General Mills Lowers Sales Forecast After Price Hikes Fail

General Mills, the multinational manufacturer and marketer of well-known brands like Cheerios and Nature Valley, reduced its yearly sales prediction this Wednesday. This development comes as a consequence of slower-than-expected demand recovery in the wake of consistent price increases across the company’s range of breakfast cereals, snack bars, and pet food products.

The company’s shares manifested the unease, taking a nearly 3% dip in early trading. Adding to the concern, General Mills also brought down the top end of its annual profit growth forecast from 6% to a range of 4%-5%. This change is attributed to the continuing high input costs, predominantly labor-related.

The company had adopted a series of price escalations to counterbalance the rising input costs. This strategy, however, appears to have backfired, nudging consumers toward buying smaller packages of everyday essentials and pet food, or even swaying them toward less-expensive, private-label alternatives.

Initially, the price hikes appeared to favor General Mills, bringing in significant returns for several consecutive quarters. However, the company now anticipates the positive effect to diminish as it steps into the latter half of the fiscal year.

The company’s North American retail segment experienced a 5% drop in overall volumes, with a noticeable mid-single digit decrease in net sales for U.S. snacks, including popular brands like Nature Valley and breakfast cereals such as Cheerios and Cinnamon Toast Crunch. General Mills’ quarterly net sales descended by 2% to $5.14 billion, falling short of the predicted $5.35 billion, as per LSEG data.

Jeff Harmening, CEO of General Mills, acknowledged the underperformance of the company’s pet segment, especially the premium brands like Wilderness. Inventory destocking by pet food retailers further compounded the company’s sales woes.

General Mills has subsequently revised its organic net sales prediction for the fiscal year 2024 to a range of -1% to flatline, which contradicts its earlier growth forecast of 3%-4%. This adjustment comes as a surprise, particularly when analysts had predicted a 2.4% increase.