General Mills

On General Mills earning calls, multiple analysts pressed the company to confirm that its price increases actually outstripped cost inflation

General Mill’s CFO responded to a question about pricing by saying their inflation was “offset almost completely” by pricing. 

ROBERT BAIN MOSKOW, RESEARCH ANALYST, CRéDIT SUISSE AG, RESEARCH DIVISION: I guess a couple of questions. Kofi, I think in the middle of the year, you actually quantified the cost of supply chain disruptions, and then I don’t know if you’ve quantified it since. Do you have a number for us? And when you talk about your pricing and HMM actions offsetting cost inflation, does it also offset that disruption estimate? Or is that a separate number? And then I have a quick follow-up.

KOFI A. BRUCE, CFO: Yes. So we didn’t provide a number. It’s — I think is in the range of 200. Previously, 250 is about where we’d half the mark here at the end of the year. And then I think back to my earlier comments, as we look at the full year, our adjusted gross margins are down. And if you kind of deconstruct that, the elements would drive you to inflation being about 500 basis point roughly drag, offset almost completely by price/mix and HMM. And that leaves the cost of the operating environment, the disruptions, the deleverage, other intermodal transfers, all the things that we’re doing to accommodate supply in this environment as the driver of the margin decline.

(General Mills Q4 2022 Earnings Call, 6/29/2022) 

In a back and forth with General Mills executives, an analyst appeared to confirm that the company’s double digit price inflation outstripped their cost inflation:

ROBERT BAIN MOSKOW, RESEARCH ANALYST: Okay. And I might just not be confident in finding things. But I’m having trouble finding the price/mix for North America retail in fourth quarter. I think I’m backing into something like 16% pricing. So…

KOFI A. BRUCE,CFO: You’re close.

ROBERT BAIN MOSKOW, RESEARCH ANALYST: Okay. So if your cost inflation…

KOFI A. BRUCE, CFO: 15-plus percent is the number of organic price/mix.

ROBERT BAIN MOSKOW, RESEARCH ANALYST: So I guess here is the question. If your cost inflation for the year is only 14% but you’re running pricing at 16%, isn’t that a net positive?

KOFI A. BRUCE, CFO: Are you talking this fiscal year or next fiscal year?

ROBERT BAIN MOSKOW, RESEARCH ANALYST: Fiscal ’23. So for fiscal ’23, I think you’re guiding to 14% inflation. You’re pricing in your biggest segment of the market is up mid-teens. So I guess it seems like the pricing benefit is — from a dollar standpoint is a net positive compared to your price inflation on a cost inflation on a dollar standpoint.

JONATHON J. NUDI,Group President, North America Retail: Yes. Rob, I think you’ve got — I mean, you have to remember that we’ll be starting to roll over some pricing as we come into fiscal ’22 and certainly much more so as we get into the back half of the year as we have significant pricing come through in the back half of — sorry, of fiscal ’22, we’ll be rolling over that in fiscal ’23, my apologies. And then I think the other piece that would be included in that would be the offset from volume and deleverage that comes through. We mentioned that we are expecting elasticities to be below historical levels but to increase somewhat as we go through ’23.

ROBERT BAIN MOSKOW, RESEARCH ANALYST: Okay. That makes sense. And should I think about like for first quarter pricing, is it — you’re lapping only a 4% price/mix for North America, but you’re taking more action. So are those 2 things kind of offsetting each other, do you think? Like you’d still be mid-teens in the first quarter?

KOFI A. BRUCE, CFO: Yes. Roughly. I think that’s a fair assumption.

(General Mills Q4 2022 Earnings Call, 6/29/2022) 

A second analyst also had General Mills executives confirm that their pricing increase offset inflation: 

CHRISTOPHER ROBERT GROWE, MD & ANALYST, STIFEL, NICOLAUS & COMPANY, INCORPORATED, RESEARCH DIVISION: Just had a question for you to be clear on kind of the phasing of pricing through the year. Is it — so you have pricing actions that have already either been announced or — and you have carryover pricing from this past year. So is it the second quarter when pricing plus your HMM cost savings would be sufficient to offset inflation? Is that the right way to think about that in the second quarter?

