Q2 2026 Earnings Call Transcript

Hello and welcome to the General Mills, Inc. Second Quarter Fiscal Year 2026 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. I would now like to turn the conference over to Jeff Siemon, Vice President, Relations and Corporate Finance. You may begin.

Thank you, Sarah, and hello to everyone. Thanks for joining us today for our Q&A session on our second quarter fiscal 2026 results. I hope everyone had time to review our press release, listen to our prepared remarks and view our presentation materials, which we made available this morning on our Investor Relations website. Please note that in our Q&A session, we may make forward-looking statements that are based on management's current views and assumptions.

Please refer to this morning's press release for factors that could impact forward-looking statements and for reconciliations of non-GAAP information, which may be discussed on today's call. I'm here today with Jeff Harmening, our Chairman and CEO; Kofi Bruce, our CFO; and Dana McNabb, Group President of North America Retail and North America Pet. Now let me turn it over to Jeff for some opening remarks.

Thanks, Jeff, and good morning, everybody. When we started this year, our primary goal was to increase organic sales, and to do that in conjunction with continuing to outperform on holistic margin management (HMM) and our transformation initiatives. And those are all reflected in our 3 priorities for the year. And as you look at our Q2 results, I'm pleased to say that we're really executing well against all of those.

We continue to see improvement in our organic sales and continue to do that very efficiently through our HMM efforts and our transformation efforts.

In particular, I look at North America Retail (NAR). We said we would improve our North America Retail volumes through the remarkability framework, and that's exactly what we've done. And part of that is pricing. We set strategic base price adjustments on base pricing and to get under price cliffs.

And 90-plus percent of what we've done in pricing that we started talking to you about a year ago has worked as well or better than what we had thought. So we're pleased with that. But Importantly, the remarkability framework doesn't just stop with pricing actions. Our new product innovation is better.

We expect it to be up about 25% this year. We've got a good lineup in the second half. Our product news is really good. Our events have worked harder for us, and our media ROIs are up.

And so as I think about our North America Retail business, it's not really an accident that we're growing pound share in 8 of our top 10 categories so far this year. And so I'm really pleased with the way North America has improved its momentum this year, in particular, how we've seen improved momentum in the second quarter.

Then on North America Pet, we said we had to do a couple of things. We need to improve our core business at the same time, incorporate Love Made Fresh. I know there's a lot of emphasis on Love Made Fresh and rightly so. But I'm pleased with our base business performance.

As I look at our Life Protection Formula, we're back to share growth on that. Our Cat business is growing mid-single digits. We're up in pound share on our treats business. We have some more work to do on Wilderness.

But otherwise, our Pet core business has gained a little momentum, too, and we're pleased with that. And so as we look at Love Made Fresh, I'm just exceptionally pleased with the way we've started.

We're executing very well. We said we'd be in about 5,000 coolers by the year-end. I heard yesterday morning that we're in 4,658. So we're well on our way to that 5,000, and we'll get there by the end of January. And our Love Made Fresh launch has reached about 5% market share and our earliest first wave customers.

We prioritize having plenty of inventory across our business in Love Made Fresh, because we know the trial is so important for our business. 4.8 out of 5 star ratings on our products. We'll put on additional customers in distribution in the third quarter, as well as launch a new format of the standup resealable pouch. And then as we talk about HMM, we're tracking another 5% of HMM this year.

And so as we look to the second half, the job to do really is to keep the momentum on the top line, and we plan to do that as well as then turn the corner on profitability. And as we look ahead, we expect top line improvement in the second half and then profit growth in the fourth quarter, thanks in part to favorable trade timing and the 53rd week. So with that, I'll open it up to questions that you all have.

Great. Sarah, so let's go ahead, and you can start the Q&A.

[Operator Instructions] Your first question comes from Peter Galbo with Bank of America.

