General Mills sees tepid annual profit, posts Q4 sales decline as demand falters.​

By Anuja Bharat Mistry

(Reuters) -Cheerios cereal maker General Mills (NYSE: GIS) forecast annual profit below estimates on Wednesday and posted a bigger-than-expected drop in quarterly sales hurt by lower demand for its snack bars and pet food, as well as higher input costs.

The company also expects annual dollar value growth in its businesses to be below its long-term projections, pushing its shares down by about 4%.

General Mills has struggled with lower volumes and retailers cutting down on inventory, while facing ongoing competition from lower-priced private labels that have been eating into its market share.

“We expect ongoing macroeconomic uncertainty to result in continued value-seeking behaviors by consumers, affecting both the products they buy and the channels they shop,” CEO Jeff Harmening said, adding that the company has more work to do to improve competitiveness.

Net sales at General Mills’ North America retail segment, the company’s biggest revenue contributor, fell 7% in the quarter ended May 26 due to a 6-percentage point drop in volumes.

“Value-oriented consumers have learned that trading down to lower-priced private labels doesn’t mean sacrificing quality,” said Zak Stambor, an analyst with eMarketer, adding that this is a growing concern for companies like General Mills.

Peers WK Kellogg (NYSE: K) and Kraft Heinz (NASDAQ: KHC) have also reported pressured volumes, while competitor Campbell Soup (NYSE: CPB) reported an upbeat quarter and raised its forecast owing to demand recovery and improvement in volumes.

General Mills has also been pressured by higher input costs, such as sugar and labor, as well as supply chain disruptions.