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01/11 07:59
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call reveals several concerns: a decline in adjusted operating profit and EPS, higher input costs, and pressure on margins. Despite some growth in international and pet segments, challenges like unfavorable trade expense timing and volatile operating environments persist. The Q&A section lacks clarity, adding to uncertainties. Although there are new product launches and shareholder returns, the overall financial performance and guidance issues suggest a negative outlook for the stock price.
Reported net sales $4.9 billion, down 7% year-over-year, including a 6-point headwind from the net impact of divestitures and acquisitions.
Organic net sales Down 1% year-over-year, driven by unfavorable price mix.
Adjusted operating profit $848 million, down 20% in constant currency, driven by lower volume and higher input costs, partially offset by favorable price mix on margins.
Adjusted diluted earnings per share (EPS) $1.10, down 21% in constant currency, driven by lower adjusted operating profit and a higher adjusted effective tax rate, partially offset by lower net shares outstanding.
North America Retail organic net sales Down 3%, driven by unfavorable price/mix, partially offset by growth in organic volume.
North America Pet segment net sales Up 11%, including the impact of the Whitebridge acquisition, with double-digit growth in cat feeding and pet treating, and a low single-digit decline in dog feeding.
North America Pet organic net sales Up 1%, driven by favorable price/mix, partially offset by lower volume.
North America Foodservice organic net sales Flat, with growth in frozen baked goods, cereal, and frozen meals offset by a decline in bakery flour.
International segment organic net sales Up 4%, driven by growth in Brazil, China, India, and North Asia.
Adjusted gross margin 34.8% of net sales, down 150 basis points year-over-year, driven by higher input costs, partially offset by favorable mix impact from divestitures.
Adjusted operating profit margin 17.4%, down 290 basis points year-over-year, driven by lower adjusted gross margin and higher SG&A expenses.
First half operating cash flow $1.2 billion, down year-over-year, driven by lower net earnings, excluding the pretax gain on divestitures.
Love Made Fresh: Launched into the fresh segment of the pet food category, with distribution approaching 5,000 coolers in two months and plans for further expansion.
Cheerios Protein, Pillsbury's Bakes Up Bigger, Mott's snack bars, Annie's Super! Mac: New product launches exceeded expectations, contributing to a 25% increase in sales from new products in fiscal '26.
Nature Valley Protein Granola and GHOST protein cereal: Expanded product lines with high growth potential, including new protein bars and granola items.
Chex Mix tubs and car cup format: Introduced new packaging formats that drove high single-digit retail pound growth for salty snacks.
North America Retail: Improved competitiveness with 8 of the top 10 U.S. categories holding or growing pound share.
North America Pet: Achieved 11% net sales growth, driven by new launches like Love Made Fresh and strong performance in cat feeding and pet treating.
International Business: Strong growth led by Haagen-Dazs, Old El Paso, and Nature Valley, with share gains in 54% of priority businesses.
Holistic Margin Management (HMM): Delivered 5% savings in cost of goods sold, driven by digital advancements in logistics and manufacturing.
Base Price Adjustments: Completed adjustments across 2/3 of North America Retail portfolio to improve consumer value.
Remarkability Framework: Focused on product, packaging, brand communications, omnichannel execution, and value to drive consumer affinity and long-term growth.
Digital and AI Initiatives: Advanced digital tools for efficient consumer targeting and operational improvements.
Volatile Operating Environment: The company is navigating a volatile operating environment, which could impact its ability to execute strategic objectives effectively.
Decline in Adjusted Operating Profit and EPS: Q2 adjusted operating profit and adjusted EPS results were down double digits, driven by investments in remarkability, yogurt divestitures, and unfavorable trade expense timing.
Economic Pressure on Consumers: Lower and middle-income consumers are under significant economic pressure, leading to increased reliance on promotions, which could impact profitability.
Higher Input Costs: Higher input costs are negatively affecting gross margins and operating profit across multiple segments.
