General Mills: More love for cats and dogs during pandemic fuels growth in pet food

Pet owners spent more time with their furry friends this past year, and General Mills executives said its pet food products got a boost from that extra attention.

The Golden Valley company, which added the Blue Buffalo brand to its portfolio just a few years ago, saw a payoff during the pandemic as pet ownership rates increased and people were willing to spend more on their pets. That contributed to more sales improvement at General Mills, its latest results showed Wednesday.

"We've grown [Blue Buffalo] almost 13% so far this year and we think there's plenty of runway of growth left," said Jeff Harmening, the company's chief executive.

The growth rate of the U.S. pet population doubled from pre-pandemic levels, said Bethany Quam, president of General Mills' pet segment, and average household spending on pet food grew 6%.

"While pets aren't impacted by the at-home versus away-from-home eating trends," she said, "the pandemic did impact pet parents: how they feed their pets, shop and get their information. ... The shift to high-quality, natural food also accelerated during the pandemic."

Investors and analysts have been anxious about General Mills as it laps the start of the pandemic a year ago, when stay-at-home orders sent demand for groceries soaring and gave a huge lift to its products.

Executives said the company won't be able to meet the elevated sales and profits it experienced last year. Performance comparisons will be negative for the next several quarters.

"As we begin to lap this big stock-up, our sales will be below what they were early on but they will still be above what they were pre-pandemic and I think that's important to keep in mind," Harmening said.

The company will be provide two-year comparisons in its results for the next year. "We will need to do that to just help people stay focused on the fact that demand remains elevated above pre-COVID levels," said Kofi Bruce, the company's chief financial officer.

For the fiscal 2021 third quarter ended Feb. 28, General Mills' profit rose 6%, missing analysts' expectations, and sales rose 8%. Its shares closed down more than 3.5%.

The results followed General Mills' Tuesday announcement of plans to sell its 51% stake in Yoplait's Europe business in exchange for full control of Yoplait in Canada. The company will also no longer have to pay distribution royalties on Yoplait and Liberté brands in the U.S. and Canada.

"We have a lot of global brands in Europe, including bars and Häagen-Dazs ice cream and Old El Paso that are growing quite nicely and have good margins," Harmening said. "And for the yogurt business, by divesting it we are divesting a business that is slower growing with smaller margins.

"In regards to Canada, we are buying a Canadian business where we've got a great market position," he said.

Yogurt accounts for about one-third of General Mills' total business in Canada, led by the Liberté brand, a Yoplait subsidiary.

All of General Mills' business segments tallied growth in the latest quarter except convenience and food service, which sells food products to schools, institutions and cafeterias that remain hampered by the pandemic.

K-12 schools and quick-service restaurants are seeing the earliest rebound, Harmening said, but he expects the recovery to be protracted and consumer behavior to never fully return to what it was in 2019.

"Certainly as people return to eating out and people return to schools, we will see a reversion of some of that volume back to where it was, just not all the way back," he said. "Some investors and some analysts feel that volume is just going to snap back to where it was before the pandemic. ... Our return to normal will eventually be different."

General Mills also offered a full-year outlook for the first time in 2021, saying before that it looked too unpredictable. Executives said they expect full-year organic net sales to increase about 3.5% and operating profit margin to remain somewhat flat. They also said the company will resume share buybacks.

Kristen Leigh Painter • 612-673-4767