Consumers aren’t turning to comfort foods like Lucky Charms or Chex Mix to quell their economic anxieties, forcing General Mills to enter cost-cutting mode.
“Our imperative is to get back to growth,” CEO Jeff Harmening said. “It’s very clear to us we have an opportunity to improve the way we go about our business and become more efficient and effective. And our employees have told us that.”
On Wednesday, the Golden Valley-based company reported a lackluster winter quarter and lowered financial expectations. The cereal maker isn’t alone in its grim outlook, as many businesses that rely on discretionary spending are managing expectations, including other Minnesota companies like Sun Country Airlines and Target.
The lingering effects of inflation still have shoppers turning to store brands and other cheaper alternatives, even as General Mills invests in price reductions.
So the frozen dough manufacturer is looking for ways to cut $100 million in costs starting this summer, though it declined to provide more specifics beyond that. Earlier this month, the company ended its internal G-Works innovation program and paused new investments through its 301 Inc. corporate venture arm.
“The purpose of the $100 million-plus in cost savings is to free up resources to invest in growth,” Chief Financial Officer Kofi Bruce told analysts on an earnings call Tuesday.
The money saved will need to go back into marketing and promotions, something the company has seen success with in Totino’s, Pillsbury and Blue Buffalo.
“Our categories are growing,” Harmening said. “The most important job we have to do is get back to being competitive.”
The company’s snacking business has also flagged as consumers focus more on grocery staples and less on non-essential treats like Gushers. But Harmening isn’t attributing that to the uptick in Americans on weight-loss drugs.
“Consumers, even those on GLP-1s, still want stuff that tastes good,” he said. “They just want them in the right portions.”
On top of continued price sensitivity, the food industry at large is also facing a new hostility from federal regulators. Harmening was among the food executives who met with Health and Human Services Secretary Robert F. Kennedy Jr. earlier this month.
“I’m actually pleased he wanted to have a dialogue,” Harmening said. “When it comes to the health of the American people, he has an interest, and so do we. The fact that we can work together, I think, is a huge positive.”
General Mills now expects sales for the fiscal year that ends in May to drop 2% compared with the previous outlook of flat to slight growth. Earnings per share will also fall as much as 8%. That forecast doesn’t include higher costs from tariffs, which could further dent the bottom line.
About 90% of the oats used in Cheerios and Nature Valley products come from Canada, and those are now subject to a 25% tariff.
“For this fiscal year, we don’t anticipate a material impact from tariffs,” Harmening said. “As we get into the future, it’s a little bit tough to say what impact we’re going to see.”
He said White House officials have been receptive to the idea that there isn’t enough domestic supply of oats to meet the company’s needs. Already, the Trump administration has provided tariff relief for potash imports, a key fertilizer ingredient.
However, counter tariffs Canada has placed on American goods could hurt General Mills’ exports, Piper Sandler analyst Michael Lavery wrote. Global steel and aluminum import taxes could also increase the cost to make Progresso soups.
For the third fiscal quarter that ended in February, General Mills’ sales dropped 5% to $4.8 billion. Profits fell 7% to $625 million but beat analyst expectations.
A big part of the sales drop came from retailers drawing down inventories, an issue seen across the industry. But it will take smart investments on marketing and discounts to pick up the pace through the long term, analysts said.
“The consumer remains stretched. They remain value-seeking, and that’s a trend we’ve seen over the past couple of years, and that continues to be the case,” said Edward Jones analyst Brittany Quatrochi. “They may be even more value-seeking now.”
Still, General Mills’ stock price was down a bit more than 2% at market close Wednesday, thanks to the lowered outlook.