Jeff, I just wanted to pick up on maybe some of your commentary just now in terms of the sustainability of the volume growth in North America Retail. I think there was mention of a bit of maybe some shipment timing benefit in the quarter. But just want to get a sense as we start to look at the comps and looking in the back half of the year, how you're thinking about maybe the sustainability of that positive volume trajectory in North America Retail.

I've got Dana McNabb here next to me, so I'll have her talk about North America Retail specifically.

All right. We're really encouraged by the progress that we've made in North America. As Jeff said, 8 of our 10 categories are growing pound share. Our pounds grew.

But as you mentioned, we did have a little bit of shipment timing benefit. Our Nielsen pounds are about flat. And so we do expect that to unwind a little bit in the back half. So as we look to the second half of this year, we expect to continue to drive category improvement and competitiveness, which is really, I think, all we'll mention about back half to avoid giving any forward statements.

Okay. No, helpful. And Jeff, I think the discussion around price cliff management and solving some of the price gaps has grown even louder in the past week with one of your largest peers also announcing some pretty dramatic price reductions. Just curious kind of how you're viewing the competitive environment, what you're expecting from some of your other peers?

Just are we in a phase of the cycle where others are going to have to follow? Kind of what's been a first-mover advantage for General Mills?

Yes. I think it's a good question. What I would say is that we haven't really seen an increase thus far in the competitive levels within our category, which is to say that levels of discounting are about the same as they were a year ago, broadly speaking, across our categories. I think when you think about what we have done, there are a couple of things I would say.

Going first is fine, but doing it well is even better. And our team has executed the pricing really well. If you think about being in 26 different categories across lots of different customers, it takes a lot to get the pricing reflected in a manner that is consistent with what you're looking for. And so we've done that really well.

But also, I mentioned the innovation and the marketing improvements and the product news, because those are really important too. The reason for the pricing is to make sure that the other elements of your marketing mix work as well as you want. And so as we look ahead, we feel great about the other elements of our marketing mix. And so we've got great product news coming in the second half.

And as we think about it, we're not too concerned about the competitive environment based on what we've seen thus far. And importantly, on our pricing, we're not getting down to the levels of private label or something like that. We're just kind of getting under price cliffs and kind of getting within a certain range. And if you look at our price mix in North America Retail, it's down maybe about 3% or so far this year.

That's after 30-plus percent increases over prior years where we had a lot of inflation.

The next question comes from Andrew Lazar with Barclays.

Jeff, in your current quarter, so fiscal 3Q, General Mills starts to lap some of the pricing moves from last year. And I think you've talked about how you anticipate the sort of the gap between volume share, which has been improving, and value share, right, to begin to narrow, which is ultimately necessary to get to overall organic sales growth. So I guess my question is like what specifically should our expectations be in sort of fiscal 3Q and 4Q as to sort of how quickly this gap can narrow as we all kind of assess the scanner data moving forward? And like where would you hope to be on this score as General Mills enters fiscal '27?

It sounds like you expect sustained year-over-year volume growth in the back half. How do we think about sort of price mix and particularly in light of your comments regarding the cost of volume rising a bit?

Yes, Andrew, I appreciate the question. I would start by saying, I mean, it's a pretty volatile environment. So I'm going to refrain from getting too specific only because there are a lot of things that can come our way. I didn't really see the government shutdown coming in the second quarter or SNAP being reduced.

Having said that, we do expect improvement in the second half, and it will be based on price mix as we start to lap some of our initial pricing from last year, although it won't fully be reflected until fiscal '27. The other thing is just based on timing. I talked a little bit in my opening remarks about positive mix in the fourth quarter due to some trade phasing timing, and that will be positive in the fourth quarter. That will be a little bit negative in the third quarter. So there's a trade-off between those 2 quarters.

As you look at entering the next fiscal year, I think we're going to see momentum on our core sales business. We feel good about where our pricing is and where the remarkability is kind of across our business, not only in North America Retail, but we grew in Pet this quarter, and Foodservice. But for index pricing, we would have grown 3% in our North America Foodservice business. We grew in international.

