Shares of General Mills Inc. (NYSE: GIS) stayed in green territory after the company delivered mixed results for the second quarter of 2022 a day ago. Net sales increased 6% year-over-year to $5 billion, beating consensus estimates, but adjusted EPS fell 7% in constant currency to $0.99, missing Street targets. However, based on the trends it is seeing in the marketplace and the efforts it has been undertaking, the company remains optimistic on its growth prospects for the long term.
North America Retail
The company’s largest segment, North America Retail, saw sales increase 2% to $2.98 billion, helped by growth in US Snacks and US Cereal. This segment has driven strong growth in sales and operating profit over the past two years helped both by the rise in demand for at-home food consumption as well as the company’s efforts in building its brands and innovation.
Consumer demand in this segment remains high relative to pre-pandemic levels. Retail sales in the US rose 4% year-over-year and 6% on a two-year compound basis. The US retail business witnessed share gains during the pandemic which have continued through this year. More than 60% of the US retail sales base managed to retain or grow share year to date in FY2022, helped by long-term share gains in categories such as cereal, fruit snacks, and Mexican foods.
General Mills expects the higher demand for food at home to continue, as people work from home and take more interest in cooking and baking. Household penetration is up in the North America Retail segment and the company remains confident that it can drive profitable growth in the coming years.
Portfolio
Through the first half of FY2022, General Mills has made efforts to strategically reshape its portfolio to drive growth. In July, the company acquired the Nudges, True Chews, and Top Chews dog treat brands from Tyson Foods giving it a solid footing in the fast-growing US pet food category. The addition of these brands to the company’s Blue Buffalo business gives it a competitive advantage in the dog treats category.
As per data shared by the company on its conference call, dog treats are the second largest segment in pet food with an estimated $7 billion in retail sales that continues to grow at a high single-digit rate. Retail sales for Nudges, True Chews, and Top Chews were up 22% in measured channels in the first half of the year.
At the end of November, the company completed the divestiture of its European Yoplait business and also sold its dough business in Germany, the UK, and Ireland to Cerelia. These transactions will help General Mills improve margins and focus on the faster-growing areas of its business.
Outlook
General Mills updated its guidance for FY2022 to reflect stronger topline growth, higher input costs and the impact of the European Yoplait divestiture. The company now expects organic net sales to increase 4-5% versus the previous range of 1-3%. Constant-currency adjusted operating profit is now expected to be down 1-4%. Constant-currency adjusted diluted EPS is expected to range between down 2% and up 1%.
Click here to read the full transcript of General Mills’ Q2 2022 earnings conference call