As food companies raced to meet unprecedented consumer demand during the pandemic, ingredient shortages abounded.
General Mills went through dozens of different formulas to keep products on shelves. At the height of the supply chain crisis, Totino's frozen pizzas was reformulated 25 different times in 26 weeks.
Now, as supply chain troubles fade, the old recipe book at General Mills is back in action.
"We needed to satisfy our consumers, but the cost goes up," General Mills CEO Jeff Harmening said in an interview Wednesday. "As we get to a more normalized supply chain environment, we go back to more normal, premium ingredients."
The Golden Valley-based maker of Cheerios and Fruit Roll-Ups is entering a new era of normalcy after three years of adapting to extraordinary supply and demand issues that created both challenges and huge opportunity.
Widespread price increases — meant to cover higher labor, ingredient and transportation costs — should be coming to an end as the company instead chases improved productivity and efficiency to boost the bottom line in the future. That includes expanding internal manufacturing capacity and shifting back to original recipes from what Harmening called "more expensive alternatives."
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"We're not spending as many R&D and manufacturing resources to address problems," Chief Financial Officer Kofi Bruce said. "Now we can focus on taking out costs."
That drive for efficiency and productivity is expected to help the company grow an estimated 3-4% over the next year — a far more typical expectation for the packaged food company compared to its revenue growth in recent years that was two to three times.
"We won't see as much inflation, and we won't see as much pricing," Harmening said. "That's good for consumers and we're fine with that as well."
Instead of driving up sales through price increases, General Mills will be focusing on innovation, brand-building and expanded distribution, the CEO said.
"These are the fun parts about driving demand we get to do," Harmening said.
The company missed revenue expectations for its most recent quarter that ended in May but beat profit forecasts on an adjusted basis.
General Mills reported a $615 million profit, or an adjusted $1.12 per share, for the fourth fiscal quarter. Analysts expected a decline — profits dropped 25% compared to the same quarter a year ago — and were looking for $1.05 per share.
Sales for the fourth quarter reached $5 billion, marking 3% growth over last year.
As the company sold fewer pounds of product this spring, its revenue expansion was driven by price increases. That decline in volume indicates lower consumer demand in response to higher prices that General Mills and other food companies have been passing along for two years now.
Harmening told analysts Wednesday that consumers are growing cautious about their finances and the overall economy, "making it even more important for us to continue to invest in remarkable products, innovation and marketing that keep our brands relevant for consumers."
Advertising spending has already grown 17% in the past year and was 35% above pre-pandemic levels.
Retailers are also still dealing with excess inventory, which continued to hamper growth as stores put in fewer orders for General Mills products.
Edward Jones analyst Brittany Quatrochi said that's a temporary setback, and "underlying sales trends and consumer demand for products remain solid."
"Investors are increasingly focused on the return to normalized sales growth that is driven by a balance of both pricing and sales volumes," she wrote Wednesday.
Bernstein analyst Alexia Howard said, however, that this return to normalcy has not quite arrived.
"Overall, we remain cautious here given all the moving pieces and uncertainties around the resilience of consumers, combined with retailer and competitor dynamics, which are still far more fluid than normal," she wrote.
For the full fiscal year, General Mills had a record $20 billion in sales. Profits declined 4% to $2.6 billion, though adjusted earnings per share were up 9%.
Over the next year, the company expects inflation to cool off significantly and forecasts adjusted per-share profit growth of 4-6%
General Mills stock was down more than 4% Wednesday morning.
