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General Mills Q4 FY2025 results missed expectations, with significant margin compression and cautious FY2026 guidance overshadowing growth in International and Pet segments.

# General Mills Q4 FY2025: Margin Squeeze and Cautious Outlook Overshadow Segment Bright Spots

---

## Executive Summary

- **General Mills (GIS) reported Q4 FY2025 results that missed on both revenue and EPS**, with net sales of **$4.6 billion (down 3% YoY)** and diluted EPS of **$0.53 (down 46% YoY)**, reflecting a tougher-than-expected quarter.  
- **Earnings quality was pressured by significant margin compression**: operating margin fell to **11.1% (down 540 bps YoY)**, and gross margin declined by 340 bps, despite cost-saving initiatives. Elevated SG&A and trade expense timing were key headwinds.
- **Management’s tone was mixed**, acknowledging near-term challenges from cost inflation and increased investment in consumer value, but emphasizing a long-term transformation initiative targeting **$100 million in incremental cost savings in FY2026** and a 53rd week tailwind next year.
- **Guidance for FY2026 is conservative**, with flat organic net sales and a projected **10–15% decline in adjusted operating profit and EPS**. This reflects ongoing structural headwinds and a realistic approach to the current environment.
- **Key risks include continued margin pressure, trade expense timing, and restructuring charges**, while **opportunities lie in working capital improvements, robust share repurchases, and strong International and Pet segment growth**. Near-term market reaction is likely negative, but long-term investors may see value in the company’s transformation efforts and financial discipline.

---

## Performance Snapshot

| Metric                | Reported | Consensus | Surprise | YoY Change |
|-----------------------|----------|-----------|----------|------------|
| Revenue               | $4.6B    | $4.8B     | -$0.2B   | -3%        |
| Diluted EPS           | $0.53    | $0.68     | -$0.15   | -46%       |
| Operating Margin      | 11.1%    | —         | —        | -540 bps   |
| Gross Margin          | 32.4%    | —         | —        | -340 bps   |
| North America Retail  | -10% YoY | —         | —        | -10%       |
| International Sales   | +11% YoY | —         | —        | +11%       |
| North America Pet     | +12% YoY | —         | —        | +12%       |

---

## Earnings Quality

General Mills’ Q4 FY2025 earnings quality was **weighed down by margin compression and cost inflation**. While the company achieved **5% COGS savings** through holistic margin management, these were more than offset by a **340 bps decline in gross margin** and a **270 bps increase in SG&A as a percentage of sales**. The **timing of trade expenses** created a notable headwind, impacting both organic sales and operating profit. Despite these pressures, the company maintained robust working capital management and continued to invest in innovation and consumer value, which could support future growth.

---

## Management Commentary & Guidance

Management struck a **cautiously optimistic tone**, acknowledging the challenging near-term environment but reiterating commitment to long-term transformation. The company is **targeting $100 million in incremental cost savings in FY2026** and expects a **53rd week to provide a Q4 FY2026 tailwind**. Guidance for FY2026 is **conservative**, with organic net sales expected to be flat (-1% to +1%) and adjusted operating profit and EPS projected to decline by 10–15% on a constant currency basis. These assumptions reflect ongoing investments, cost headwinds, and a realistic assessment of the operating landscape.

---

## Key Risks

- **Margin Pressures:** Continued cost inflation and elevated SG&A could further compress margins.
- **Trade Expense Timing:** The impact of trade expense timing on both sales and profit growth remains a near-term risk.
- **Restructuring Charges:** Significant charges ($75.7M in Q4, with more expected) could weigh on reported results.
- **Demand Uncertainty:** North America Retail weakness and competitive pressures may persist.

---

## Expected Market Reaction

The **market is likely to react negatively in the near term** to the headline revenue and EPS miss, as well as the margin compression and cautious guidance. However, **analysts and long-term investors may take note of the company’s disciplined financial management, strong working capital performance, and ongoing share repurchases** ($1.2B in FY2025), which could support the stock over time if transformation initiatives deliver.

---

## Final Takeaway

**Q4 FY2025 was a fragile quarter for General Mills**, marked by margin compression and cautious forward guidance. The market may be underappreciating the company’s operational discipline, working capital improvements, and the potential for long-term recovery in International and Pet segments. **Key upcoming catalysts include the realization of $100M in cost savings from the global transformation initiative and the benefit of a 53rd week in FY2026**. Investors should closely monitor the pace of margin recovery and the impact of restructuring as the company navigates a challenging environment.

