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General Mills (GIS -2%) marches toward 2024 lows today after reducing its FY25 (May) profitability guidance despite delivering its widest earnings beat in over five years in Q2 (Nov). The consumer packaged goods titan expects adjusted EPS to contract by 1-3% yr/yr in FY25 in constant currency, a sharp reduction from its prior guidance of a 1% decline to a 1% improvement.

The underlying cause is two-fold. For one, GIS is stepping up its investments over the next couple of quarters following notable improvements to its market share through the first half of FY25, squeezing its bottom line. CEO Jeff Harmening commented that its investments would position GIS for sustainable growth in FY26. Secondly, GIS noted that Q2 benefited from timing-related items, contributing six points to its EPS, which is expected to reverse in 2H25.

GIS's lowered FY25 earnings guidance notwithstanding, there were several highlights from Q2 underpinning brewing momentum heading into 2025.

• Volumes flipped positive in Q2 for the first time in ten quarters, expanding by 3% yr/yr, led by a roaring comeback in GIS's North America Pet segment, which boasted a 9% jump in volumes compared to a 3% improvement last quarter and a 7% decline in 4Q24. GIS chalked up the exceptional growth in Pet to its brand campaigns and increased product renovation, factors in its decision to step up its investment efforts.
• GIS's largest segment, North America Retail, also showed notable improvements from the previous two quarters, as volumes slipped by just 1% in Q2 compared to a 3% drop in Q1 and a 6% drop in Q4. Again, targeted investments underpinned the sequential advancements. For instance, GIS's cookie line, which comprises around a third of its Retail business, grew by high single digits due to the new capacity the company added and its campaign surrounding returning the Doughboy -- its featured mascot.
• North America Foodservice and International enjoyed similar volume gains at 5% in Q2. In Foodservice, GIS continues to benefit from its commanding presence across K-12 schools, primarily due to its ability to adapt to changing nationwide nutrition standards. Management noted that as these standards change, as they will in 2025, the company expands its market share. Internationally, GIS's categories are returning to pre-pandemic levels, helping it capture market share.
• The continuous volume improvements underscored GIS's return to positive net sales growth yr/yr following four straight quarters of compression, expanding its top line by 2.7% to $5.24 bln in Q2. Organic net sales inched 1% higher, reversing a string of yr/yr declines. GIS also reiterated its FY25 organic net sales growth of flat to up 1%.

There was plenty to like from GIS in Q2, from a long-awaited return to positive volumes to encouraging momentum across each segment. However, investors are disappointed by the slashed FY25 earnings guidance, especially given how well the company performed on its bottom line in Q2. Nevertheless, while GIS's timing may not be perfect, the company is taking advantage of its upward momentum due to past and present investments, ensuring that it does not reverse a promising trend. As such, we think GIS is worth a look at current levels.