I know you're seeing some momentum, obviously, in progress in core Pet. I'm just curious what you're seeing in just the overall, let's call it, like dog feeding category. I know you've been probably hoping for that broader category to be a little bit stronger than it has been, but what are you seeing there in terms of consumer behavior?

Andrew, this is Dana. I'll jump in and answer that question. If we look at the Pet category, what we'd say is the category was up about 1% in Q2. Pounds were down modestly. It continues to be cat feeding that is growing the fastest, and the treat segment has also gotten back to growth.

What we're seeing in dog feeding is that it continues to lag a little bit on both pounds and dollars. And there's really 3 reasons for that. The first is that we do estimate that there's still a shift to unmeasured channels. That's about 50 basis points.

We're seeing a shift towards smaller dogs, and that's weighing down pounds a bit as dogs that are smaller consume fewer pounds. And then also, we are seeing a little bit of pullback from consumers in discretionary segments such as wet dog food, which happens when the consumer is stretched. When we look to the long term, though, we still think that this is a segment that is going to continue to grow. The humanization trend will continue to accelerate that growth, and we think Blue is well positioned to win in the category.

The next question comes from Max Gumport with BNP.

It's nice to see volumes turning positive in the quarter on the back of your investment in Retail and also to hear the continued confidence you have in this continuing in the back half. I guess what I'm trying to get a sense for is, one, if you have an update on your thinking on the ability for volumes to stay positive after you lap these price cuts? And then two, as you look at the investments you've got in the business through the first half, whether you think it's been enough, or you might go back to the well next year as well given that they are working.

Well, as I think about the North America price investments, again, we are really pleased with the progress. We are seeing pounds improve. What we had said is that we are going to adjust prices on 2/3 of our portfolio, and that would be done by the end of Q2. And as we look at performance, almost 90% of where we've added that price investment is at or ahead of what we modeled. Of course, we'll continue to monitor the environment.

If we think we need to add more, we'll consider it. But at this point, we believe that our price is at the right place where it needs to be. And again, it was about getting those prices at shelf to be at the right spot under key cliffs and manageable gaps to the competition.

And now as we turn to the back half, it's about once your prices are in the right place, is the rest of your remarkability framework strong? And we really like our plans and how they're working when these prices are right. So as Jeff said, our new products are performing very well. We're on track to be up 25% versus last year.

We have strong news. Our advertising content and ROIs are significantly improved, and they're up. And we have strong advanced plan to get good in-store and online support. So again, winning in the back half is not just about price, it is about remarkability, and I think we're well positioned to continue to improve.

Great. And then just one follow-up with regard to the over-delivery on profit in 2Q. So it sounds like you would say it's essentially going to unwind in 3Q given the timing benefits you laid out in the prepared remarks, versus consensus, you had about $0.08 of outperformance in the quarter. So would it be fair to say there could be $0.08 coming out of 3Q and EPS might be down, roughly speaking, 20% or so year-over-year?

Yes. I appreciate the question, and I will try to give you clarity. I think the underlying for us is that against our own internal expectations, we saw favorability due to the 3 factors I mentioned in my prepared remarks. North America saw supply chain favorability, primarily driven by inventory absorption in the quarter, stronger international performance on both top and the bottom line, a portion of which was timing related, and a modest, about 0.5 point of shipment timing benefit in NAR, which Dana covered earlier.

We do expect all of those to reverse. So that favorability that we saw in the quarter against our expectations, we do expect to reverse in Q3.

The next question comes from John Baumgartner with Mizuho.

Maybe Jeff or Dana, in the prepared comments, you noted the inclination of consumers to buy more on promo. And I'm curious if you can elaborate on that. Just given the mention of the higher cost of volume, are you finding that you need to embed some wiggle room for larger promo to cater to that shopping dynamic? And I'm also curious, I guess, bigger picture, how you're seeing the balance between EDLP versus maybe a high-low strategy in this kind of an environment relative to past periods of economic weakness?

