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General Mills Inc.’s stock slid 5% Wednesday, after the parent of brands including Cheerios, Nature Valley, Blue Buffalo pet products and Pillsbury, posted a steep decline in profit and weaker-than-expected sales for its fiscal fourth quarter.
“Net sales performance was negatively impacted by a reduction in retailer inventory, with comparable Nielsen-measured retail sales up 10% in the quarter,” the company said in a statement.
On a call with analysts, Chief Executive Jeff Harmening said he doesn’t think the inventory issue is specific to General Mills or that it will remain a headwind going forward.
“It truly is a couple of big customers were trying to get their inventories back to a good place — and which I understand, the carrying cost of inventory is higher, interest rates are up. They’re trying to work their balance sheets,” he said, according to a FactSet transcript.
Jon Nudi, group president for the North America retail segment, said retailers are no longer holding on to as much “safety” stock as before, now that supply chains snags have lifted.
“I think the supply situation has become more stable. So as a result, retailers feel like they don’t have to hold as much inventory to service the demand,” he said.
The company had net income of $614.9 million, or $1.03 a share, for the quarter to May 28, down from $822.8 million, or $1.35 a share, in the year-earlier period. Adjusted per-share earnings came to $1.12, ahead of the $1.07 FactSet consensus.
Sales edged up 3% to $5.030 billion from $4.891 billion a year ago, below the $5.177 billion FactSet consensus.
The sales rise was due to “positive organic net price realization and mix,” the company said.
Gross margin fell 189 basis points to 34.4% of sales, driven by higher input costs and unfavorable mark-to-market effects of certain commodity positions, which were partially offset by higher pricing.
For fiscal 2024, “we’ll focus on continuing to compete effectively, driving efficiency in our operations, and maintaining our disciplined approach to capital allocation, which we expect to result in financial performance that meets or exceeds each of our key long-term goals,” Chief Executive Jeff Harmening said in a statement.
To bolster its commitment to returns to shareholders, the company’s board approved a 9% increase in the company’s dividend which will be effective with the August payment, he said. That will lift the quarterly dividend to 59 cents a share, payable Aug. 1 to shareholders of record as of July 10.
The company is expecting adjusted EPS to rise 4% to 6% in constant currency in fiscal 2024.
The company is focused on the consumer and aware that inflation is still a major factor influencing shopping decisions, said Harmening. For the company, however, the main inflationary impact is coming from wages, he said.
By segment, sales in the North America retail segment rose 2% to $3.1 billion in the quarter.
The pet segment grew sales by 7% to $655 million, while sales in the North America foodservice segment rose 7% to $564 million. Sales in the international segment were down 1% to $745 million.
The stock has fallen 3.5% in the year through Tuesday’s close, while the S&P 500
SPX,
has gained 14%.
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