Tough Times Ahead for General Mills as Profit Forecast Slashed
The packaged food giant, General Mills, has revised its annual profit forecast downward, citing increased promotional spending to attract budget-conscious consumers. This move has sent shares tumbling by approximately 3%. The company’s struggle to compete with cheaper private label products has prompted a shift in strategy, focusing on promotions to regain market share.
A Shift in Consumer Behavior
As consumers become increasingly price-sensitive, they are opting for more affordable alternatives, leaving branded names like General Mills’ Cheerios cereal struggling to stay afloat. CEO Jeff Harmening acknowledged that the company’s product news and media support were not resonating with consumers due to a lack of value.
Disappointing Sales and a New Focus
General Mills’ Pillsbury refrigerated dough sales have been underwhelming at the start of the holiday season, a critical period for baking-related products. To address this, the company plans to revamp its advertising strategy to boost demand. Harmening emphasized the need to provide better value to customers, which will involve increased promotional spending.
Revised Profit Forecast and Sales Performance
General Mills now expects its annual adjusted profit to decline by 1% to 3%, a significant revision from its previous forecast of down 1% to up 1%. The company also anticipates reaching the lower end of its organic net sales range, which is flat to up 1%. Despite this, sales for the quarter ended November 24 surpassed analysts’ estimates, reaching $5.24 billion, with adjusted profit coming in at $1.40 per share.
A Necessary Evil: Investing in Brand Marketing
According to Blake Droesch, an analyst with eMarketer, General Mills’ investments in brand marketing are crucial for long-term growth, but will have a negative impact on margins in the short term. The company has been working to lower prices after a series of inflation-related hikes, resulting in a 1 percentage point decrease in prices and a 3 percentage point increase in volumes during the second quarter.
A Challenging Road Ahead
As General Mills navigates this challenging landscape, it remains to be seen how the company will balance its promotional spending with the need to maintain profitability. One thing is certain – the packaged food giant must adapt to changing consumer behavior to stay competitive in the market.
Leave a Reply