General Mills' Q1 2026: Contradictions on Volume Growth, Pricing Strategies, and Consumer Behavior Emerge

The above is the analysis of the conflicting points in this earnings call

Guidance:

• Reaffirmed full-year fiscal 2026 guidance.
• Q2 operating profit expected to be down more than Q1; CFO said ~25% decline math “largely works.”
• First-half profit trend roughly similar to Q4 FY25; improvement expected in the back half with a significant Q4 tailwind.
• Q2 inflation above the 3% annual run rate (Q1 was ~2%).
• Q1 international trade timing benefit (~$20M) and NAR trade timing reverse in Q2; NAR trade becomes a tailwind in Q4.
• No contribution from divested U.S. yogurt from Q2 onward.
• Remaining base price adjustments to be completed in Q2; innovation sustained at ~5% of sales.
• Pet fresh rollout: ~1,000 coolers by end of September, ~5,000 by end of Q2; broader ramp in calendar 2026.

Business Commentary:

• Revenue and Share Performance:
• General Mills reported a decline in volume in Q1 fiscal 2026, with NAR volume negative one percent.

• The decline is attributed to the significant price increases implemented to address price cliffs and gaps, despite improved pound share in top categories.

• Investment Strategy:

• The company increased investments in innovation, new products, and marketing, with new product volumes up 25%.

• This strategy is aimed at returning to profitable organic growth and improving long-term growth prospects.

• Pet Segment Developments:

• General Mills is launching fresh pet food, with over 5,000 coolers planned by the end of fiscal Q2.

• The focus is on enhancing the pet food portfolio and capturing new market share, leveraging existing refrigerated channel experience.

• Supply Chain and Profitability:

• The company experienced a lighter inflation phasing in Q1, affecting gross margin positively, but expects inflationary pressures to increase in Q2.
• Supply chain timing benefits from international trade expenses also impacted Q1 results, with both factors expected to normalize and potentially create a drag on Q2 profits.

Sentiment Analysis:

• Management reaffirmed FY26 guidance and cited pound-share gains in 8 of top 10 categories, but flagged heavier Q2 pressure: “operating profit to be down more in Q2 than in Q1,” inflation above annual run rate, and reversal of trade timing benefits. They expect improvement in the back half with a strong Q4 tailwind. Pet fresh launch and innovation (~5% of sales) support growth, yet divested yogurt and trade timing create near-term headwinds.

Q&A:

• Question from Andrew Lazar (Barclays): Is weaker volume structural or driven by pricing/consumer pressure, and can GIS regain volume despite NAR sequential softness?
  Response: Management sees volumes largely in their control; category volumes are roughly flat, price/mix is the bigger challenge, and holding share with innovation (e.g., protein-oriented launches) should meet guidance without needing outsized share gains.

• Question from Robert Moskow (TD Cowen): Will volumes turn positive by 4Q, and why were company volumes down if you’re gaining/holding share in most categories?
  Response: Top 10 categories improved ~1 point in Q1, but flour/desserts (pound-heavy) and a Pet shipment timing headwind dragged total volumes; price investments are eliciting expected elasticities, with some fixes underway (Totino’s PPA, cereal).

• Question from Leah Jordan (Goldman Sachs): What’s behind the slowdown in Wilderness dog food and how are treats trending excluding Whitebridge?
  Response: Core BLUE held pound share; Life Protection, cat feeding (Tastefuls) and Tiki Cat are growing; treats turned to positive volume; Wilderness and pet specialty need better proposition and execution, with protein news, advertising, and Edgard & Cooper launch at PetSmart.

• Question from Leah Jordan (Goldman Sachs): How do you balance scale versus complexity as you drive remarkability?
  Response: Focus remains on consumer needs; scale aids capabilities (digital, SRM, cross-category programs) but isn’t a benefit by itself—must be applied to specific consumer occasions without adding unhelpful complexity.

• Question from David Palmer (Evercore ISI): Are pricing investments extending longer, and where are you seeing balance between price and volume?
  Response: Shifted from promo depth to base price resets across ~2/3 of the portfolio (most done in Q1, finishing in Q2); innovation lifted to ~5% of sales with strong launches (e.g., Cheerios Protein, Mott’s bars).

• Question from David Palmer (Evercore ISI): How will the fresh pet rollout scale from initial 5,000 coolers?
  Response: Execution phase underway: ~1,000 coolers by end of September, ~5,000 by end of Q2, with broader distribution ramping through calendar 2026; production and early product performance are on track.

• Question from Matthew Smith (Stifel): What drove gross margin outperformance and how should inflation/investment phase through the year?
  Response: Q1 inflation was ~2% vs 3% annual guide and international trade timing added ~$20M; both unwind in Q2, driving a larger Q2 operating profit decline; expect Q2 inflation above annual run rate plus inventory absorption headwinds.

• Question from Matthew Smith (Stifel): How does NAR trade expense phasing evolve?
  Response: Big drag in Q2 due to tough comps, modest headwind in Q3 last year turns modest tailwind, and a significant tailwind in Q4.

• Question from Michael Lavery (Piper Sandler): Which categories drove household penetration gains and what drove it—pricing or innovation?
  Response: NAR penetration rose for the first time since FY22, led by bars, fruit snacks, salty snacks, and cereal; gains tied to improved value (below key price cliffs) plus remarkability—strong advertising and innovation.

• Question from Michael Lavery (Piper Sandler): What improvements did you make in demand planning?
  Response: AI-enabled forecasting improved accuracy and efficiency, freeing marketers for demand generation and supply chain for execution, reducing waste and improving responsiveness.

• Question from Alexia Howard (Bernstein): How are you approaching reformulation and state-level additive legislation beyond artificial dyes?
  Response: Reformulations are consumer-led; most school (98%) and retail (85%) offerings already avoid certified colors; GIS favors consistent federal regulation over a costly/confusing state-by-state patchwork.

• Question from Alexia Howard (Bernstein): What share of sales is from recent innovation?
  Response: New products are roughly 5% of sales (vs ~3.5% prior), with bigger, stickier ideas across retail, pet (fresh), international (e.g., Häagen-Dazs stick bars in China), and foodservice.

• Question from Megan Christine Alexander (Morgan Stanley): Are category trends softer than expected, and how material is GLP-1?
  Response: Year is tracking expectations; top 10 NAR categories are about 1 point better, with softness in flour/desserts; GLP-1 impact is small but growing and creates opportunities in protein/fiber (e.g., Cheerios Protein).

• Question from Megan Christine Alexander (Morgan Stanley): How should we frame Pet phasing into Q2 amid shipment lumpiness and the fresh launch?
  Response: Pet remains volatile quarter-to-quarter; expect modest revenue contribution from fresh in Q2 and improvement into the back half; no change to full-year outlook.

• Question from Peter Galbo (BofA Securities): Does Q2 operating profit down ~25% align with your commentary?
  Response: Yes—management said that math “largely works.”

• Question from Peter Galbo (BofA Securities): Is packaged food competing effectively versus sharp away-from-home value pricing?
  Response: Restaurant traffic is flat overall with low/mid-income down and high-income up; inflation is higher away-from-home; GIS over-indexes in faster-growing noncommercial foodservice (~2%) and is gaining share there.