By Annett Mary Manoj and Juveria Tabassum
(Reuters) - General Mills (NYSE:GIS) cut its annual sales forecast, on Wednesday and missed second-quarter estimates, warning of a slower recovery in demand following repeated price hikes on its breakfast cereals, snack bars and pet food products.
Its shares were down about nearly 3% in early trading as the Cheerios cereal maker also lowered the upper end of its annual adjusted profit growth forecast to between 4% and 5% due to still-high input costs, primarily of labor.
A series of price hikes, undertaken to offset the steep input costs, have pushed consumers to shop smaller pack sizes for pantry staples and pet food, as well as opt for cheaper private-label alternatives.
"There's likely no more room to push pricing with continued pushback and increasing pressure from retailers," said John Oh, an analyst at research firm Third Bridge.
After several quarters of reaping the benefits of higher prices, General Mills now expects the impact to wane as it moves into the backend of the fiscal year.
"While we were cautious on General Mill's topline trends and volume performance, results were worse than feared," said RBC Capital Markets analyst Nik Modi.
Overall volumes in its North America retail segment fell 5 percentage points, while net sales were down mid-single digits for U.S. snacks like Nature Valley and its breakfast cereals including Cheerios and Cinnamon Toast Crunch.
Quarterly net sales fell 2% to $5.14 billion, below estimates of $5.35 billion, according to LSEG data.
General Mills CEO Jeff Harmening said the company's pet segment, especially higher-end brands such as Wilderness, have "not done particularly well" and inventory destocking by pet food retailers was also hitting sales.
It forecast fiscal 2024 organic net sales between down 1% and flat, compared with an earlier estimate for growth of 3% to 4%. Analysts expected an increase of 2.4%.