Let me start with that and then maybe turn it over to Dana for some commentary. But what I would say is that in general, we're seeing -- I mean, this is no surprise, I don't think, but continue to see consumer weakness, particularly for those making under $100,000 a year. Those in the kind of the middle and lower income range. We continue to see that consumer being stretched even as consumers in the higher end of the range are faring a lot better with the current stock market.

And so that plays itself out in a few different ways. One is that people continue to eat at home quite a bit. So 86% or so of eating occasions are still at home and 14% away from home. We haven't really seen a change in that for a couple of quarters, but it's still at a very high level of eating at home.

We see people switching some categories. We see consumers switching where they purchase, switching channels and that kind of thing. But we also see it reflected in how much gets purchased on discount when we have it on display or what have you. And so we haven't really been displaying more.

It's just that when -- what we see is that consumers, when there is a discount, we see them buying more because they're financially strained. Dana, anything you want to add to that?

No, I would just reiterate that we continue to categorize the promo environment as being quite rational. As Jeff said, the frequency and the depth is similar to last quarter. It's similar to last year. We did see promo activity come up a little bit in November, but we think that's largely related to manufacturers reacting to some of the SNAP changes.

The next question comes from Tom Palmer with JPMorgan.

First, just wanted to ask on inflation and tariff. Previously, 4% to 5% of COGS was the outlook. The bakery index pricing would suggest what costs are favorable and then maybe there was a small amount of tariff relief to consider. So just any update on that outlook and kind of maybe as we think about the back half of the year, if there's any sort of favorability.

Sure. So as a reminder, our original guidance included an expectation of about 1 to 2 points of additional headwind to base inflation of about 3%. Our base inflation forecast, despite puts and takes, remains roughly around that 3% mark. Tariffs certainly comfortably within that range.

And as we look at kind of the phasing impact, I would just remind that our expectation was that we'd be able to mitigate some but not all of the tariffs with the tariff headwind within the year. And the tariff phasing was pretty minimal in Q1, stepped up in Q2, and we'd expect in the second half for that to step up a little further. So in aggregate, 3% base, we're still comfortable with the 1% to 2% guide on the tariff additional headwind.

Maybe, Tom, I'd just add, this is Jeff, that you also have to consider our coverage. And so we tend to be covered at least 6 to 9 months across some of our biggest inputs and wheat would be one of those. So while you see it play through in the sales line on our P&L, the cost line would be delayed. And so what you see from wheat prices being down in the short term is probably more going to impact '27 than it is '26 on the cost side.

Okay. And just a follow-up on international. I think in the first quarter, you called out a 3% timing benefit that you expected to unwind in the second quarter, and you kind of noted some timing headwinds in 2Q as well. I just wanted to confirm, were there incremental tailwinds?

Yes. Yes, certainly. And it is mostly the latter, to your question.

The next question comes from Steve Powers with Deutsche Bank.

Jeff, pivoting back to Pet, you talked in your opening remarks about positive delivery against Love Made Fresh, but also progress on the base business. And I guess I'm curious as to what degree you think Love Made Fresh has, in some ways, contributed to that base business progress, even though it's still early. I guess any evidence as to whether you're seeing favorable interplay between the Fresh initiative and/or Blue Buffalo?

Yes. It's a good question and an important one. I would say we're still a little bit early to really know that, that's the case. I mean we're only 8 weeks into the launch and probably 5 weeks into advertising.

So I think it's too early to see if the Love Made Fresh advertising, which, by the way, is really good, is going to rub off on the rest of the core. We may be able to tell you a little bit more after Q3 or Q4 once we get some more time in market.

So it wasn't really that. It was really kind of sharpening up our kind of go-to-market on Life Protection Formula and doing a really good job on the advertising on that and continuing to grow our Tiki Cat business, which we acquired 9 months ago, that's growing solidly. And then adding some more marketing to our Tastefuls line in Cat is doing really well and getting the price points right. It's really -- we probably use all the elements of the experience framework in Pet this quarter and saw a nice lift back to positive growth.

