General Mills, Inc. (GIS Quick QuoteGIS - Free Report) is benefiting from focus on growth initiatives, including the Accelerate strategy and key priorities. The company’s solid Pet segment sales are also driving growth. These factors drove General Mills’ second-quarter fiscal 2022 net sales, which increased 6% year over year. Organic net sales rose 5% on the back of favorable organic net price realization and mix. Organic sales growth reflects solid execution, broad-based Strategic Revenue Management (SRM) actions and continued elevated demand compared with the pre-pandemic period.

Recently, General Mills revised its fiscal 2022 organic sales outlook upward. It anticipates organic sales growth of 4-5%, up from the prior view of the higher end of a 1-3% decline. The updated view reflects better-than-expected first-and second-quarter sales performance and the potential impact of SRM actions. Also, strong demand for cereals and baking products as well as pet foods is an upside. Thanks to such upsides, the company’s stock has gained 17% in the past six months compared with the industry’s 0.8% growth.

Image Source: Zacks Investment Research

Pet Segment – a Driver

During the second quarter of fiscal 2022, net sales in the Pet segment came in at $593.4 million, up 29% year over year on the back of solid volume growth and positive net price realization and mix. Net sales growth included 15 points of gains from the Tyson Foods’ pet treats business buyout. Organic sales increased 14% year over year and 16% on a two-year basis. Segmental operating profit increased 10% to $132 million, mainly driven by increased volume as well as favorable net price realization and mix. Management highlighted that a higher pet population and more humanization and premiumization of pet food amid the pandemic are tailwinds for the pet food category. Consumers’ increased shift toward premium quality natural food keeps Blue Buffalo well placed.

Growth Initiatives on Track

General Mills is focused on its Accelerate strategy (unveiled in February 2021), which helps it make choices of how to win and where to play to boost profitability and enhance shareholders’ returns in the long run. Under how to win, General Mills is focused on four pillars that are designed to provide a competitive advantage. These include brand building, undertaking innovations, unleashing scale and maintaining business strength. Where to play principle enhances the company’s capabilities to generate profitability through geographic as well as product prioritization.

General Mills is on track with its three key priorities for fiscal 2022, which are in line with the Accelerate strategy. The company plans to continue competing effectively — which includes prioritizing core markets, local gem brands and global platforms, alongside utilizing its innovation and brand-building capacities. The company is undertaking cost-control moves, including the Holistic Margin Management (HMM) productivity program and SRM pricing initiatives, among other endeavors to counter input cost inflation and other cost woes. Management is resorting to actions related to reshaping the portfolio and the organization. Management, in its fiscal second-quarter earnings call, highlighted that it competed effectively, with maintaining or growing market share in 62% of the company’s priority businesses year to date. The solid performance can be attributed to brand building, innovation, execution and solid investments.

Wrapping Up

General Mills is bearing the brunt of industry-wide shortages in the labor market. Such shortages are impacting the company’s supply chain and leading to escalated costs. Challenges across raw material suppliers, internal and external production facilities and distribution centers, among others, are resulting in service challenges along with escalated expenses. Management, in its fiscal second-quarter earnings call, highlighted that it expects double-digit input cost inflation in the back half of fiscal 2022. For fiscal 2022, the company envisions the cost of goods sold headwinds of nearly $500 million. Input cost inflation is expected to be in the range of 8-9% for the year.

That said, we believe that the aforementioned upsides are likely to help the Zacks Rank #3 (Hold) company tide over such hurdles and keep its growth story alive. 

Looking for Solid Consumer Staple Stocks? Check These

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Helen of Troy, a designer, developer, marketer, importer and distributor, sports a Zacks Rank #1 (Strong Buy) at present. Shares of Helen of Troy have dropped 13.7% in the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Helen of Troy’s current financial-year sales and earnings per share (EPS) suggests growth of 0.8% and 0.6%, respectively, from the year-ago reported number. HELE has a trailing four-quarter earnings surprise of 19.1%, on average.

Flowers Foods, which produces and markets packaged bakery products, carries a Zacks Rank #2 (Buy). Shares of Flowers Foods have moved up 23.4% in the past six months.

The Zacks Consensus Estimate for Flowers Foods' 2022 financial year sales suggests growth of 2.1% from the year-ago reported number. FLO has a trailing four-quarter earnings surprise of 15.4%, on average.

Medifast, the manufacturer and distributor of weight loss, weight management, healthy living products, and other consumable health and nutritional products, currently carries a Zacks Rank #2. Shares of Medifast have dropped 13.7% in the past six months.

The Zacks Consensus Estimate for Medifast’s current financial year sales and EPS suggests growth of about 63% and 49.3%, respectively, from the year-ago reported figure. MED has a trailing four-quarter earnings surprise of 17.3%, on average.