Story Stocks^®

General Mills (GIS -4%) registers a slim earnings beat in Q4 (May) but falls short of revenue targets, ending a challenging year on a sour note. The consumer-packaged-goods titan has endured a roughly 30% correction over the past year following today's lackluster response. Elevated inflation rates have been the underlying factor as they forced consumers to find ways to stretch their incomes, producing a trade-down effect and igniting value-seeking behavior across most of GIS's customer base.

• This dynamic continued in Q4, resulting in 2 pts of volume compression, GIS's ninth consecutive drop. What was particularly disappointing was that volumes fell in Q4 despite a 4 pt drop in price/mix, the first time in years that GIS dealt with a contraction in its cumulative price/mix. Falling prices and volumes illuminate that value-seeking consumers do not just desire lower prices but quality, and it may indicate that GIS's brand loyalty is not as strong as the company may have thought.
  • Management acknowledged it needs to step it up regarding the value it offers to consumers, touching on the several innovations currently in progress across its brands. Package sizes also play a meaningful role; GIS is testing larger packs of certain products while shrinking other packages.
• The culmination of the one-two punch of lower prices and volumes was a 6.3% decline in net sales to $4.71 bln, GIS's steepest yr/yr decrease since 4Q21 when it was lapping an explosive +20.7% jump during the pandemic. It also resulted in GIS's FY24 organic revenue growth landing toward the low end of its negative 1% to flat forecast.
• North America Retail and Pet lagged in Q4, enduring a 7% and 8% drop in net sales yr/yr, respectively. While GIS is still engaging in a turnaround plan within its Pet business, explaining the underwhelming performance, another soft quarter for North America Retail may be testing investors' patience. Competition remains a factor. As global supply chains stabilize, smaller competitors, including private labels, are better equipped to improve their in-store availability.
• While investors may have been forgiving of another weak quarter from GIS, the company's FY25 financial goals did not illustrate a quick turnaround. GIS projected organic net sales to either stay flat or climb by just 1% yr/yr and adjusted EPS growth to stagnate at the midpoint of its negative 1% to positive 1% forecast despite the ongoing success of its Holistic Margin Management (HMM) cost-savings plan.

FY24 contained plenty of turbulence, which is seeping into FY25. The year ahead will be more of a rebuilding year as GIS lays the groundwork to reaccelerate growth over the next four quarters. There is much to improve upon, especially given how consumers expressed that it will take more than falling prices to generate demand. GIS is focused on brand innovation, cost reduction, and cash generation in FY25 -- the company has already announced a 2% raise to its dividend. Still, as we mentioned last quarter, GIS has a lot on its plate, which could keep investors hesitant to buy in over the near term.