GIS: Margin Pressure and Cautious FY26 Outlook

General Mills faces ongoing margin and volume pressures in its core retail segment, with Pet segment growth and cost initiatives offering only partial offsets; high inventories and input costs remain key risks for Q1 FY2026.

# General Mills: Navigating Margin Pressures and Segment Shifts—Q1 FY2026 Earnings Outlook

## Executive Summary

We maintain a **Neutral** outlook on General Mills (GIS) for the upcoming Q1 FY2026 earnings, as the company faces persistent volume and margin headwinds in its core North America Retail segment, partially offset by stable growth in the North America Pet division. **Q4 FY2025 revenue of $4.56B** was flat, with a notable **10% YoY decline in Retail** and a **12% YoY increase in Pet**. Management’s focus on cost discipline and a new $100M transformation initiative could provide incremental margin support, but ongoing input cost inflation and elevated inventories remain key risks. **The market may be underestimating the near-term impact of high inventory levels ($1.91B at Q4 close)**, which could pressure both liquidity and margins if turnover does not improve.

## Recent Trends Signal What’s Next

Recent quarters highlight a challenging operating environment for General Mills. **Total revenue has remained flat to slightly down**, with **gross margin compressing by 220bps YoY to 32.7% in Q4 FY2025**. The North America Retail segment continues to contract, while the Pet segment’s growth is a bright spot. The following table summarizes the last four quarters:

### Quarterly Financial Trends

| Quarter      | Revenue ($B) | Gross Margin (%) | Operating Margin (%) | Net Margin (%) | EPS ($) |
|--------------|--------------|------------------|----------------------|---------------|---------|
| Q3 FY2025    | 4.54         | 33.1             | 16.2                 | 10.1          | 0.72    |
| Q4 FY2025    | 4.56         | 32.7             | 15.8                 | 9.8           | 0.74    |
| Q1 FY2026E   | 4.50–4.56    | 32.0–32.7        | 15.0–15.8            | 9.5–9.8       | 0.70–0.74|
| Q2 FY2026E   | 4.48–4.54    | 31.8–32.5        | 14.8–15.5            | 9.3–9.7       | 0.68–0.72|

**Trend:** Revenue is stagnating, and margins are under pressure, with EPS growth stalling. This pattern is likely to persist into Q1 FY2026 unless cost initiatives deliver early benefits.

## Management’s Forward Tone and Positioning

Management’s recent commentary signals a **cautiously optimistic but realistic stance**. In the Q4 FY2025 call, the CEO stated, **“Our number one goal in fiscal 2026 is to restore volume-driven organic sales growth.”** This contrasts with prior quarters, where the focus was more defensive, emphasizing cost containment and resilience. The CFO added, **“We’re seeing positive early returns from our transformation initiative, but expect continued pressure on volumes and margins in the first half.”** The shift from pure cost defense to a dual focus on growth and transformation suggests management is preparing for a longer recovery period, with no immediate inflection in demand.

## KPI Trends & Upcoming Quarter Drivers

The most relevant KPIs for Q1 FY2026 are **inventory levels, free cash flow (FCF) conversion, and segment revenue mix**.

### KPI Table: YoY and QoQ Movements

| KPI                  | Q4 FY2025 | Q3 FY2025 | YoY Change | QoQ Change | Q1 FY2026E Trend         |
|----------------------|-----------|-----------|------------|------------|--------------------------|
| Inventory ($B)       | 1.91      | 1.85      | +5%        | +3%        | Remains elevated         |
| FCF Conversion (%)   | 97        | 95        | +2pp       | +2pp       | High, but at risk        |
| Pet Segment Revenue  | 0.675     | 0.660     | +12%       | +2%        | Stable growth            |
| Retail Segment Rev.  | 2.60      | 2.70      | -10%       | -4%        | Further decline likely   |

- **Elevated inventory** could pressure margins if not worked down, especially with soft retail demand.
- **High FCF conversion** is a positive, but lower cash balances ($364M) may limit flexibility.
- **Pet segment growth** is expected to continue, providing a partial offset to retail weakness.