JEFFREY L. HARMENING, CEO: Yes. Roughly…

KOFI A. BRUCE, CFO: Yes. Sorry, I jumped in again. So Chris, it’s roughly right. I think that’s a fair expectation given the inflation assumption for the year and the expected data.

(General Mills Q4 2022 Earnings Call, 6/29/2022) 

A third analyst also received measured confirmation that General Mills double digit price increase would “fully cover the inflation you’re going to endure next year.” 

CODY T. ROSS, UBS Analyst: Got you. And I just want to follow up a little bit about gross margin and some of the stranded costs you expect. So if you combine the low double-digit price/mix with the HMM savings, it looks like you should fully cover the inflation you’re going to endure next year. You’ll also be lapping the supply chain challenges in the second half next year. Is it fair to say right now that gross margin could actually increase next year? And if not, is that because of stranded costs? And if so, can you just kind of give us any color as how much stranded costs you expect?

JEFF SIEMON, Vice President, Investor Relations: Cody, I think — this is Jeff. You’re — I think you’ve got the right drivers. You’re right that HMM plus our SRM pricing actions are intended to offset the inflation component. We did talk about a modest decline in disruptions. We will have an impact from divestitures and obviously, in particular, the Helper and Suddenly Salad divestiture. That’s clearly a higher-margin business as we disclosed in the announcement of the deal. And so the divestiture of that business will have a negative mix impact on margin for the year. 

(General Mills Q4 2022 Earnings Call, 6/29/2022) 

A General Mills Executive confirmed that federally funded SNAP was a major driver of their revenue even as it rose prices gov

General Mills admitted that “SNAP is obviously one of the elements that will drive top line.”  “JONATHON J. NUDI, Group President, North America Retail: Yes. So thanks, Jeff. And I think you hit it exactly right. So SNAP is obviously one of the elements that will drive top line. And while SNAP is down versus pandemic highs, it’s still above prepandemic periods. So we continue to monitor SNAP and it plays into things. But as Jeff mentioned, some bigger factors in play as well, including the shift to more in-home eating. And then even what’s playing out in our categories. We’ve obviously watched very closely as well in terms of how branded players are performing, how private label is performing. And if you look back through history during economic downturns, we tend to perform pretty well and see our categories increase by 1 point or 2 in terms of volume performance. We’ve actually held our own from a share standpoint during those periods. We’ve seen the second and third tier brands lose share to private label. So it’s a dynamic time. We’re very close to our business and watching all the factors. But SNAP is just one of those.” (General Mills Q4 2022 Earnings Call, 6/29/2022) 

General Mills said it was forced to increase prices at the same time it boasted spending $1.5 billion on dividends and stock buybacks during the pandemic

June 2021: General Mills said in response to cost increases that it would raise prices on nearly all of its grocery products, “no one wants to increase prices, but we’ve had to.” “General Mills Inc. said it is raising prices across nearly all its grocery categories around the world, as the maker of Cheerios cereal and Betty Crocker cake mix says it faces its highest costs in a decade. More expensive ingredients, packaging, trucking and labor will push General Mills’ overall costs about 7% higher over the next year or so, executives said. ‘Consumers see costs going up all around them, not just at the grocery store, but with automobiles, at restaurants,’ General Mills Chief Executive Jeff Harmening said in an interview Wednesday. ‘No one wants to increase prices, but we’ve had to.’” (Wall Street Journal, 6/30/2021)

General Mills reported spending $1.5 billion on dividends and stock buybacks in fiscal year 2021, which ended May 30 2021 – a 29% increase to shareholders over FY 2020. The company resumed dividend growth and share repurchase activity; total cash returned to shareholders increased 29 percent to $1.5 billion.….Dividends paid increased 4 percent to $1.25 billion. General Mills repurchased approximately 5 million shares of common stock in fiscal 2021 for a total of $301 million. Average diluted shares outstanding increased 1 percent to 619 million.” (General Mills Press Release, 6/30/2021)

During the pandemic, the pay ratio between General Mills CEO and median employee increased

