General Mills Sticks to 2026 Targets Amid Transition: Segment Profit Mixed, Innovation Investments Drive Outlook

Investments and Divestitures Shape 2026 Outlook

General Mills’ latest fiscal report paints a picture of a company navigating a transitional year. With second-quarter net sales at $4.86 billion—down 7% from a year ago—headline numbers were weighed by divestitures (especially the North American Yogurt exit), ongoing brand investments, and input cost pressures. Despite the top-line dip and a 32% fall in operating profit for the quarter, General Mills remains confident in its ability to hit full-year 2026 guidance and is doubling down on product innovation and brand value initiatives.

Segment Profit Growth Mixed: International Shines, Domestic Soft

Looking beneath the surface, not all segments performed equally. International operations provided a bright spot, with operating profit jumping 19% (30% in constant currency), reflecting higher sales in regions such as Brazil, China, India, and North Asia. Conversely, North America Retail and Pet—longtime engines of General Mills’ earnings—each posted double-digit operating profit declines, with Retail down 21% and Pet off 12%. These headwinds largely reflected volume losses tied to the yogurt business divestiture, as well as higher input costs and investments in new pet product lines.

Profitability Pressured But Cash Flow Remains Resilient

General Mills’ profitability ratios, such as gross and operating margin, also reflected the challenging environment. Second-quarter gross margin was 34.8%, down from 36.9% last year, mainly due to higher costs. Operating profit margin shrank 560 basis points to 15%. Yet, cash from operations stayed robust at $1.2 billion through six months, with free cash flow conversion expected to be at least 95% of adjusted after-tax earnings for the full year—a signal that liquidity is not a concern even as earnings dip in the near term.

Strategic Brand Investments Set to Boost Innovation and Volume

While headline earnings and margins declined, General Mills’ management pointed to clear strategic actions underway. The company’s ‘Remarkable Experience Framework’—targeting improvements in product, packaging, omnichannel, and consumer value—drove a reported 25% expected increase in new product sales for fiscal 2026. Although current investments and pricing initiatives have temporarily depressed dollar growth, volume trends and share in priority categories are recovering, positioning the business for long-term upside once pricing and mix normalize.

Full-Year Guidance Reaffirmed Despite Profit Dip

For fiscal 2026, General Mills reaffirmed its financial targets: organic net sales are projected to range between down 1% and up 1%; adjusted operating profit and EPS are both expected to fall 10–15% (constant currency), but free cash flow conversion should remain strong. Executives remain confident that the current margin squeeze—driven by brand investments, acquisition/divestiture headwinds, and input cost inflation—will yield a stronger, more sustainable growth platform.

Key Takeaway: Transformation in Motion, Eyes on Innovation Payoff

General Mills’ quarterly numbers tell a story of short-term turbulence—fueled by deliberate investments, shifting portfolios, and a challenging backdrop—but also one of strategic recalibration. Investors and observers will be watching closely to see if the company’s focus on innovation, consumer value, and global diversification will yield the long-term growth and profitability the leadership is targeting.

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