MINNEAPOLIS — General Mills, Inc. is putting weight behind its pet segment in fiscal 2023, including investments in product innovation, capacity expansion and media outreach. On March 23, the company shared its third-quarter and nine-month earnings for the three- and nine-month periods ended Feb. 26.

“Our growth in Q3 was broad-based across our segments, including organic net sales up high single digits in International and up mid- to high-teens in North America Foodservice, North America Retail and Pet,” said Jeff Harmening, chairman and chief executive officer at General Mills, in the company’s earnings call on March 23.

The company’s pet segment, which is comprised of Blue Buffalo and brands formerly owned by Tyson Foods, saw net sales of $645.5 million in the third quarter, up 14% year-over-year. Sales growth was attributed to favorable price realization and mix, increased volume, improved customer service, bolstered retail inventory and brand-building efforts.

Operating profit for the pet segment was down 7% to $102.6 million in the third quarter, impacted by increased costs related to input inflation, capacity expansion and service improvement, and a double-digit increase in media spend, according to the company.

Nine-month net sales for the pet segment totaled $1.8 billion, up 10% and included a modest benefit from the company’s acquisition of Tyson Foods’ pet treat brands in 2022. Stable retail inventory supported growth across channels. Operating profit for the pet segment was $312.3 million, down 13% from the first nine months of fiscal 2022 due to heightened input costs, SG&A expenses and lower volume.

Despite operating profit declines in the third quarter and first nine months of fiscal 2023, the pet segment’s operating profit as a percentage of net sales is the company’s second strongest at 15.9% in the third quarter and 17.2% in the nine-month period, trailing only the company’s most-profitable segment — North America retail.

“While we've seen significant volatility in retailer inventory for pet over the past two quarters, it was roughly stable on a fiscal year-to-date basis with organic net sales and all-channel retail sales both up high single digits through nine months,” said Kofi Bruce, chief financial officer at General Mills.

Dry dog and cat food drove double-digit sales growth for the pet category in the third quarter, while dog treats posted high single-digit growth over the quarter. The company hopes to support continued sales growth in the pet segment through innovation and capacity expansion.

New BLUE Wilderness Premier Blend dry dog food by General MillsSource: Blue Buffalo

“In Pet, we're launching innovation across the Blue Buffalo platform, including Wilderness Premier Blend, a new super premium dry dog food; our new Blue Buffalo fresh dog food offering we are currently testing in 200 stores in the FDM channel; and human-inspired treats products, including Blue Benebars and Nudges on-the-go,” Harmening said.

Additionally, Blue Buffalo recently broke ground on an expansion of its existing pet food facility in Richmond, Ind. General Mills will invest $200 million over the next two years to add 169,000 square feet of processing operations and warehouse capacity to the plant.

“We remain on track to deliver double-digit organic net sales growth for the pet segment in the second half of fiscal 2023, with the back half segment operating profit margin ahead of our Q2 results,” Bruce added.

Economic volatility, ongoing supply chain disruptions and continued inflation remain obstacles for General Mills, as with most other pet food and treat processors in business today.

“We continue to forecast total input cost inflation of approximately 14% to 15% for the full year in fiscal 2023, including double-digit inflation in the second half,” Harmening shared. “Looking beyond this fiscal year, we expect inflation to decelerate but remain above historical averages.”

General Mills hopes to combat these challenges through technological capabilities, specifically supply chain digitization, strategic revenue management and “connected commerce.”

“We built on our positive momentum and delivered strong results in the third quarter, including broad-based growth across each of our segments,” Harmening said. “Our team continues to manage well through ongoing supply chain disruptions and volatility in the operating environment. Our brands are winning with consumers, and we plan to sustain this momentum by continuing to invest in brand building, innovation, and capabilities that will drive future growth. With strong year-to-date performance and good visibility to the fourth quarter, we are once again raising our fiscal 2023 outlook for our key financial measures.”

Overall, General Mills reported net sales growth of 13% to $5.1 billion in the third quarter, with organic net sales up 16%. Operating profit decreased 10% to $730.2 million, while adjusted operating profit grew 20% in constant currency, according to the company.

Nine-month financials were impacted by General Mills’ acquisition of Tyson Foods’ pet treat business, the divestiture of its European yogurt business, certain international dough businesses and its Helper main meals and Suddenly Salad side dishes business, and the acquisition of the TNT Crust foodservice business, all of which occurred between the first quarter of fiscal 2022 and the first quarter of fiscal 2023.

Following what the company described as “stronger and more broad-based business momentum,” General Mills has raised its fiscal 2023 outlook for organic net sales, adjusted operating profit and adjusted diluted earnings per share (EPS). The company now expects net sales growth between 10% and 11%, up from the previous prediction of roughly 10% growth. Adjusted operating profit is now projected to increase by 7% or 8%, up one percentage point from previous guidance. Adjusted diluted EPS is now projected to grow between 8% and 9% in constant currency, also upgraded one percentage point.

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