Inflation is proving stickier than a Pillsbury cinnamon roll for General Mills.
Still, the Minnesota-based food maker has again increased its short-term financial outlook and beat analyst expectations for its most recent quarter, even as profits dropped 16%.
"The consumer seems to be reasonably robust, and at the same time they're eating at home more than they were pre-pandemic," CEO Jeff Harmening told analysts Thursday morning. "We plan to sustain this momentum by investing further in brand building, innovation and capabilities that will drive future growth."
Here are four takeaways from Thursday's earnings report from the maker of Cheerios, Blue Buffalo and Yoplait:
'Mid-single-digit inflation' for fiscal 2024
General Mills expects input costs will end up rising 15% in the current fiscal year, which ends in May. Inflation over the next year will be much improved and should be in the mid-single-digit range, company leaders said.
But Harmening cautioned a "normal" inflationary environment is at least 12 months away.
Higher wages and higher costs from suppliers are expected to drive continued cost increases. That could keep sales volumes down and potentially lead to more price increases to keep revenue rising and profit margins intact.
Chief Financial Officer Kofi Bruce said in an interview the company focuses first on efficiency and cutting costs and keeps a close eye on consumer value when considering changes in prices, promotions and package sizes.
"We didn't pick these operating conditions — who would — but the key is how do you rise to the moment and what do you show up prepared to do," he said. "We have not been operating perfectly, but we have been operating competitively better than our peers."
Not worried about private label
Company leaders brushed off concerns about consumers switching to store brands to save money in the face of stubbornly high food inflation.
Harmening said there is limited exposure to private label competitors and that "we have strong brands to begin with." The company has also been pouring substantially more money into marketing in recent months.
"If you invest through this cycle you're going to come out better on the other side," Bruce said.
During the 2008 recession, when private label saw a major boost, the company was able to hold its market share in many categories.
Jon Nudi, president of North American Retail, said it's the brands and companies with lower market share that are hit harder by shoppers switching to private label.
Cost of international Haagen-Dazs recall
Pints of Haagen-Dazs ice cream produced in France were pulled from shelves around the world due to potential pesticide contamination last year. On Thursday General Mills pegged the cost of the recall at $26 million.
From Ireland to the Philippines, several flavors of the ice cream brand were recalled in dozens of countries due to the possible presence of ethylene oxide, a carcinogen. The chemical, which was detected in trace amounts in certain lots of the ice cream, is used as a pesticide or sterilizing agent and is banned in the European Union.
General Mills said in a previous news release that "product sold in the U.S., which uses a separate supplier, is not involved with this recall."
Higher sales, lower profit
Quarterly profits fell 16% to $553 million at General Mills this winter while sales jumped 13% compared with the year before.
Adjusted earnings per share of 97 cents were 5 cents better than analyst estimates.
"We had a great quarter, really good broad-based momentum," Bruce said, pointing to a resurgent foodservice business and recovery in pet sales following an inventory draw-down.
Revenue for the third quarter, which ran from December through February, was $5.1 billion.