Challenges in Dog Feeding Segment: The North America Pet segment faced challenges in the dog feeding category, particularly with the Wilderness product line.
Unfavorable Trade Expense Timing: Unfavorable trade expense timing contributed to profit headwinds in Q2 and is expected to impact Q3 as well.
Impact of Divestitures: The divestiture of the North America yogurt business has created headwinds in sales and profit for the Foodservice and Retail segments.
Increased Cost of Volume: Changes in consumer behavior have increased the cost of volume across categories, adding pressure to margins.
Global Economic Uncertainty: The company operates in a globally uncertain economic environment, which could impact international sales and profitability.
Higher SG&A Expenses: Higher SG&A expenses, including increased media investments, are pressuring operating margins.
Fiscal 2026 Guidance: General Mills reaffirmed its fiscal 2026 guidance, expecting organic net sales to range between down 1% and up 1%. Adjusted operating profit and adjusted diluted earnings per share are projected to decline by 10% to 15% on a constant currency basis. Free cash flow conversion is expected to be at least 95% of adjusted after-tax earnings.
Second Half of Fiscal 2026: The company anticipates improved organic net sales in the second half, driven by expanded remarkability investments and trade timing benefits in Q4. Strong profit growth is expected in Q4 due to favorable trade timing comparisons, the benefits of the 53rd week, and continued improvement in organic sales trends.
North America Retail: Plans to build on momentum with a strong seasonal lineup and new product launches in the second half of fiscal 2026. Focused on trends like better-for-you benefits, bold flavors, and familiar and fun experiences. Expected to deliver a 25% increase in sales from new products in fiscal 2026.
North America Pet Segment: The company expects further acceleration in organic sales growth in the second half of fiscal 2026, driven by the launch of Love Made Fresh, expansion of Tiki Cat, and the rollout of Edgard & Cooper in the U.S.
North America Foodservice: Plans to double down on nutritional leadership in schools with new breakfast solutions like Pillsbury Pancake Puff. Continued focus on frozen baked goods and cereal to drive growth.
International Business: Plans to build on strong growth with new flavor launches for Haagen-Dazs, brand campaigns for Old El Paso, and expanded distribution for Nature Valley snack bars.
Holistic Margin Management: The company aims to deliver 5% savings in cost of goods sold in fiscal 2026 through digital advancements in logistics and manufacturing, with additional opportunities in sourcing.
Dividends Paid: $659 million in dividends were paid in the first half of fiscal 2026.
Net Share Repurchases: Cash was returned to shareholders through net share repurchases in the first half of fiscal 2026.
The earnings call reveals several concerns: a decline in adjusted operating profit and EPS, higher input costs, and pressure on margins. Despite some growth in international and pet segments, challenges like unfavorable trade expense timing and volatile operating environments persist. The Q&A section lacks clarity, adding to uncertainties. Although there are new product launches and shareholder returns, the overall financial performance and guidance issues suggest a negative outlook for the stock price.
The earnings call presents a mixed picture: strong product development and market strategy, but concerns about earnings pressure and potential EPS decline in Q3. The Q&A highlights uncertainties in volume growth sustainability and competitive pricing. Positive factors include a 5% market share in a new product launch and reaffirmed fiscal 2026 guidance. However, avoidance of specific guidance and potential EPS decline tempers optimism. Without market cap data, a neutral sentiment is prudent given mixed signals and potential investor caution.
The earnings call summary presents mixed signals: positive aspects include volume growth focus, product innovation, and international growth. However, challenges remain in areas like Totino's and cereal, and shipment timing issues impact the pet segment. The Q&A session reveals cautious optimism, with some analysts concerned about unclear management responses on specific challenges and legislative impacts. While there are positive developments like AI-driven demand planning and new product contributions, the lack of detailed improvement plans tempers enthusiasm, resulting in a neutral sentiment overall.
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