By Anuja Bharat Mistry
(Reuters) – General Mills slashed its annual profit forecast on Wednesday as the Cheerios cereal maker ramps up promotions to attract cost-conscious consumers, sending shares down about 3%.
Budget-strapped shoppers have increasingly chosen cheaper private label products over pricier branded names, prompting major packaged food companies to increase promotions.
“As we moved through the quarter, it became clear that our product news and media support were not breaking through because we didn’t have the right value,” CEO Jeff Harmening said on the post-earnings call.
The company also said its Pillsbury refrigerated dough sales were “disappointing” at the start of the key holiday season when customers turn to baking and said would focus on better advertising to boost demand.
General Mills now expects annual adjusted profit to fall in the range of 1% to 3%, compared with the prior range of down 1% to up 1% due to higher-than-planned promotional spending.
It is also targeting the lower end of the organic net sales range of flat to up 1%.
“Its (General Mills’) investments in brand marketing are necessary to sustain the long-term growth of its brands, but this will also have a negative impact on margins in the short term,” Blake Droesch, analyst with eMarketer said.
The company has also focused on lowering prices after several rounds of inflation-related hikes and said that the second quarter saw prices decrease 1 percentage point while volumes rose 3 percentage points.For the quarter ended Nov. 24, the Bugles corn chip snacks maker posted sales of $5.24 billion, surpassing analysts’ estimates of $5.14 billion, according to data compiled by LSEG. Adjusted profit came in at $1.40 per share, above estimates of $1.22 per share.
(Reporting by Anuja Bharat Mistry in Bengaluru; Editing by Tasim Zahid)
