General Mills tweaks formulas to stay ahead of supply chain woes

General Mills has been tinkering with its recipes to keep products on shelves as supply chain backlogs persist.

"The biggest issue we're seeing is really around material disruptions — ingredients coming into our plants," said Jon Nudi, president of North American retail for the Golden Valley-based food maker. "Some of our products we've reformulated over 20 times."

Nudi said "things like fats and oils and starch and packaging" have made it difficult to keep up with demand for ready-to-bake products, pizzas and hot snacks.

"We're spending a good chunk of our time making sure that we service our business," he said.

The company still moved fewer pounds of product this winter than it did the year before, but price increases kept sales and profits from slipping.

General Mills on Wednesday reported a $660 million profit in the quarter that ended Feb. 27, an 11% increase over the year before.

Sales were flat, at $4.5 billion, compared to the previous December-to-February quarter. Organic sales, which do not include impacts from acquisitions and divestitures, were up 4%.

"We are executing well in an operating environment that remains as volatile as ever," CEO Jeff Harmening said in prepared remarks Wednesday.

Like most companies, General Mills has faced "historic levels" of input cost inflation related to supply chain issues, Harmening said. As a result, prices that consumers pay will continue to rise to meet increased labor, transportation and raw and packaging material costs that are expected to increase a combined 8%.

"We remain committed to taking the necessary actions to address rising costs and protect our bottom line," Harmening said.

The jump in last quarter's profit, which at 84 cents a share beat Wall Street estimates, was attributed largely to a lower adjusted tax rate and interest expenses.

Investors were nonetheless pleased with the results. General Mills' stock price rose 2.5% Wednesday to close at $64.23 per share, the highest in several weeks.

Last month, General Mills announced it would be reorganizing its businesses into four categories: North American retail, North American food service, pet and international.

North American retail sales grew 1% to $2.81 billion in the company's third fiscal quarter. The company's largest business segment saw the largest decline in the volume of products moved — partly a result of consumers rejecting higher prices and partly because of ongoing supply chain issues.

Russia's invasion of Ukraine has shaken commodity markets and is threatening a wheat shortage — both countries are major grain exporters — but Harmening said General Mills' commodity costs are expected to remain stable through 2022.

Earlier this month, General Mills said it had suspended its advertising and cereal business investments in Russia.

"We extend our deepest sympathies and condolences to the people of Ukraine, and we've taken action to support those impacted in Ukraine and neighboring countries, with a particular focus on food security," Harmening said Wednesday.

Pet food, anchored by the Blue Buffalo brand, was the biggest winner in the last quarter with $567.7 million in sales, a 30% increase from the year before. North American foodservice saw a 22% jump to $437 million.

International sales dropped 23% to $721 million due largely to the sale of the company's European yogurt and dough business last year.

Company leaders upgraded their sales and profit forecasts on Wednesday. General Mills expects demand for food at home to remain higher than it was pre-pandemic.