Consumers punishing General Mills for high prices after pandemic-era boost in sales

Distress signals went up in Golden Valley on Wednesday morning: People are buying fewer General Mills products. People may continue to buy fewer General Mills products.

CEO Jeff Harmening chalked up the setback to "stronger-than-anticipated value-seeking behaviors" and "a return toward historical price elasticities."

In other words, consumers are punishing the maker of Chex Mix and Old El Paso for high prices.

"There's likely no more room to push pricing with continued pushback and increasing pressure from retailers," analyst John Oh with research firm Third Bridge wrote Wednesday.

Investors took their turn punishing General Mills' stock price, which fell 3.6% Wednesday to close at $64.31.

Already, General Mills has tried to temper expectations of slower growth ahead as it leaves behind a major pandemic-era boost when people ate almost entirely at home and stocked their pantries full. Now the company predicts it may not grow sales at all through next summer.

Harmening said General Mills believes heavy advertising and a suite of product innovations — like high-protein Yoplait yogurt and "loaded" cereals — will provide a springboard for better results down the line.

"Our job is to maximize long-term shareholder return, not any particular quarter or, frankly, even any particular year," he told analysts. "When the consumer is stressed and results are hard to come by, you know, one of the things we've seen successful companies like ours do is reinvest for the future."

In an interview Wednesday, Harmening said that in typical tough times for consumers, they tend to cut back on restaurants and buy more groceries, giving General Mills a boost. That hasn't happened despite steep menu inflation diners are facing.

"Even though consumers are feeling pinched, they haven't traded like they normally do," he said.

Some of the company's challenges are due to competitors getting back on shelves after years of supply chain snarls, Harmening said, underscoring the need to boost its brands with advertising and in-store promotions. But he said store-brand competitors have yet to catch up to pre-pandemic market share in many categories.

And while industry pundits have theorized food companies could be losing customers to popular weight-loss drugs like Wegovy and Ozempic, Harmening said there just isn't evidence that is the case for General Mills.

"There really isn't the household penetration, and the ability to stay on the drug, that have had an impact on our business," he said. "If you're eating less on one of these drugs, one of the things you have to do is make sure that you're getting the nutrients you need. And we have a variety of products that fill those needs."

The company will also look to trim costs to offset continued — albeit slowing — inflation, much of it due to higher wages up and down supply chains.

"There's still a little bit more disruption-related costs to get out," Chief Financial Officer Kofi Bruce said, which could mean bringing more production in-house and streamlining manufacturing processes.

"We have resources and people in plants now who can cut into our line production times or make changes to products that help us get at [cost-saving] opportunities," Bruce said. That would have been difficult to do while managing pandemic demand and supply chain hiccups, which have largely faded.

"We're no longer paying higher levels of freight premiums or moving product around within our own network as much in order to get product closer to the point of highest demand," Bruce said.

For the fiscal quarter that ended in November, General Mills took in a $595 million profit, a 2% decline from last year. Sales fell 2% to $5.1 billion.

Analysts were looking for $1.16 per share — which General Mills beat on an adjusted basis with $1.25 per share — and $5.3 billion in revenue.

The company's stock price closed Wednesday nearly $20 below where it started 2023, a year-to-date drop of 23%.

For the remainder of the fiscal year, which ends in May, sales growth is expected to range from flat to 2%, while adjusted earnings could grow 4-5%.

That growth will need to primarily come from selling a greater volume of products, the analyst Oh said.

"The road ahead for General Mills and the wider industry will be a challenging one," Oh wrote. "It'll likely only be until mid-calendar year 2024 when we start to see a positive outlook on volume growth."