Improvement

The company's sustainable recovery appears contingent on two primary factors. First, it must maintain volume growth in North America without being forced to make further concessions on pricing that would hurt margins. Second, the speed and profitability of integrating the Whitebridge Pet Brands acquisition will be crucial in supporting overall earnings.

If the HMM program delivers the anticipated cost savings (around 5% of COGS) and organic sales momentum builds in the second half of the fiscal year, the company's confirmed EPS guidance of $3.58–$3.79 seems achievable. However, should intense pricing and competitive pressures persist, or if the integration of the pet business encounters delays, profit margins are likely to remain under significant strain.