General Mills (GIS) focuses efforts on maximizing ‘stickiness’ of demand

Shares of General Mills (NYSE: GIS) were up 1.7% in afternoon hours on Thursday. The stock has gained over 9% since the start of the year. The company reported first quarter 2021 earnings results on Wednesday, surpassing analysts’ projections. Similar to previous quarters, the company benefited from higher demand for food at home, which helped drive market share gains.

Quarterly performance

In the first quarter of 2021, reported net sales grew 9% year-over-year while organic net sales rose 10%, driven by an increase in pound volume due to higher at-home food demand amid the pandemic. Adjusted EPS increased 27% to $1.00, driven by higher adjusted operating profit and after-tax earnings.  

Demand and penetration

General Mills has been seeing higher demand for food at home along with lower demand for food away from home in the current environment. Even before the pandemic, approx. 85% of net sales came from at-home food while the remaining 15% came from food away from home.

The at-home category benefited from higher sales growth in developed markets as North America Retail increased 14% and Europe & Australia rose 8%. US Meals & Baking saw the highest growth with 31% followed by US Cereal, US Yogurt and Canada. Sales fell 2% in US Snacks. The company also saw double digit sales growth in Old El Paso Mexican food, Haagen-Dazs ice cream and Betty Crocker dessert mixes.  

In emerging markets, the results were mixed as Brazil saw significantly higher demand for at-home food while in China, demand moderated. Demand for away-from-home food improved across all markets but was lower compared to last year. The weakness in away-from-home food led to a 12% drop in Convenience Stores & Foodservice segment sales.  

General Mills witnessed broadbased share gains across its top markets and categories during the first quarter. The company held or gained market share in each of its six largest markets and saw share gains in large categories like cereal, snack bars, pet food and ice cream. General Mills saw improved performance in Yogurt and was able to both retain share in the US as well as gain share in France and Canada.

The company saw significant and broadbased increases in global household penetration for most of its largest brands including Cheerios, Pillsbury, Old El Paso, Yoplait and Betty Crocker. As it continues to gain new customers, the company is focusing its efforts on maximizing the ‘stickiness’ of this demand.

General Mills continues to innovate and renovate its portfolio in order to bring new products as well as improve taste, nutrition and convenience for its existing products. The company will continue to roll out new items in fiscal year 2021.

General Mills is also building its brand through its food websites which have seen substantial increases in traffic since the start of the pandemic. The company is driving ecommerce growth through partnerships and activations and also increasing its manufacturing capacity to meet the increase in demand.

Outlook

For fiscal year 2021, General Mills expects its performance to be impacted the most by the balance of at-home versus away-from-home food demand, driven by the pandemic and resulting macroeconomic headwinds. The company expects at-home food demand to remain high in the second quarter compared to pre-pandemic levels.