MW General Mills' refrigerated-dough sales disappoint as holiday baking season starts

By Tomi Kilgore

Stock drops as 'unusual difference' in timing of Thanksgiving leads to lowered profit outlook despite a big quarterly earnings beat

Shares of General Mills Inc. slumped Wednesday after the consumer-foods company cut its profit outlook despite a big quarterly earnings beat, due in part to the "unusual difference" between this year and last year in the timing of Thanksgiving.

And while improved momentum in cereal, fruit snacks, Mexican food and pet products helped drive a quarterly sales beat, Chief Executive Jeff Harmening said refrigerated dough has had a "disappointing start to the key baking season" ahead of the holidays.

The stock $(GIS)$ dropped 2.8% in morning trading, enough to pace the decliners in the S&P 500's consumer staples sector.

The company's latest quarter ended on Nov. 24, or about a week before Thanksgiving, while last year's fiscal second quarter ended on Nov. 26, three days after Thanksgiving.

That difference boosted the latest quarter's sales by 1.5 percentage points and was a 6-percentage-point benefit to operating profit. Those benefits are expected to reverse in the second half of fiscal 2025.

The company now expects full-year adjusted earnings per share, excluding nonrecurring items and the effects of currency moves, to be down between 3% and 1% from a year ago, compared with previous guidance of between down 1% and up 1%.

The company said it still expects full-year organic sales growth of between flat and up 1% but now targets the lower end of that range.

Chief Financial Officer Kofi Bruce said another reason for the lowered outlook is that improvements seen in volume and market share have required a "higher promotional investment than we initially planned."

That includes investments to support sales of refrigerated dough.

"We've taken a number of actions recently to reverse the trends on refrigerated dough," Harmening said. "We've already brought more value to consumers in December by adding investment to narrow price gaps across a broader range of items."

For the quarter to Nov. 24, net income rose to $795.7 million, or $1.42 a share, from $595.5 million, or $1.02 a share, in the same period a year ago.

Adjusted earnings per share of $1.40 beat the FactSet consensus of $1.22 to mark a 12th straight quarter of bottom-line beats. The margin of the beat was the widest in at least five years, according to available data from FactSet.

Net sales grew 2% to $5.24 billion, above the FactSet consensus of $5.14 billion, as volume increased by 3 percentage points and price and mix slipped 1 percentage point.

A year ago, volume had declined by 4 points and price and mix increased by 3 points.

North American retail sales inched up 0.5% to $3.32 billion, to top the FactSet consensus of $3.27 billion.

Food-service sales climbed 8.2% to $630 million, above the FactSet consensus of $595.6 million, and pet-product sales increased 4.7% to $595.8 million, to beat expectations of $568.8 million.

The stock has lost 1.7% year to date, while the Consumer Staples Select Sector SPDR exchange-traded fund XLP has climbed 12.8% and the S&P 500 has advanced 27.1%.

-Tomi Kilgore

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December 18, 2024 10:44 ET (15:44 GMT)

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