Cereal and packaged food giant General Mills reported earnings this week and the read from the was unambiguous: the consumer is stressed, staying stressed, and the company is planning around it rather than hoping for a turn.
The core messages is that they don’t assume any improvement.
Dana McNabb (COO) laid it out directly: “What we are anticipating is that as we go into this new fiscal year, the consumer is going to continue to be pressured. And we do expect to see them continue to change their behavior because of that, being more deliberate in how and where they shop, buying more on promotion and less on everyday prices, making trade-offs between pack sizes and channels, all with value at the forefront.”
CEO Jeff Harmening reinforced it twice: “we’re not anticipating an improved consumer environment or an improved category environment. We’re going to make our own success this year.” And later: “I think it’s really important to reiterate, which I think I’ve done, but to reiterate that we’re not expecting that environment to improve.”
There have been good indications on US aggregate spending lately but they’re tilted towards more-wealthy consumers while General Mills has better insight into the middle and lower-end market. They have been struggling for years as consumers switch to store brands. After the pandemic, they tried to push pricing on their flagship brands like Cheerios and consumers balked, leading to a rout in the shares.
GIS stock
The company rallied after earnings this week reported EPS of 95-cents compared to the 80-cent consensus. Revenue turned around, rising 1% year-over-year (though guided flat for FY2027).
After trying to push on pricing, the company pivoted and lowered prices to fight for volume with store brands.
In terms of pricing, the company said its inflation outlook is 4-5% on assumptions of oil near $100 but even with oil falling, they expect it to be at the lower part of the band.
On the K-shaped economy specifically, McNabb said:
“We did see the middle lower income households eat a little bit more at-home and spend a little bit more on staples, so think cooking from home, but nothing significant.” At-home eating held “pretty stable… at 86%.”
She used the term outright: “there is a portion of the economy in this K economy that will spend more.” The playbook is opening price points and packaging innovation for the low end, large value packs for big families, and premium functional benefits for the top: “making sure that we understand how stressed the consumer is going into this fiscal year that we don’t take that for granted.”
One booming part of their business? People forgoing children and spending their money on cats.
“Our humanization trend in pet will continue and cats are on fire, cat growth is on fire,” McNabb said.
General MIlls COO Dana McNabb
My overall take is that companies are no longer modeling a recovery, and instead they’re building plans that assume the stress is permanent.
Source: Original Article
