Story Stocks^®

General Mills (GIS) narrowly surpassed 4Q25 EPS expectations, driven by improved volume trends as organic net sales declined by 3%, marking a sequential improvement from the 5% decline in Q3. However, the company issued disappointing guidance for FY26, projecting a 10-15% decline in adjusted EPS compared to a 7% decrease in FY25, despite anticipating organic net sales growth to range between a 1% decline and a 1% increase, an improvement from the 2% decline in FY25. This guidance reflects ongoing challenges in a competitive consumer environment, with management prioritizing volume-driven growth over margin expansion, signaling a cautious outlook for profitability amid persistent macroeconomic pressures.

• The primary factors pressuring GISs’ earnings include higher input costs and unfavorable net price realization, which have significantly compressed margins. In Q4, the adjusted gross margin fell by 220 basis points to 32.7%, driven by rising costs for raw materials and supply chain inefficiencies, compounded by trade expense timing that negatively impacted profitability.
• While tariffs have been cited as a broader concern for consumer goods companies, specific commentary from GISs’ management does not explicitly highlight tariffs as a primary driver of cost pressures in Q4; instead, the focus remains on input cost inflation and competitive pricing dynamics in a softening snacking and pet food market, which aligns with industry-wide trends.
• Organic net sales showed sequential improvement in Q4, declining 3% compared to 5% in Q3, with the North American Pet Segment emerging as a bright spot, posting 3% organic net sales growth. This growth was primarily driven by an increase in retailer inventory ahead of Q1 customer activations, marking a reversal from Q3 when inventory drawdowns weighed heavily on the segment’s performance. The acquisition of Edgard & Cooper in April 2024 and the North American Whitebridge Pet Brands business in December 2024 further bolstered the segment.
• In contrast, the North American Retail segment continued to underperform, with organic net sales declining 7% in Q4, worsening from a 6% drop in Q3, driven by lower pound volume and unfavorable net price realization and mix. The segment, which includes iconic brands like Cheerios, Betty Crocker, and Nature Valley, faced ongoing softness in the snacking category, where consumer demand has weakened amid macroeconomic pressures and competition from private-label brands. The divestiture of the Canada yogurt business reduced net sales by 3%, exacerbating the segment’s challenges.

In conclusion, GIS faces significant margin and earnings headwinds from rising input costs and unfavorable pricing dynamics, which the company is countering through aggressive share repurchases. To restore volume growth, management is intensifying investments in innovation and consumer-focused strategies, emphasizing “big bet” product launches centered on taste and value, such as fresh pet food and enhanced snacking offerings, to drive household penetration and market share in a challenging FY26.