General Mills: Navigating Margin Pressures and Volume Recovery in a Challenging Landscape

General Mills (NYSE: GIS) is navigating a complex crossroads in its fiscal 2025 journey, balancing short-term margin pressures and volume declines with long-term strategic investments aimed at reigniting growth. The company's Q3 2025 results underscored these challenges, with revenue falling 6.8% year-on-year to $4.52 billion, though non-GAAP earnings per share of $0.86 exceeded expectations by 5.4%. This divergence highlights the tension between cost management and the need to reinvest in innovation and value propositions to attract price-sensitive consumers.

Short-Term Pain: Margin Pressures and Volume Declines

The North America Retail segment, which accounts for a significant portion of General Mills' revenue, saw net sales decline by 7% to $3.0 billion in Q3 2025, driven by lower pound volume and unfavorable net pricing. Overall, the company's sales volume fell 8% year-on-year, with core categories like baking and cereal struggling to regain traction. Analysts attribute these trends to persistent consumer value-seeking behaviors and portfolio adjustments, such as the divestiture of the U.S. yogurt business.

Margin pressures further compounded these challenges. Segment operating profit totaled $18 million in Q3 2025, a 20% decline in constant currency, primarily due to unfavorable price mix and input cost dynamics. General Mills has responded by revising its FY25 guidance downward and outlining aggressive cost-saving initiatives, including Holistic Margin Management (HMM) strategies that now account for 5% of Cost of Goods Sold (COGS) in fiscal 2025.

Long-Term Gain: Strategic Reinvestment and Portfolio Reshaping

Despite these headwinds, General Mills remains committed to its "Accelerate" strategy, a multi-year global transformation initiative aimed at restoring volume-driven organic growth by fiscal 2026. Central to this strategy is the "Remarkable Experience Framework," which emphasizes product innovation, package design, brand communication, and omnichannel execution. For instance, the company has launched new products like Cheerios Protein and Nature Valley Creamy Protein bars to cater to evolving consumer preferences.

The company's focus on long-term value is evident in its willingness to tolerate near-term financial pain. While organic sales growth remains flat in FY2025-a 3-point improvement from the prior year-management has prioritized brand health over short-term metrics. This approach includes strategic investments in high-growth areas such as pet food, where General Mills plans to expand its Blue Buffalo brand with a national fresh pet food line.

Analyst Outlook and Valuation Metrics

Analysts project a challenging Q2 2026 for General Mills, with potential revenue declines of 8.9% and earnings per share (EPS) drops of 27.1%. However, these forecasts assume the company successfully executes its strategic initiatives. Long-term growth targets remain intact, with management aiming for 2-3% organic revenue growth and mid-single-digit operating profit growth.

Valuation metrics suggest General Mills may be undervalued. Its current Free Cash Flow (FCF) of $2.0 billion, coupled with a Discounted Cash Flow (DCF) analysis indicating an intrinsic value of $103.97 per share, presents a compelling case for patient investors. The stock's low Price-to-Earnings (PE) ratio of 8.7x, compared to the Food industry average of 17.8x, further underscores its potential for long-term appreciation.

Conclusion: A Calculated Bet on Resilience

General Mills' Q3 2025 results reflect the harsh realities of a competitive consumer goods landscape, but the company's strategic reinvestment in innovation, portfolio reshaping, and cost discipline positions it for a rebound. While near-term challenges-such as volume declines and margin pressures-remain, the alignment of its long-term initiatives with market trends (e.g., health-focused products, pet food growth) suggests that the current pain could translate into sustainable gains. For investors, the key will be monitoring the execution of these strategies and the company's ability to regain traction in core categories.