General Mills cuts annual profit forecast on higher promotions, lower prices

By Anuja Bharat Mistry

(Reuters) -General Mills slashed its annual profit forecast on Wednesday as the Cheerios maker ramped up investments in promotions to attract cost-conscious consumers, sending shares down about 4% in premarket trading. The company revived volumes by lowering prices across its product range, from snacks to pet food. However, it warned that higher-than-planned promotional spending would weigh on its annual profit. General Mills (NYSE:) 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%. The company said it was significantly increasing media investment in the third quarter for its Pillsbury brand to attract customers in the key baking season, leading to higher selling, general, and administrative expenses.

“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.

Customers have shunned pricier branded products in favor of cheaper private label brands, prompting packaged food companies to step up promotions to win back value-conscious shoppers. Strong eat-at-home trends have boosted demand for pantry staples and groceries, helping companies such as General Mills and WK Kellogg (NYSE:). The Bugles corn chip snacks maker beat second-quarter results as pricing strategies increased demand. It posted sales of $5.24 billion for the quarter ended Nov. 24, 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. The Minnesota-based company’s quarterly volumes rose 3 percentage points, reversing a 4 percentage point decline from the previous year. Prices decreased by 1 percentage point in the quarter, compared with a 3 percentage point rise a year earlier.