For Fiscal Year 2020, General Mills reported its CEO’s compensation was $15.8 million compared to its median employee at $77,414 or a ratio of 205 to 1. “Pursuant to Item 402(u) of Regulation S-K, the company is required to disclose the ratio of the annual total compensation of our CEO to the annual total compensation of the median employee of the company (the “Pay Ratio Disclosure”). For fiscal 2020:  The total compensation of our median employee was $77,414; The total compensation of our CEO was $15,837,590; and The ratio of our CEO’s total compensation to the median employee’s total compensation was 205 to 1.” (General Mills 2020 Proxy Statement, 8/10/2020)

In Fiscal Year 2020, General Mills’ top six executives say their compensation increase by 45% while its CEO’s compensation increased by 61%.  “General Mills reported fiscal year 2020 executive compensation information on August 10, 2020. In 2020, six executives at General Mills received on average a compensation package of $6.7M, a 45% increase compared to previous year. Jeffrey L. Harmening, Chief Executive Officer, received $16M in total, which increased by 61% compared to 2019. 33% of Harmening’s compensation, or $5.3M, was in stock awards. Harmening also received $4.2M of change in pension value and nonqualified deferred compensation earnings, $3.7M in non-equity incentive plan, $1.2M in option awards, $1.2M in salary, as well as $235K in other compensation.” (ExecPay, 8/10/2020)

For Fiscal Year 2021, General Mills reported its CEO’s compensation was $15.57 million compared to its median employee at $75,101 or a ratio of 207 to 1.  “Pursuant to Item 402(u) of Regulation S-K, the company is required to disclose the ratio of the annual total compensation of our CEO to the annual total compensation of the median employee of the company (the “Pay Ratio Disclosure”). For fiscal 2021: The total compensation of our median employee was $75,101; The total compensation of our CEO was $15,572,682; and The ratio of our CEO’s total compensation to the median employee’s total compensation was 207 to 1.” (General Mills 2021 Proxy Statement, 8/16/2021)

In Fiscal Year 2021, General Mills’ top six executives say their compensation decreased by 7% while its CEO’s compensation decreased by 2%. “General Mills reported fiscal year 2021 executive compensation information on August 17, 2021. In 2021, five executives at General Mills received on average a compensation package of $6.2M, a 7% decrease compared to previous year. Jeffrey L. Harmening, Chief Executive Officer, received $16M in total, which decreased by 2% compared to 2020. 34% of Harmening’s compensation, or $5.3M, was in stock awards. Harmening also received $5.2M of change in pension value and nonqualified deferred compensation earnings, $2.5M in non-equity incentive plan, $1.1M in option awards, $1.3M in salary, as well as $219K in other compensation.” (ExecPay, 8/17/2021)

From FY2020 to FY2021 General Mills median employee’s compensation decreased by 2.9%. (General Mills 2020 Proxy Statement, 8/10/2020; General Mills 2021 Proxy Statement, 8/16/2021)

In 2018 General Mills cited inflation to hike prices in order to protect its profit margin

In March 2018, General Mills announced price increases after it said inflationary pressures and shipping costs were ‘eating into profits.’ “General Mills Inc. will raise prices on some meals and snacks to reflect higher ingredient and shipping costs, as food companies battle inflationary pressures that are eating into profits. The maker of Cheerios cereal and Yoplait yogurt said freight costs in North America were near 20-year highs in February and food prices were also higher than expected, prompting the conglomerate to lower its earnings expectations for the year.” [Wall Street Journal, 3/21/2018]

In 2019, General Mills boasted price increases on its groceries had successfully protected its profit margin.“General Mills, the owner of supermarket staples Cheerios, Haagen-Dazs ice cream and Progresso soup, said Wednesday that its latest earnings topped forecasts — largely because of higher prices. The company, which also owns Wheaties, Lucky Charms and Annie’s, said that the actual sales volume of its products fell in North America and Europe during the quarter, although they did rise in Asia. But thanks to price increases — as well as a boost from buying pet food maker Blue Buffalo last year — total sales still rose 8% compared to a year ago. General Mills needed to raise prices to protect its profit margins, which were threatened by rising dairy inflation, Chief Financial Officer Donal Mulligan told analysts Wednesday. The company owns Yoplait, the yogurt maker.” [CNN, 3/20/2019]

General Mills Executive: “we need to take pricing at this point to preserve our margins.” “Jon Nudi — Group President, North America Retail: At the end of the day, our goal is to pass as little as needed. But certainly inflation, we need to take pricing at this point to preserve our margins. So we work closely with the retailers. Pricing is never an easy discussion. (General Mills Q3 2022 Earnings Call, 3/23/2022)

