General Mills, Inc. (GIS Quick QuoteGIS - Free Report) has been focused on its Accelerate strategy, which was unveiled in February 2021. In fact, the company’s core priorities for fiscal 2022 also go in line with its Accelerate strategy. However, input cost inflation is a concern for the company, as evident from fourth-quarter fiscal 2021 results and management’s guidance for fiscal 2022.

Talking of the fourth quarter, the top and bottom lines declined year over year. Results were affected by tough comparisons with the year-ago period’s initial pandemic-led demand surge and an additional week of results. Organic sales also declined. Nonetheless, on a two-year compound growth basis (or compared to the pre-pandemic level), organic net sales rose 4%.

Let’s take a closer look at all the above-mentioned aspects.

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Cost Woes & Fiscal 2022 View

For fiscal 2022, management expects at-home food demand to decrease on a year-over-year basis in most of the company’s core markets, while the same is likely to be greater than pre-pandemic levels. At the same time, the company expects continued recovery in the away-from-home food demand, though it is not likely to fully reach pre-pandemic levels in fiscal 2022.

As nearly 85% of General Mills’ net sales reflect at-home food occasions, the abovementioned factors indicate a reduced year-over-year aggregate consumer demand across categories for fiscal 2022. Also, management expects cost inflation for fiscal 2022.

Management expects total input cost inflation to be around 7% of the cost of goods sold in fiscal 2022, including higher costs of logistics, raw materials and manufacturing. The company expects fiscal 2022 to witness the highest level of input cost inflation it has seen in a decade.

Apart from these, soft volumes, supply-chain deleverage and constant growth-oriented investments are likely to weigh on the adjusted operating profit. Management expects adjusted operating profit to decline year over year in the first half of fiscal 2022.

Full-year organic net sales are expected to decrease 1-3% in fiscal 2022, due to soft consumer demand. Adjusted operating profit at cc is anticipated to fall 2-4% from $3.2 billion recorded in fiscal 2021. Adjusted earnings per share at cc is envisioned between flat and 2% down compared with $3.79 reported in fiscal 2021.

Though management projected a year-over-year decline in fiscal 2022 organic sales, adjusted operating profit and adjusted earnings per share, the midpoint of these guidance ranges indicates a three-year compound annual growth of about 2% each for organic net sales and adjusted operating profit (at cc), and 5% for adjusted EPS at cc (compared to the fiscal 2019 pre-pandemic level). The Zacks Consensus Estimate for fiscal 2022 earnings per share has increased 2.7% to $3.76 over the past 30 days.

Accelerate Strategy Bodes Well

General Mills’ Accelerate strategy aids in making choices of how to win and where to play, with an aim to boost profitability while enhancing shareholder returns in the long run. Under how to win, it focuses on four pillars that are designed to provide a competitive advantage. These include brand building, undertaking innovation, unleashing scale and maintaining business strength.

The where-to-play principle is outlined to enhance the company’s capabilities to generate profitability through geographic as well as product prioritization, along with portfolio restructuring. This includes prioritizing investments, investing in five Global Platforms, driving growth in Local Gem brands and reshaping the portfolio.
 
With regard to reshaping the portfolio, the company acquired Tyson Foods’ (TSN Quick QuoteTSN - Free Report) pet treat business last week, which is likely to solidify General Mills’ foothold in the U.S. pet food space. Also, in March, the company entered a memorandum of understanding to offload 51% of controlling interest in Yoplait S.A.S. to a renowned French dairy cooperative — Sodiaal.

Focus on Core Priorities

For fiscal 2022, General Mills reaffirmed its three key priorities, which go in line with the Accelerate strategy. The company plans to continue competing effectively, which includes prioritizing core markets, local gem brands and global platforms, alongside utilizing its innovation and brand-building capacities.

Next, the company is focused on undertaking cost-control moves, including the Holistic Margin Management (HMM) program and the Strategic Revenue Management (SRM) pricing initiatives, among other endeavors, to counter input cost inflation and other cost woes. Thirdly, management is focused on actions related to reshaping the portfolio and the organization.

These upsides are likely to work well for General Mills and help it tackle the roadblocks. The Zacks Rank #3 (Hold) company’s shares have gained 6.9% in the past six months compared with the industry’s growth of 8.8%.

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