Paying more for food does not always mean seeing higher sticker prices on the shelf.
General Mills has kept sales and profits growing while spending more on labor and raw materials — and while selling fewer products. The food company has done this by reducing promotions (or discounts) on its products, shrinking some packaging sizes and increasing wholesale prices retailers pass on to consumers.
Together these factors are called price/mix. It's a key measure as to why Golden Valley-based General Mills, despite continued high inflation and supply chain snarls, expects to make more money during the next six months than previously thought.
General Mills beat profit expectations in its autumn quarter even as it sold fewer products — a consistent theme among the many food companies raising prices to more than offset their own cost inflation.
"We're performing well, and we're investing in growth," CEO Jeff Harmening said in an interview Tuesday. "Over the long run, what we want to get back to is a combination of growing pounds as well as the dollar sales growth."
The company is, however, still raising prices. Another round of price increases — and changes to promotional activity — is due to take effect Feb. 1.
"We don't need much more to cover the cost of inflation we see," Kofi Bruce, chief financial officer, told the Star Tribune. "That said, we've been able to pull those levers in relatively short order as we've seen the inflation picture evolve."
Bruce said about 10% of recent pricing actions came from changing the "mix" of promotional activity rather than direct price increases.
"Mix has been a meaningful contributor to the top line," he said.
Consumers have been more willing than normal to accept price increases as more people eat at home. But Robert Moskow, an analyst with Credit Suisse, pointed out Tuesday that "grocers sound increasingly concerned about higher pricing and the impact on consumers" as the nation's economic future remains clouded.
"The key is that pricing has to be justified, which has always been the case," Harmening said.
Depending on the health of the economy in 2023, shoppers could grow more price-sensitive and increasingly turn to store brands.
"The consumer remains strong and (price sensitivity) is relatively subdued for now," Bernstein analyst Alexia Howard wrote in a research note Tuesday. "For the time being, we remain cautious on the company."
Edward Jones analyst Brittany Quatrochi, meanwhile, praised the company's "good cost controls and higher prices as it works to rebuild profit margins post-pandemic."
General Mills now expects organic sales, which exclude acquisitions and divestitures, to grow 8% to 9% through the end of the fiscal year in June. That's up from 6% to 7% previously expected.
Adjusted operating profit and adjusted earnings per share targets were also revised upward.
General Mills' profit grew 1% to $606 million for its second fiscal quarter, which runs September through November. Adjusted earnings per share of $1.10 beat analyst expectations by 4 cents.
Revenue for the quarter reached $5.2 billion, a 4 % increase over the same period last year.
The company's stock price fell 4.5% Tuesday to close at $83.14, which Harmening chalked up to a recent run of good results.
"Expectations are very high."