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General Mills's (GIS +4%) shares are rising today after the consumer packaged goods firm upped its FY23 (May) adjusted EPS growth and organic revenue forecasts. GIS expects earnings growth of +7-8% in constant currency, up from +4-6%, and organic net sales growth of approximately +10%, up from +8-9%. Additionally, GIS stated that it expects to grow its dividend in line with earnings while prioritizing share repurchases, anticipating a 1-2% average annual reduction in its share count over time.

GIS shares have hit some turbulence in recent weeks. The stock currently sits roughly 4% lower on the year. Part of the weakness stems from a rotation into tech stocks, evidenced by the sector gaining over 13% on the year, while consumer staples, such as GIS, have dipped nearly 1% over that same period. Investors may also be growing wary of inflationary trends in food-at-home categories, which have outpaced overall unadjusted inflation on a yr/yr basis for 12 consecutive months. The high prices have clipped GIS's volumes in recent quarters, registering two-straight quarters of 12-pt declines yr/yr.

Therefore, by raising its financial projections today, GIS is receiving a round of applause.

• A few factors contributed to management's upbeat forecasts. GIS expects its elasticities to remain sturdy throughout the year's first half, reflecting its previous price hikes playing out favorably over the near term.
  • Although Kraft Heinz (KHC), which reaffirmed its FY23 earnings and organic net sales outlook today, noted it would pause additional price actions in North America last week, GIS chose not to comment on future pricing. Instead, the company will continue to monitor the environment and see what holds, which may mean increased prices, potentially weighing on future volume growth and market share.
• Improving supply chains are also central to GIS's updated outlook. Service levels are now up to around 90%, 10 pts ahead of where the company stood six months ago. Although management acknowledges it still has plenty of work to hit its historical level of 98-99%, this is still a massive improvement in a short timeframe.
  • Others in the consumer packaged goods space, like KHC, Post Holdings (POST), and Kellogg (K), have recently discussed the improving supply chain environment. For example, KHC's service levels were the highest it had seen all year in December. Also, POST mentioned that supply chains were demonstrably better earlier this month, although fill rates remain below pre-pandemic levels. Meanwhile, Kellogg forecasted net sales growth and operating profit above its long-term targets two weeks ago due to the continued recovery in supply in specific businesses.

Overall, investors are cheering GIS's confidence in achieving higher earnings and organic sales growth than it forecasted in December, especially given the ongoing inflationary and supply chain-related headwinds. However, by possibly raising prices further, GIS risks market share loss, particularly if more of its peers begin pausing their pricing actions.