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General Mills Inc. Shares (NYSE: GISIt fell 4% on Tuesday despite the company reporting strong results for the second quarter of 2023 and raising its full-year outlook. The company believes that inflation, economic health of consumers and supply chain volatility will continue to have a significant impact on its performance in FY23.
Quarterly performance
General Mills reported net sales of $5.2 billion in the second quarter of 2023, up 4% from the same period a year ago. Organic net sales increased 11% driven by positive net price realization and mix. GAAP EPS rose 4% to $1.01, while adjusted EPS rose 12% to $1.10 in constant currency. Both the top and bottom line numbers beat forecasts.
Category performance
In Q2 2023, General Mills reported double-digit sales growth in its North America Retail and North America Foodservice segments, driven by price and mix. The company reported 18% sales growth in US Snacks and 10% growth in both US Meals & Baking Solutions and US Morning Foods. Sales in the international segment fell 27% in the second quarter, driven mainly by lower pound volume.
Net sales in the Pet segment were flat as price and mix were offset by lower pound volume. Sales in the segment were affected by retailer inventory reductions, capacity constraints and customer service challenges. Amidst these headwinds, the Blue Buffalo brand has continued to show strength.
General Mills is bullish on the growth prospects of its pet business and sees significant growth potential for its Blue Buffalo pet brand. In its earnings call, the company said trends toward humanization and premiumization in the pet food category are strong and will continue to grow in the U.S. and globally.
GIS expects sales in the pet segment to return to double-digit growth in the second half of 2023. Customer service is expected to improve due to capacity additions made by the company, and this, coupled with stable retail inventory levels, is expected to drive growth in the pet business.
Outlook
Looking ahead to fiscal 2023, General Mills expects its performance to be impacted mainly by the inflationary environment, the economic health of consumers and supply chain volatility. The company expects improvements in volume and price/mix to drive strong growth in organic net sales. GIS expects input cost inflation to be 14-15% of total cost of goods sold for the full year.
Based on its strong first-half results and the strength of its business, General Mills raised its outlook for the full year to 2023. The company now expects organic net sales growth of 8-9% versus 6-7% growth. Adjusted EPS is expected to increase by 4-6% in constant currency, compared to the previous range of 2-5%.
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