Baking

General Mills expects more uncertainty in the coming year

MINNEAPOLIS — The management team at General Mills, Inc. is bracing for double-digit cost-of-goods-sold inflation and continued supply chain disruptions in fiscal year 2023.

“I think we’re expecting another year of uncertainty, frankly, similar to the table that’s been set this year,” Chief Financial Officer Kofi A. Bruce said on a June 29 conference call to discuss of fiscal 2022 results. “We expect only a modest decline in the level of supply chain disruption. We expect that… our price realization and a combination of HMM (Holistic Margin Management) will more than offset the dollar cost of the 14% inflation that we have claimed.

One bright spot is that the company expects supply chain disruptions to moderate slowly in fiscal year 2023 compared to what happened in fiscal year 2022.

“It is becoming increasingly clear that the FY23 environment will remain dynamic,” said Jeffrey L. Harmening, president and CEO. “We expect input cost inflation to rise significantly this year, from 8% in FY22 to around 14% in FY23. consumer purchasing power to drive an increase in meals on wheels and other value-seeking behaviors. As a result, we expect elasticities to increase from FY22 levels, but remain below historical FY23 levels.”

Mr. Bruce added that the company expects inflation to be highest in the first quarter of fiscal 2023 and then slow in the year.

Net income for fiscal year 2022, ended May 29, was $2.7 billion, or $4.46 per share on common stock, and a 16% increase from fiscal year 2021, when the company had earned $2.4 billion, or $3.81 per share.

Fiscal 2022 sales were $19 billion, up 5% from the prior year.

Sales rose 3% to $11.6 billion in the company’s North America Retail business unit, its largest. Unit operating profit of $2.7 billion decreased 1% in constant currency, primarily due to higher input costs and lower volumes, partially offset by net price realization and mix favorable and lower selling, general and administrative expenses, according to the company.

Net sales in the companion animal segment increased 30% to $2.3 billion. Net price realization and mix added 19 points to net sales growth, including 9 points of favorable mix from the pet treats acquisition and impact actions implemented in response inflation of input costs. Segment operating income increased 13% to $471 million.

For the full year, foodservice sales in North America increased 24% to $1.8 billion. Segment operating income increased 26% to $256 million.

The divestments impacted General Mills’ international unit, which saw sales drop 9% to $3.3 billion. The sale of its European yoghurt and dough activities had an impact on sales. Segment operating income was $232 million, down 4% in constant currency.

General Mills’ profits came just over a week after Kellogg Co. announced plans to split the company into three independent businesses. Mr Harmening was asked for his views on General Mills pursuing a similar strategy.

“What I like is that our strategy is working, and it has worked regardless of what competitors are doing,” he said. “I think, actually, the worst thing we can do is look at what somebody else is doing and try to emulate them when the strategy we have is working.”

He added that there are also many financial and capacity “dis-synergies” that occur when companies are broken up.

“Let me give you a few examples,” Mr. Harmening said. “When we bought the Blue Buffalo business, one of the things we said was that the capabilities we have at General Mills are very similar to what Blue Buffalo needs. And one of them is extrusion technology, which is the technology we use for cereals. The same would be true for things like heat processing, where the same technology that’s used for wet pet food is used in things like soup and yogurt and other things.

“Whatever our competitors are doing, their strategy may be the best for them, but we really like our strategy. We like the way it works and, at the end of the day, it creates quite a bit of shareholder value. »