General Mills’ Organic Performance Reveals Underlying Weakness

Image Source: General Mills

By Brian Nelson, CFA

On June 26, General Mills (GIS) reported mixed fourth-quarter fiscal 2024 results that showed weakness on the top line, but a modest beat relative to the consensus forecast on the bottom line. Fourth-quarter net sales dropped 6% from the same period a year ago as organic growth was also down 6% “driven by the trade expense timing comparison, a reduction in retailer inventory, and a headwind in its International segment results.”

Organic volume declined 6 percentage points in its North America Retail segment and 7 percentage points in its Pet segment, with both segments experiencing organic price/mix headwinds of one percentage point, too. Its North America Foodservice business did comparatively better, recording a 3 percentage-point increase in organic volume and a 1 percentage point increase in organic price/mix. Its International business generated modest organic volume growth, but organic price/mix experienced a 10 percentage point headwind. On a consolidated basis, organic volume fell 2 percentage points while organic price/mix dropped 4 percentage points.  

In the quarter, General Mills’ gross margin increased 140 basis points to 35.8% thanks to cost savings and lower supply chain costs, but the firm noted that input cost inflation and weak net price realization and mix were headwinds, where its adjusted gross margin fell 10 basis points, to 34.9% of sales. Its adjusted operating profit of $800 was 10% lower in constant currency, while its adjusted operating profit margin fell 70 basis points, to 17%. Net income attributable to General Mills fell 9% in the quarter, while adjusted diluted earnings per share fell 10% to $1.01 in the quarter. 

During fiscal 2024, the company generated cash flow from operations of $3.3 billion, which compares to $2.8 billion a year ago. Capital spending expanded to $774 million in the year, up from $690 million last year. Free cash flow conversion was 96% of adjusted after-tax earnings, and the firm continues to return capital to shareholders. The company bought back $2 billion worth of stock in 2024, while it paid dividends of $1.4 billion. It recently raised its payout 2%, to $0.60 per share, too.

Image Source: General Mills

Looking to 2025, General Mills’ organic sales are expected to be flat to up 1%, a target that is achievable, but one that may prove optimistic given trends in the fiscal fourth quarter of 2024. Adjusted operating profit is targeted in the range of down 2% to flat in constant currency, while adjusted diluted earnings per share is expected to be “between down 1% and up 1% in constant currency.” Free cash flow conversion is expected to remain robust at more than 95% of adjusted after-tax earnings. Shares yield 3.5% at the time of this writing.

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