The firm’s operating profit increased 33% to $1.1 billion, but executives conceded that “favorable timing” played a major role
General Mills (NYSE:GIS) stock fell Wednesday morning after the maker of Cheerios cereal and other popular packaged food products reduced its full-year fiscal 2025 adjusted operating profit growth guidance range from -2% to flat previously, to -2% to -4% currently.
For the second quarter of fiscal 2025, General Mills grew its net sales 2% year over year to $5.2 billion. This represents a slight beat when compared to the analysts’ consensus estimate of $5.14 billion.
Furthermore, General Mills reported adjusted earnings of $1.40 per share, up 12% year over year and ahead of Wall Street’s consensus prediction of $1.22 per share.
In addition, General Mills’ operating profit increased 33% to $1.1 billion. However, the company acknowledged that these Q2 FY2025 results were “impacted by certain favorable timing items that are expected to reverse in the second half of fiscal 2025.”
These temporary headwinds included a holiday-driven boost in North American retail inventory as well as “favorable trade and other expense timing”.
The firm noted that these factors contributed “approximately a 1.5-point benefit to net sales and a 6-point benefit to operating profit” in fiscal 2025’s second quarter.
This acknowledgment helps to explain why the market wasn’t highly impressed with General Mills’ quarterly sales and profit beats.
Analysis: General Mills faces “uncertain” economy
In lowering its fiscal 2025 income growth guidance range, General Mills cited an “uncertain macroeconomic backdrop for consumers across its core markets.” This phrase may have prompted some traders to sell GIS stock on Wednesday morning.
General Mills’ shareholders probably sought confirmation that the company will be able to navigate persistent food price inflation. In general, U.S. packaged food companies have struggled to maintain their sales volumes after raising product prices in response to elevated input costs.
For what it’s worth, General Mills implemented some recent product price reductions to appease inflation-weary consumers. On the other hand, the U.S. Consumer Price Index (CPI) appears to be gradually rising, and General Mills’ management may fear that tariffs could lead to an “uncertain macroeconomic backdrop” in 2025.
Thus, some factors will be out of General Mills’ control but will impact the cereal manufacturer nonetheless. Consequently, General Mills needs to convince market participants that it can grow its sales and improve its income outlook next year despite potential inflationary ups and downs.
