General Mills was quick to raise prices in response to inflation and successfully navigated many supply-chain issues — all of which led to red-hot profits a year ago.

"We were on the shelf and private label wasn't," Jon Nudi, president of the company's North American retail division, told investors Wednesday.

Now the competition has caught up, eroding the Golden Valley-based company's market share in its largest business — for now, executives say.

General Mills kicked off its new fiscal year with old challenges as the company behind Totino's and Betty Crocker faced consumers who are "resilient but increasingly cautious," chief executive Jeff Harmening said.

"We're pleased with our performance, but that doesn't mean everything's perfect," Harmening told the Star Tribune on Wednesday. "The consumer is going to continue to be challenged."

Translation: Shoppers might continue choosing less expensive brands.

Sales continued to grow at General Mills this summer even as the company sold fewer pounds of food due largely to price increases. As inflation levels off — General Mills expects a 5% increase to its costs compared to 13% last year — and as consumers reach a breaking point with higher prices, the company will need to look elsewhere for continued growth.

"While for the most part consumers have been more resilient than previously thought, willingness to pay may be close to hitting a ceiling," said analyst John Oh at equity research firm Third Bridge.

Harmening said they'll take on the next wave of inflation with productivity improvements.

"I would expect our market share to get better as we move along," he said. "We've got really good innovation in North American retail."

Chief Financial Officer Kofi Bruce said the strongest growth is expected to come from international and food-service sales, which represent about a quarter of the company's revenue. Blue Buffalo pet food will be hard-pressed to find growth.

"We do expect our pet business, frankly, not to improve dramatically from where we started the year," Bruce said. "We have two businesses ahead of expectations, one starting the year out on expectation and our pet business behind expectations."

The Golden Valley-based company saw profits slip 18%, to $673 million, in its first fiscal quarter that ended in August. Adjusted earnings narrowly beat Wall Street expectations. General Mills' stock rose a cent on Wednesday to close at $65.89 per share.

The company's share price has fallen more than 21% since the start of the year.

Sales for the first fiscal quarter rose 4% from a year ago to reach $4.9 billion.

General Mills reaffirmed its guidance for the rest of the fiscal year ahead and expects sales to grow 3% to 4%. Last year sales grew 6% and were up 5% the year before.

Earnings leftovers

Nature Valley is now the best-selling bar in France after growing 70% in the past quarter.
"We're more excited about cereal today than we were a decade ago," Nudi said as General Mills continued its run as the nation's top-selling cereal maker. "We don't need to grow a lot, we can grow a little bit."
General Mills was rumored to be in the running for Twinkies-maker Hostess Brands, which Smucker bought for $4.6 billion this month. Harmening said the company has an "always on" acquisition strategy.
The company is adding more brands to its line of "mini" cereals released last year, with Lucky Charms and Cocoa Puffs now getting hit with the shrink ray.