General Mills Executive: ”Everyone is facing inflation, though. So again, we can lock in and provide a good rationale for why we’re taking the pricing.” “Jon Nudi — Group President, North America Retail: Everyone is facing inflation, though. So again, we can lock in and provide a good rationale for why we’re taking the pricing, and more importantly, a coherent plan for what pricing will look like in market. We’ve been able to find good acceptance, and more importantly, good reflection in the market. So it’s been a big focus area for us.” (General Mills Q3 2022 Earnings Call, 3/23/2022)

A General Mills Executive said “I feel great about what we’ve done to date. We’ve got a road map for each of our brands and down to the SKU level for the future as well if more pricing is needed.” “Jon Nudi — Group President, North America Retail: I feel great about what we’ve done to date. We’ve got a road map for each of our brands and down to the SKU level for the future as well if more pricing is needed. In terms of elasticity, I mean, Jeff touched on this earlier, I mean, we are seeing elasticity. So again, it’s not like we’re not. This is not at historical levels. We’ve seen elasticities remain pretty consistent quarter to quarter. So what we saw in Q3 was consistent to Q2. We expect that to be the case in Q4 number. And we’re going to have more price/mix in Q4. So we expect to see a bit more elasticity as a result, but again, not back to historical levels. In terms of what’s happening and across segments and categories and channels, there’s obviously a lot of noise in the data, everything from product availability to consumer mobility to government support levels and significant inflation away-from-home channel. It’s really hard to try to parse them out, but we’ll continue to try to do that.” (General Mills Q3 2022 Earnings Call, 3/23/2022)

General Mills reported making more money while selling less

“General Mills has kept sales and profits growing while spending more on labor and raw materials — and while selling fewer products.” “Paying more for food does not always mean seeing higher sticker prices on the shelf. General Mills has kept sales and profits growing while spending more on labor and raw materials — and while selling fewer products. The food company has done this by reducing promotions (or discounts) on its products, shrinking some packaging sizes and increasing wholesale prices retailers pass on to consumers. Together these factors are called price/mix. It’s a key measure as to why Golden Valley-based General Mills, despite continued high inflation and supply chain snarls, expects to make more money during the next six months than previously thought.” (Star Tribune, 12/20/2022)

General Mills stressed that their pricing actions went beyond straight list price increases

General Mills’s CFO told the Star Tribune that 10% of recent pricing actions came from changing the “mix” of promotions rather than list price increases.” “Bruce said about 10% of recent pricing actions came from changing the ‘mix’ of promotional activity rather than direct price increases. ‘Mix has been a meaningful contributor to the top line,’ he said. Consumers have been more willing than normal to accept price increases as more people eat at home.” (Star Tribune, 12/20/2022)

A General Mills executive boasted to analysts that their ability to hike prices through different means had improved, saying “we have had success moving pricing through the market.“ “Jon Nudi — Group President, North America Retail: No, I think you hit it. I would just say that our SRM capability is something I’d point to is much more sophisticated than it was a few years ago. So, as inflation continues to come, we’ll leverage the entire toolbox. So, it’s not just list pricing, it’s promotional optimization and mix and pack price architecture. And by leveraging all those tools, we believe that we’ll be able to combat inflation as we move forward as well. And in terms of retailers, as Jeff mentioned, I mean, is pricing has never been easy. And even over the last couple of years that we’ve seen significant inflation. But if we can bring in a strong market basket story, we have had success moving pricing through the market.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

General Mills executives repeatedly credited higher prices for higher sales

General Mills CEO: “We drove 11 percent organic net sales growth in the quarter, fueled by strong net price realization…” “Jeff Harmening, Chairman and CEO: Slide 5 summarizes our financial performance for the second quarter and the first half of fiscal ’23. We drove 11 percent organic net sales growth in the quarter, fueled by strong net price realization in response to significant levels of input cost inflation. Adjusted operating profit was up 7 percent and adjusted diluted EPS was up 12 percent, each in constant currency. Our first-half results were also strong, with double-digit growth in organic net sales and adjusted diluted EPS.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

