By Savyata Mishra
(Reuters) -General Mills on Wednesday forecast full-year profit largely below analysts’ estimates as price hikes to counter inflation dent demand for its ready-to-eat cereals and meal kits.
Shares of the Cheerios cereal maker fell as much as 5.7% to a more than four-month low after General Mills also missed net sales estimate for the fourth quarter ended May and reported a dip in volumes across its segments.
Packaged-food peers, including Kellogg, Kraft Heinz and Conagra Brands, have been pushing up product prices for more than a year to offset inflation in labor, raw materials and transportation costs.
While price increases fueled top-line growth for the companies, volumes have taken a hit in recent quarters, signaling increasing resistance from inflation-weary customers against further price hikes.
“We’ll see some (more hikes in) pricing this year because we still see inflation in the marketplace,” General Mills CEO Jeffrey Harmening said.
The company’s May-quarter net sales rose 3% to $5.03 billion from a year earlier, below analysts’ average estimate of $5.18 billion.
Organic net sales across North America retail – the largest segment – rose 5%, but was hit by weaker demand from retailers and grocers.
“Inventory reductions of this magnitude…isn’t necessarily the most positive indicator for consumer demand,” J.P. Morgan analyst Ken Goldman said.
The inventory decline was likely a “one-time headwind”, General Mills executives assured analysts on a call, and said a repeat in fiscal 2024 was not anticipated.
General Mills forecast fiscal 2024 organic net sales to rise 3% to 4%, compared with 10% growth in 2023, as it expects inflation to temper slightly next year.
It also forecast adjusted per-share profit growth between 4% and 6%, while analysts polled by Refinitiv were expecting a 5.9% rise to $4.49 per share.
In comparison, packaged food maker Campbell Soup kept its annual forecasts unchanged despite beating quarterly earnings.
(Reporting by Savyata Mishra and Granth Vanaik in Bengaluru; Editing by Shinjini Ganguli)
