By Granth Vanaik
(Reuters) -General Mills topped market expectations for third-quarter sales and profit on Wednesday, backed by higher prices for its breakfast cereals, snack bars and pet food products that helped cushion a blow from slowing demand.
Shares of the Minnesota-based company rose 7% in early trading after it reaffirmed its annual sales and profit targets for a third time this year.
Staple food makers have benefited over the last two years from consistent price hikes that helped shield their margins from spiraling labor and input costs.
However, they are now seeing inflation-stricken Americans turn more cautious about spending on expensive branded products, and focusing on buying cheaper private-label alternatives.
"We've seen an increase in value-seeking behaviors from consumers," said General Mills (NYSE:GIS) CEO Jeff Harmening, but added the company was seeing inflation moderate and a reduction in supply chain disruptions.
General Mills' gross margin rose 100 basis points year-on-year to 33.5%, helped by an increase in organic selling prices. However, its quarterly volumes declined similar to peers such as Kraft Heinz (NASDAQ:KHC).
Over the past several quarters, General Mills' pet food segment has also struggled as price-conscious customers switch to cheaper alternatives, while retailers cut down on their inventory.
The company said it saw a "modest improvement" in its Blue Buffalo brand's U.S. retail sales. The pet segment's organic net sales, however, dropped 3% from a year earlier.
"GIS did see some sequential improvement in pet consumption trends," said Barclays analyst Andrew Lazar, adding that investors were feeling better about the direction the pet business was heading to.
General Mills' quarterly net sales dropped about 1% to $5.1 billion, compared with analysts' expectations of sales to drop about 3.1% to $4.97 billion, according to LSEG data. Its adjusted profit came in at $1.17 per share, beating estimates.