General Mills, Inc. GIS posted robust second-quarter fiscal 2025 results, wherein the top and bottom lines increased year over year and cruised past their respective Zacks Consensus Estimate.
The company reported significant progress in driving volume growth and improving market share trends during the first half of the year, including a return to growth for the North America Pet segment. To build on these gains, the company has increased investments to provide greater value to consumers. While these efforts have led management to adjust its guidance for fiscal 2025, they are designed to position the company for growth in fiscal 2026 and beyond.
GIS’ Quarterly Performance: Key Metrics and Insights
General Mills posted adjusted earnings of $1.40 per share, which beat the Zacks Consensus Estimate of $1.22. The bottom line grew 12% year over year on a constant-currency (cc) basis, attributed to elevated adjusted operating profit, reduced net shares outstanding and a lower adjusted effective tax rate.
General Mills, Inc. Price, Consensus and EPS Surprise
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GIS reported net sales of $5,240.1 million, which surpassed the Zacks Consensus Estimate of $5,157 million. The top line rose 2% on increased pound volume, partly negated by adverse net price realization and mix. Organic sales grew 1%.
The adjusted gross margin expanded 130 basis points (bps) year over year to 36.3%, backed by Holistic Margin Management (“HMM”) cost savings, partly countered by input cost inflation and the adverse net price realization and mix.
The adjusted operating profit came in at $1,064 million, up 7% at cc due to increased adjusted gross profit, partly negated by escalated adjusted SG&A costs. The adjusted operating profit margin grew 100 bps to 20.3%.
Decoding GIS’ Segmental Performance
Starting the fiscal year 2025, General Mills has rebranded its previous Pet segment as North America Pet to emphasize that pet food sales outside North America are now included in its International segment.
North America Retail: Revenues in the segment came in at $3,321.5 million, flat year over year as positive net price realization and mix were countered by reduced pound volume. Organic net sales rose 1%. The segment’s operating profit was flat at $862.3 million.
International: Revenues in the segment came in at $690.6 million, up 1% year over year, including a four-point positive impact from the Edgard & Cooper acquisition. Organic net sales fell 3%, mainly due to softness in Brazil and China, somewhat made up by strength in distributor markets, and Europe and Australia. The segment’s operating profit slumped 31% to $23.8 million.
North America Pet: Revenues came in at $595.8 million, up 5% year over year. Revenues were fueled by increased pound volume, partly negated by the adverse net price realization and mix. Segmental organic sales also grew 5%. The segment’s operating profit came in at $139.3 million, up 36% on a year-over-year basis.
North America Foodservice: Revenues came in at $630 million, which advanced 8% year over year. Also, organic net sales jumped 8%, with sales growth across breads, cereal and frozen meals. The segment’s operating profit grew 24% to $118.5 million.
GIS’ Financial Health Snapshot & Other Developments
General Mills ended the quarter with cash and cash equivalents of $2,292.8 million, long-term debt of $12,435.8 million and total stockholders’ equity (excluding noncontrolling interests) of $9,200.7 million.
GIS generated $1,774.7 million in cash from operating activities in the first six months of fiscal 2025. Capital investments amounted to $301 million during the same period. The company paid out dividends worth $676 million and bought nearly 9 million shares for $600 million in the first six months.
Constant-currency sales from the joint venture of Cereal Partners Worldwide grew 2% in the second quarter. For Haagen-Dazs Japan, sales jumped 1% year over year at cc.
What to Expect From GIS in Fiscal 2025?
In a challenging macroeconomic environment affecting consumers in its key markets, General Mills has prioritized creating exceptional experiences across its prominent food brands. This approach aims to drive steady improvements in volume growth and market share trends. In the first half of fiscal 2025, the company achieved a 1% increase in organic pound volume, marking a four-percentage-point improvement compared to fiscal 2024. Furthermore, General Mills either grew or maintained a dollar market share in 38% of its priority businesses during the second quarter, a notable improvement over the previous fiscal year.
To sustain this progress, the company has increased targeted promotional investments beyond its initial plans in select priority categories, enhancing consumer value while maintaining brand-building investments above the fiscal 2024 levels. Considering these actions, management has revised its guidance for fiscal 2025.
For fiscal 2025, organic net sales are anticipated to range between a flat and a 1% increase, while management now targets the lower end of the guidance range as a result of higher promotional investments.
The adjusted operating profit is now anticipated to decline 4-2% at cc compared with the earlier view of a decline of 2% to flat at cc. The updated view reflects increased investments. Management now anticipates adjusted earnings per share (EPS) to decline 3-1% at cc, compared with the earlier view of down 1% to increase 1% at cc. The company envisions a free cash flow conversion of at least 95% of adjusted after-tax earnings.
This Zacks Rank #3 (Hold) company’s shares have dropped 12% in the past three months compared with the industry’s decline of 7.3%.
Some Solid Bets
We have highlighted three better-ranked stocks from the Consumer Staples sector — Ingredion Incorporated INGR, Freshpet FRPT and US Foods Holding Corp. USFD.
Ingredion Incorporated manufactures and sells sweeteners, starches, nutrition ingredients and biomaterial solutions derived from wet milling and processing corn and other starch-based materials. The company currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
INGR has a trailing four-quarter earnings surprise of 9.5%, on average. The Zacks Consensus Estimate for Ingredion’s current financial year’s earnings indicates growth of 12.4% from the year-ago reported number.
Freshpet, a pet food company, presently carries a Zacks Rank #2 (Buy). FRPT has a trailing four-quarter earnings surprise of 144.5%, on average.
The Zacks Consensus Estimate for Freshpet’s current financial-year sales and earnings suggests growth of 27.3% and 228.6%, respectively, from the year-ago period’s reported figure.
US Foods, together with its subsidiaries, engages in the marketing, sale and distribution of fresh, frozen and dry food and non-food products to food service customers in the United States. It currently carries a Zacks Rank #2. USFD delivered a negative earnings surprise of 0.4% in the last reported quarter.
The Zacks Consensus Estimate for US Foods Holding’s current fiscal-year sales and earnings indicates growth of 6.4% and 18.6%, respectively, from the prior-year reported levels.
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