MINNEAPOLIS — General Mills had much to share about its pet nutrition business, despite slowed net sales growth in the second quarter of fiscal 2023. News included upcoming product launches and reformulations, increased manufacturing and distribution capacity, and enhanced customer service and brand support to combat supply chain volatility and unexpected retail impacts over the three-month period ended Nov. 27.
Net sales were flat at $592.9 million in the second quarter. Operating profit took a hit during this three-month period, down 34% to $86.6 million. In the six-month period ended Nov. 27, net sales grew 8% to $1.17 billion, while operating profit declined 15% to $209.7 million for the pet business. Operating profit for this segment was flat in the second quarter at $799.8 million, and up 15% to $1.89 billion for the first six months of fiscal 2023.
As a percentage of net sales, second-quarter operating profit for the pet segment came to 14.6%, down from 22.2% in the second quarter of fiscal 2022. Six-month operating profit for the pet business represented 20.2% of net sales, up from 19.1% in the first six months of fiscal 2022.
In the company’s second-quarter earnings call on Dec. 20, Jeff Harmening, chairman and chief executive officer at General Mills, described its Blue Buffalo pet food portfolio as having “a long runway of growth.” According to Harmening, historical success of Blue Buffalo has contributed to “terrific growth” since it was acquired in 2018, “with our pet net sales up by $1 billion through fiscal 2022,” he added.
“The trends toward humanization and premiumization in the pet food category are strong and will continue to grow — in the United States and around the world,” he said. “We are focused on leading and expanding our presence in high-quality, natural feeding and treating for dogs and cats.
“…While we continue to believe in the long-run growth opportunity for our pet business, we experienced an unexpected headwind in Q2 in the form of inventory reductions at some key retailers,” Harmening said. “As a result, while our all-channel retail sales grew at a high-single-digit rate in the quarter, our net sales were essentially flat… While these headwinds have been felt across our pet business, they’ve been particularly acute on our dry dog food and treats sub-segments.”
Harmening shared the company expects the pet business to be back on track for double-digit net sales growth in the second half of fiscal 2023, as General Mills moves to provide better customer service, more stable retail inventories and increased brand support.
“We expect our customer service will improve because of the external manufacturing capacity we’ve added on dry dog food and treats,” he said. “To further improve service, we recently added a new distribution center and expanded capacity at our existing warehouses.”
According to the company, Blue Buffalo’s Life Protection Formula currently makes up more than half of its dry dog food retail sales. The Life Protection Formula product line has been prioritized in the past from a customer service standpoint, but General Mills plans to expand customer service improvements — thanks to the benefits of increased manufacturing and distribution capacity — to include the rest of the company’s dry dog food and treat portfolio.
Harmening also teased several upcoming innovations and reformulations coming to its dog food, cat food and treat products. This will include a revamp of its core Wilderness dry dog food line, with formulas featuring 20% more meat. Blue Buffalo will also launch a new super-premium kibble — Wilderness Premier Blend — that will include kibble pieces mixed with proprietary tender meaty bites.
Additionally, the company plans to relaunch its core dry cat food portfolio under its Tastefuls moniker, which follows its successful launch of the Tastefuls wet cat food line in 2021. The rebrand can be seen on store shelves now, and media investments and in-store activations are planned in the coming months, Harmening said.
General Mills’ pet treat portfolio will benefit from expanded capacity and improved on-shelf availability, Harmening added. The company’s Nudges, True Chews and Top Chews brands, which it acquired from Tyson Foods in 2021, have been rebranded under Blue Buffalo.
“We remain bullish about the growth prospects for our pet business,” Harmening concluded. “With a retailer inventory reduction and the worst of our capacity and service challenges behind us, and with exciting innovation and brand-building investment behind the strongest natural brand in the category, we’re poised to continue pet’s track record of outstanding growth — in fiscal 2023, and over the long term.”
Overall, second-quarter net sales for General Mills were up 4% to $5.2 billion, reflecting a 5% headwind from divestitures and acquisitions, and a 1% headwind from foreign currency exchange. Organic net sales were up 11%, operating profit was flat year-over-year at $800 million, and net earnings were up 1% to $606 million.
Six-month net sales were also up 4%, totaling $9.9 billion and including similar headwinds from divestitures, acquisitions and foreign currency exchange. Operating profit was up 15% to $1.9 billion, and net earnings were up 16% year-over-year to $1.4 billion.
“The operating environment remains volatile,” Harmening said. “While we’ve seen some modest improvement in recent months, it is still far from pre-pandemic conditions, particularly at our up-stream suppliers… Overall, while it’s encouraging to see some signs of supply chain improvement recently, we expect the pace of change in the operating environment to remain high for the foreseeable future.”
The company also shared plans to increase its growth capital investments by more than 50%, which will include increased internal manufacturing capacity for pet food, Mexican food, hot snacks, fruit snacks and cereal, Harmening noted.
“We continued to execute well and delivered strong top and bottom-line growth in the second quarter,” Harmening said. “Amid ongoing volatility in the operating environment, we remain focused on driving our Accelerate strategy by investing in brand building and innovation, strengthening our capabilities, and continuing to reshape our portfolio. With strong first-half results and positive momentum on our business, we are increasing our full-year outlook for organic net sales, adjusted operating profit, and adjusted diluted EPS growth.”
General Mills raised its full-year fiscal 2023 outlook. Organic net sales are now expected to grow between 8% and 9%, up from previous growth expectations between 6% and 7%. Adjusted operating profit is anticipated to increase between 3% and 5%, compared to previous projections between flat and up 3%. Additionally, the company shared recent divestitures, acquisitions and foreign currency exchange are expected to diminish net sales growth by roughly 4.5%.
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