General Mills Suffers Losses from Pet Food Incident

Having a pet can come with its own set of messes, and the same can be said for owning a pet food company.

The stock of General Mills has decreased by 4.10%.

Tuesday's results were generally positive, with organic sales increasing 11% from the same period last year in the second fiscal quarter ending Nov. 27, surpassing analyst predictions of 9% growth, according to Visible Alpha. The company also raised its outlook for organic sales and adjusted earnings per share for the entire fiscal year. However, the success was dampened by a dip in pet food sales.

Following the positive sales results from Campbell Soup, General Mills experienced a setback in their pet food segment. The Blue Buffalo line of premium pet foods, which General Mills acquired in 2018, saw no growth in sales from the previous year, with $593 million in sales compared to the expected $672 million according to Visible Alpha. The company attributed the lack of growth to a reduction of inventory by retailers. As a result, General Mills' stock dropped 5% in early morning trading.

At a conference call with management, analysts focused on the pet issue. CEO Jeff Harmening argued that the disruption was only temporary, citing several reasons. He pointed out that the lack of production capacity at General Mills was the main factor, as it prevented retailers from getting the pet treats they desired. Mr. Harmening predicted that pet food sales would experience double-digit growth in the second half of the fiscal year, as production capacity returns and the company invests in promoting new products.

Wall Street, however, was not convinced. JPMorgan analyst Ken Goldman commented in a note that in the two decades of covering food, many companies have provided explanations as to why their deloads will not be repeated. He added that sometimes these explanations are proven to be correct, while other times they are not.

Prior to Tuesday's report, General Mills' stock had increased by 29% in the year, so it may have been set up for dissatisfaction. However, the market's strong response also serves as a reminder of the significance of Blue Buffalo to General Mills' development narrative. Analysts have estimated a total growth of 6.7% for the company's biggest segment, North America retail, from the fiscal year 2022 to 2025. On the other hand, pet segment sales are anticipated to increase by 26% over the same period.

If the slowdown in pet food sales continues, General Mills' stock could be in for more trouble.