General Mills' profits soared to new heights this spring after raising its prices several times over the past year.
The Golden Valley-based food company on Wednesday reported an $822 million profit for its fiscal fourth quarter, nearly double what it earned during the March-to-May period a year ago.
For the whole fiscal year ending May 29, sales increased 5% to nearly $19 billion, a new high-water mark in the company's modern era.
General Mills makes consumer staples — like cereal, flour and soup — which often do well during times of economic uncertainty. Like most other makers of packaged goods, the company has passed on its own higher inflation costs to its retail customers, which then pass the price increases onto shoppers.
But with a potential recession in the year ahead, executives said they will be paying close attention to consumer sentiment, knowing every shopper has a tipping point.
"We are planning for rising inflation and reduced consumer spending power to lead to an increase in at-home eating and other value-seeking behaviors," Jeff Harmening, General Mills chief executive, said Wednesday. "Amid this dynamic environment, we are confident we will continue to compete effectively."
Consumers are already showing a sensitivity to price. During its latest quarter, General Mills may have brought in more revenue because of higher prices, but it sold fewer products.
While widespread inflation and higher interest rates are expected to cool the economy and possibly trigger a recession in 2023, General Mills hopes to benefit from a shift in spending. The company expects earnings this year to range between flat and up 3%, compared to its recently ended fiscal year.
The cost of doing business is expected to rise 14% over the next year, outpacing the 8% inflation General Mills encountered in the past 12 months. Company leaders said they will offset that pressure with ongoing price increases and cost negotiations with suppliers.
Edward Jones analyst John Boylan Jr. said Wednesday the company's outlook is strong due to its focus on "long-term trends in the humanization of pets, snacking and more organic and ethnic products" as well as its acquisitions and divestments.
But Bernstein analyst Alexia Howard expects General Mills stock to underperform, meanwhile, in the face of "another year of uncertainty."
More consumers may shift to private label or store brands, Howard said in a note Wednesday.
Jon Nudi, General Mills' president of North American retail, told investors "we take private label very seriously, and we believe the best course is we build our brands and we innovate."
Supply chain challenges such as labor shortages, missed shipments and — in the case of fast-growing Blue Buffalo dog food — capacity constraints are expected to continue.
Ingredient shortages hit brands like Totino's especially hard earlier this year.
Through the middle of May, the nation's third-largest frozen pizza brand sold 12% fewer units than the year before, according to IRI, a Chicago-based market research firm.
Total sales for the quarter grew 8% over the previous year while organic sales, which doesn't include sold or acquired businesses, rose 13%.
The company's earnings per share totaled $1.35 for the quarter — $1.12 on an adjusted basis — beating analyst predictions. General Mills stock rose more than 6% Wednesday to close at $74.72, a 52-week high.
For the full 2022 fiscal year, the company's profit rose 16% to $2.7 billion.
Harmening shot down the possibility the company will split up, which fellow cereal-maker Kellogg's recently announced it will do.
"The worst thing we can do is look at what someone else is doing and try to emulate that," Harmening said.
Instead, he said, the company will continue to reshape its portfolio, guided by its "accelerate" strategy for buying and selling brands. The company announced five business divestitures and two acquisitions in the past year.