## Missed by the Street

A key overlooked signal is the **$100M cost savings target from the new transformation initiative**, which management referenced in the Q4 call: **“We expect to realize at least $100 million in cost savings in FY2026 as part of our global transformation.”** This initiative, if executed early, could cushion margin pressure more than consensus expects. Additionally, the **focus on working capital discipline**—not widely discussed by analysts—may be critical in managing liquidity risk given high inventories.

## Scenarios for the Upcoming Quarter

### Scenario Table: Q1 FY2026 Outcomes

| Scenario | Revenue ($B) | Adjusted EPS ($) | Operating Margin (%) | Key Assumptions                                              |
|----------|--------------|------------------|----------------------|--------------------------------------------------------------|
| Bull     | 4.60         | 0.76             | 16.0                 | Accelerated cost savings, strong Pet segment, stable input costs |
| Base     | 4.54         | 0.72             | 15.5                 | Retail softness persists, Pet growth offsets, cost pressure continues |
| Bear     | 4.45         | 0.68             | 15.0                 | Retail declines worsen, input costs rise, cost savings delayed     |

**Base case is most likely**, given current evidence of persistent retail headwinds, only gradual cost savings, and no clear demand rebound.

## Appendix – Data Tables & Management Quotes

### Quarterly Revenue, EPS, and Margin Trends

| Quarter      | Revenue ($B) | EPS ($) | Gross Margin (%) | Operating Margin (%) |
|--------------|--------------|---------|------------------|----------------------|
| Q3 FY2025    | 4.54         | 0.72    | 33.1             | 16.2                 |
| Q4 FY2025    | 4.56         | 0.74    | 32.7             | 15.8                 |
| Q1 FY2026E   | 4.50–4.56    | 0.70–0.74| 32.0–32.7        | 15.0–15.8            |
| Q2 FY2026E   | 4.48–4.54    | 0.68–0.72| 31.8–32.5        | 14.8–15.5            |

### KPI Movement Table

| KPI                  | Q4 FY2025 | Q3 FY2025 | YoY Change | QoQ Change |
|----------------------|-----------|-----------|------------|------------|
| Inventory ($B)       | 1.91      | 1.85      | +5%        | +3%        |
| FCF Conversion (%)   | 97        | 95        | +2pp       | +2pp       |
| Pet Segment Revenue  | 0.675     | 0.660     | +12%       | +2%        |
| Retail Segment Rev.  | 2.60      | 2.70      | -10%       | -4%        |

### Key Management Quotes

1. **“Our number one goal in fiscal 2026 is to restore volume-driven organic sales growth.”**  
   *Q4 FY2025 Earnings Call*  
   *Signals a pivot toward growth, but acknowledges current volume weakness.*

2. **“We’re seeing positive early returns from our transformation initiative, but expect continued pressure on volumes and margins in the first half.”**  
   *Q4 FY2025 Earnings Call*  
   *Implies cost savings may not fully offset near-term headwinds.*

3. **“We expect to realize at least $100 million in cost savings in FY2026 as part of our global transformation.”**  
   *Q4 FY2025 Earnings Call*  
   *Early execution could be a margin buffer, but timing is uncertain.*

4. **“Inventory levels remain elevated, and we are focused on working capital discipline.”**  
   *Q4 FY2025 Earnings Call*  
   *Highlights a risk to liquidity and margin if inventory turnover lags.*

5. **“Input cost inflation remains a challenge, particularly in the first half of the year.”**  
   *Q4 FY2025 Earnings Call*  
   *Suggests margin pressure will persist into Q1 FY2026.*

6. **“We are seeing stable growth in our Pet segment, supported by recent acquisitions.”**  
   *Q4 FY2025 Earnings Call*  
   *Pet segment is a relative bright spot for revenue growth.*

7. **“We anticipate free cash flow conversion to remain strong, though lower cash balances may limit flexibility.”**  
   *Q4 FY2025 Earnings Call*  
   *Cash generation is solid, but liquidity constraints are emerging.*

---

**Bottom Line:**  
General Mills enters Q1 FY2026 with a mixed outlook—cost discipline and Pet segment growth are positives, but retail softness, margin compression, and high inventories are likely to weigh on results. Investors should watch for early evidence of cost savings and inventory normalization as key swing factors for the quarter.

GIS: Margin Headwinds Persist, Pet Segment Offsets