MINNEAPOLIS — On Sept. 21, General Mills reported its financial results for the three-month period ended Aug. 28, detailing pet segment sales of $580 million, up 19% from year-ago revenue. Strong growth for the pet business in the first quarter of the company’s fiscal year 2023 was attributed to favorable net price realization and mix.
Organic sales growth was up 14%, and segment operating profit increased 7% to $123 million, compared to year-ago. According to Kofi Bruce, chief financial officer, General Mills’ pet segment gained market share in the wet cat food category over the first quarter, while market share declined for dry pet food and treats due to capacity constraints.
“While demand for Blue Buffalo remains strong, we continue to be challenged by capacity constraints on the business, which is limiting our ability to deliver competitive customer service and drive further volume growth,” Bruce said. “We gained share in wet pet food in the first quarter, but capacity limitations did not allow us to keep pace with the category in dry food and treats.”
Strategic investments will be made in the pet segment and across the company’s other operating segments to drive brand strength and awareness, according to Jeff Harmening, chairman and chief executive officer.
“For example, we are extending the power of the Blue Buffalo master brand to our newly acquired Nudges, True Chews and Top Chews brands, which will help significantly increase awareness of these differentiated products,” Harmening said.
Harmening also noted “significant capital investments” to bolster in-house manufacturing capacity across several segments, including pet food. Bruce added the company plans to add more co-packing capacity for pet treats in the last half of fiscal 2023, and significant capacity will be added to General Mills’ internal dry pet food operations beginning fiscal 2024.
The company’s first-quarter earnings reflected several acquisitions and divestitures, including the acquisition of Tyson Foods’ pet treat business in the first quarter of last fiscal year, which resulted in a 5-point net sales benefit in the first quarter of fiscal 2023. General Mills also incurred $22 million in product loss damages from an international Häagen-Dazs ice cream recall, which were excluded from adjusted operating profit results, the company stated.
The supply chain remains highly unpredictable. Paired with cost inflation and economic uncertainty, these continued obstacles have sown instability for pet food and other commercial food manufacturers.
“The operating environment remains challenging and highly volatile,” Harmening said. “We continue to see elevated levels of inflation across our cost basket, including significant year-over-year increases in raw materials, labor, freight and fuel. Our full-year forecast for input cost inflation is now approximately 14% to 15% in fiscal 2023.”
Overall, General Mills reported first-quarter net sales of $4.7 billion, up 4% from year-ago, as well as an operating profit of $1.1 billion, up 29% from year-ago. The company’s operating profit margin was up 440 basis points to 23%.
“We continue to deliver strong performance in a highly volatile operating environment,” Harmening said. “Given the strength of our first-quarter results and confidence in our ability to adapt to continued volatility ahead, we are increasing our full-year outlook for net sales, operating profit, and EPS growth.”
General Mills now expects a 6% to 7% increase in organic net sales for its full-year fiscal 2023, compared to its previous projection of 4% to 5% growth. Adjusted operating profit has also been upgraded and is now expected between flat and up 3%, compared to previous projections between down 2% and up 1%. Additionally, adjusted diluted earnings per share (EPS) is now expected to increase between 2% and 5%, up from previous estimates between flat and up 3%.
“The changes we made to our organization a year ago are paying off by enabling us to adapt more quickly to the new challenges and opportunities that we see each day,” Harmening concluded.
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