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Shares of General Mills Inc. (NYSE: GIS ) fell 4% on Tuesday even as the company reported strong results for the second quarter of 2023 and raised its full-year outlook. The Company believes that inflation, consumer economic health, and supply chain volatility will continue to have a significant impact on performance in fiscal year 2023.
Quarterly performance
General Mills reported net sales of $5.2 billion for the second quarter of 2023, up 4% compared to the same period a year ago. Organic net sales increased 11%, driven by positive net price realizations and mix. GAAP EPS rose 4% to $1.01 while adjusted EPS rose 12% in constant currency to $1.10. The top and bottom line numbers both exceeded projections.
Category performance
In Q2 2023, General Mills recorded double-digit growth in its North American Retail and North American Foodservice segments, driven by price and mix. The company recorded 18% sales growth in US Snacks and 10% growth in US Food & Baking Solutions and US Morning Meals. Sales in the International segment fell 27% in the second quarter, driven primarily by lower pound volumes.
Net sales remained flat in the Pet segment as pricing and mix were offset by lower pound volumes. Sales in this segment are hurting due to reduced retailer inventory, capacity constraints and customer service challenges. In the midst of these headwinds, the Blue Buffalo brand continues to shine.
General Mills remains bullish on the growth prospects of its Pet business and sees significant growth potential especially for its Blue Buffalo pet food brand. In its earnings call, the company stated that the trend toward humanization and premiumization in the pet food category is strong and will continue to grow in the U.S. and around the world.
GIS expects sales in the Pet segment to increase in the second half of 2023 to return to double-digit growth. Customer service is expected to improve as capacity additions are made by the company and this, combined with stable retail inventory levels, is expected to drive growth in the Pet business going forward.
Outlook
Looking ahead to fiscal year 2023, General Mills expects performance to be impacted primarily by the inflationary environment, consumer economic health, and supply chain volatility. The company expects improvements in volume and price/mix to drive stronger growth in organic net sales. GIS expects input cost inflation to be 14-15% of total cost of goods sold for a year.
Based on strong first-half results and strength in its business, General Mills raised its outlook for the full year 2023. The company now expects organic net sales growth of 8-9% compared to its previous outlook of 6-7% growth. Adjusted EPS will increase by 4-6% in constant currency compared to the previous range of 2-5%.
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