Fair enough. Kofi, if I could, just a little bit more in the back half. Just anything to call out in terms of how much HMM impact is yet to come? And any phasing considerations in terms of how that's likely to layer in 3Q versus 4Q?

Yes. Let me frame the comments just and kind of root them in our profit expectations for the back half, Q3, Q4. We do expect, as we've referenced earlier, continued organic sales improvement in the second half. And we, as a reminder, always expected our Q3 to be down just because of the overhang from our divestiture, the level of investment that we baked into the year behind the remarkability framework and in particular, getting value right in NAR, and then trade expense timing, which, as we've referenced before, is going to be a drag on the first 3 quarters of the year.

As you step into Q4, you have 2 big factors to keep in focus. We'll see about $100 million favorable tailwind from that trade expense timing due to the phasing impact of last year's investment and the 53rd week, which will also be a pretty significant tailwind. So together, those 2 items alone are about 30% profit growth in Q4.

The next question comes from Megan Clapp with Morgan Stanley.

I wanted to ask about the higher cost of volume that you called out in the prepared remarks. And Kofi, I think in your prepared remarks, you talked about how you expect that to pressure margins in the third quarter. You obviously still reaffirm the full year guidance. So can you just help us understand how that's embedded into the full year outlook?

Sure. Let me answer it maybe in the context of where we left guidance. So you will probably note we left our annual guidance unchanged with effectively half of the year to go. That was a big part of the reason along with obviously the volatility that continues to hang about the sector, whether it's the tariffs, shutdown, SNAP benefits for challenges to the consumer environment and the consumer sentiment.

So I think for us, as we look forward to the back half, the cost of volume and the pace of volume recovery are probably the 2 biggest determinant of where we land within that range.

Okay. That makes sense. And maybe just as a follow-up, last quarter, you talked about how your category pounds were lagging your full year expectations a bit driven by a few discrete categories. I was just curious if you could give us an update on how the category growth within the quarter trended?

So maybe I'll start. Just from a number standpoint, our category volumes in fiscal '25 for General Mills categories were flat. They were down about 1% in Q1. Cereal was one of those, which had seen a little bit more pressure. That improved to down about 0.5 point in Q2. So still not quite back to where they were in '25, but an improvement.

Yes. I mean, as Jeff said, we did see categories improve, and we outperformed the categories. The one category that still lagged a little bit of our expectations was cereal. Cereal pounds are down about 3%.

Typical historical, they're down in the down 1%, down 2% range. And the reason for the category being down is we're really seeing consumers move to more high-protein alternatives. So the good news for us is that as category leader, our plans are very focused on capturing those growth trends going into the back half.

The 2 areas that we're probably the most excited about for the back half or if we look at our innovation, we are really leading there. Cheerios Protein is already a 0.9% share. That business is on track to be $100 million by the end of our fiscal year. And in Q2, Cheerios grew dollars and pounds for the first time in 3 years.

And then if you look at the granola segment, which is what's driving growth in cereal right now, we have the biggest brand. We're the category leader, and it's growing double digits. But granola is only about 6% of our business. It's 12% of the category.

So we're coming in January with 10 new granola SKUs, really great tasting products, really good nutrition benefits.

The next question comes from Chris Carey with Wells Fargo Securities.

Can you just expand a bit on the percentage of your portfolio where you've taken or initiated pricing investments? Just to get a sense of the percentage of portfolio where you haven't done it. And connected, say this cost to compete environment sustains or it gets worse. Can you just talk about visibility on savings initiatives that would give you an ability to respond?

Well, that's a great question. If we think about our price investments, as we said, we were going to have 2/3 of our business have price investments and it would be completed with that investment by the end of Q2. And we're encouraged that in almost every case where we've made investments, we've seen the volume response that we are expecting. And those categories, to answer your question, were refrigerated dough, fruit snacks, salty snacks and soup.

