General Mills cuts profit outlook as promotions rise to win back consumers

General Mills slashed its annual profit forecast on Wednesday as the Cheerios cereal maker ramped up investments in promotions to attract cost-conscious consumers, sending shares down about three per cent in early 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.

Budget-strapped shoppers have shunned pricier branded products for cheaper private label brands in recent years, prompting packaged food companies to increase promotions.

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“As we moved through the quarter, it became clear that our product news and media support were not breaking through because we didn’t have the right value,” CEO Jeff Harmening said on the post-earnings call.

The company said its Pillsbury branded refrigerated dough sales were “disappointing” at the start of the key holiday season when customers turn to baking.

As a result, the company is stepping up media investment in the current quarter for the dough brand to attract customers, leading to higher selling and 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.

General Mills now expects annual adjusted profit to fall in the range of one to three per cent, compared with the prior range of down one per cent to up one per cent.

It is now targeting the lower end of the organic net sales range of flat to up one per cent.

For the quarter ended Nov. 24, the Bugles corn chip snacks maker posted sales of $5.24 billion (C$7.51 billion), surpassing analysts’ estimates of $5.14 billion (C$7.36 billion), according to data compiled by LSEG.

Adjusted profit came in at $1.40 (C$2.01) per share, above estimates of $1.22 (C$1.75) per share.

Its volumes rose 3 percentage points, while prices decreased 1 percentage point.