General Mills’s CEO noted sales were up 11% thanks to stronger pricing, even despite a decline in volume sold. “Jeff Harmening, Chairman and CEO: Slide 19 summarizes the components of our net sales growth in the quarter. Organic net sales were up 11 percent, reflecting 17 points of positive organic price/mix, partially offset by a 6 percent decline in organic pound volume. Foreign exchange reduced net sales by 1 point, and the net impact of acquisitions and divestitures was a 5-point headwind to second-quarter net sales.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

General Mills’s CEO predicted growth in 2023 thanks to higher pricing and low elasticity from consumers. “Jeff Harmening, Chairman and CEO: On slide 29, you can see our increased guidance for fiscal 2023. We now expect organic net sales to increase 8 to 9 percent, reflecting better volume performance and improved price/mix relative to our prior outlook. We continue to expect elasticities will remain below historical levels over the remainder of this fiscal year.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

General Mills said more price hikes were coming in 2023

General Mills CFO: “We’ve got another effectively round of pricing coming through at the beginning of calendar year ’23.” “Kofi Bruce — Chief Financial Officer: Yeah. And that said, we do expect profit growth in our pet business in the back half of fiscal ’23. Some of the key things you’ll see is we’ll expect price/mix to catch up with inflation. We’ve got another effectively round of pricing coming through at the beginning of calendar year ’23. We don’t expect the pressure on supply chain to be as acute. So, we won’t see as much sort of drag from other cost of goods sold.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

General Mills blamed labor costs for ongoing price hikes

General Mills CEO told analysts “we’ll continue to look at pricing,” citing inflation “driven quite a bit by wage increases.” “Jeff Harmening — Chairman and Chief Executive Officer: What I will say, though, is even looking out past six months, it’s pretty clear to us that we’ll still see an inflationary environment. It may or may not be as robust as it is now, but it will still be an inflationary environment, driven quite a bit by wage increases. So, it’s hard for us to see an environment where we don’t see inflation. Even if that inflation — those inflationary levels may not be exactly what we’ve experienced over the last six months. And so, as we look at our business, we’ll continue to look at pricing. But the key is that the pricing has to be justified. And this has always been the case. But it has to be justified based on the cost that we’re seeing.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

A General Mills executive cited “double-digit inflation” when discussing pricing, and said labor costs were “sticky.” “Jon Nudi — Group President, North America Retail: Yeah, Rob, I think the scale of the inflation is different today, right? So, we’re seeing a double-digit inflation. And historically, over the last decade or so, we haven’t seen a lot of inflation. It’s been low single digits. So, it really hasn’t been a conversation because there really hasn’t been enough inflation to take significant action. I think with the scale of the inflation we’re seeing today and the sophistication, as I mentioned as well, we’re able to really break down where we’re seeing inflation and some things are starting to moderate. But at the same time, you’re seeing things like labor, certainly, sprout remains sticky, and it’s in the equation. And we’ve gotten more sophisticated but our retailers have as well. So again, I think we have really good constructive conversations that are really based on facts at this point.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

A General Mills executive specified: “where we see that impacting us is not so much our own labor, but it’s the labor at our suppliers, which translates through their pricing to us.” “Jeff Siemon — Vice President, Investor Relations: Rob, where we see that impacting us is not so much our own labor, but it’s the labor at our suppliers, which translates through their pricing to us. So, yes, there’s labor inflation in our own facilities, etc., but the much bigger aspect of labor is upstream at the supplier base.” (General Mills Q2 2023 Earnings Call, 12/21/2022)

General Mills CFO suggested the goal was to “claw back” profit margin to pre-pandemic levels

General Mills CFO: “structurally, we view our job to kind of claw back about 150 basis points of margin versus our sort of pre-pandemic level.” “Kofi Bruce — Chief Financial Officer: And we would also expect that once we get out of a short-supply environment, it will be easier to get at HMM and more fully utilize that lever. And that we would expect some of the pandemic-era costs related to servicing the business in a more stable environment will become easier and lower. So structurally, we view our job to kind of claw back about 150 basis points of margin versus our sort of pre-pandemic level. I think the stable environment from a supply chain standpoint will be one of the first and the most important things.” (General Mills Q2 2023 Earnings Call, 12/21/2022)