I'd also call out our snack bars, which pounds are down a little bit due to a key competitor comping a period of lower distribution, but the elasticities that we've seen on our snack bars are at or ahead of model. There is one business where we're still working on it, and that's Totino's Heart snacks, where you've seen our pound performance take a little bit of a step back. Now we are managing through a price pack architecture conversion from a bag to a box to improve our shelf visibility, and we're still working through that.

And then to your point about leverage and flexibility in the middle of the P&L, I would reiterate, we have really good visibility to HMM delivery at the 5% plus mark this year, and we are delivering every cent of the transformation savings we outlined at the beginning of the year. As we play forward, while I won't give you a specific guide on HMM for next year yet, we continue to remain confident in our ability to deliver at least above 4%.

Okay. Just a quick follow-up is on Wilderness. Can you just expand on where we're at with Wilderness, the current strategy with Wilderness, and how you could envision potential tweaks?

Yes, it's a really great question. If I look at our Q2 performance, it was similar to Q1, business is down, and we don't find that performance acceptable. What we know about Wilderness is the total product offering across all the levers of remarkability needs to be improved. So the team is really working on a new positioning.

As we turn to the back half, we're going to be bringing protein new -- some strong protein first new products. We've got new comparative advertising that we'll be launching in the market, and we've got to improve our in-store execution.

The next question comes from David Palmer with Evercore ISI.

Down to one sort of big picture question. Fiscal '26, it's been about return to volume growth and understandable that would be step one. But I'm thinking about consensus expectations for some profit growth, particularly lapping the extra week as we look out in fiscal '27. I'm wondering maybe you could help us coach us how we should be reviewing your consumption data in North America Retail and Pet to really inform us about whether profit growth might be in the cards for fiscal '27?

Sure. I will start by just affirming we are pleased with the progress we've made on improving our growth trajectory. That work is not yet done. So it would be premature for me to get on record and start building too heavily for F '27. I think you're right to call out the 53rd week as a comparison factor that will definitely just be a built-in structural -- mathematical headwind next year.

But beyond that and underlying, our expectations are to continue to build on momentum that we've started this year. We've got a touch point at CAGNY, and that's probably a better place for us to start having discussions about the road ahead.

The next question comes from Matt Smith with Stifel.

Dana, you talked about a high hit rate where you have the price adjustments and remarkability framework in place, I think, 90% or so. But there's obviously 10% that's still lagging your expectation. You talked about Totino's a bit, but is there a common thread that needs to be addressed around some of the areas where you've seen less effectiveness?

I wouldn't say that there's a common thread. I mean it really is Totino's. Maybe a few SKUs in Old El Paso on our kits business. But for the most part, again, on the Totino's business, it's really about this conversion and price pack architecture.

So the data isn't clean, and it's hard to see exactly how things are performing and diagnose it correctly. And I would say on that business, once we feel like we're through the conversion and we've got a better sense of the price investment, I really like the advertising that we've got going. We are talking about 10 rolls for $1. That's resonating really well. And we just launched our Ultimate Pizza line, which is this really great tasting pizza, probably the best we've launched maybe ever.

Yes. And I would just build on Dana's comments by just reinforcing the fact that 90-plus percent, as good or better than what we anticipated. I would take that kind of on any forecast, but particularly on something as important as these price adjustments that we have made. Accuracy on something this big and complicated and important over a period of time, I'm really thrilled with the work that the team has done.

And as a follow-up question, as it relates to the channel shift you mentioned in Pet, it's been ongoing that consumers are moving towards unmeasured channels. But what channels are you currently seeing take share from traditional channels?

It's a great question. The place that we're seeing the shift go to is definitely e-commerce. So Pet purchases over-index in the e-commerce channel, and that's the place where we're seeing the dollars go to.

This concludes the question-and-answer session and we will conclude today's conference call. We thank you for joining. You may now disconnect.