General Mills Navigates Volume Challenges in Q1 FY2026, Bolsters Investment for Future Growth

General Mills Reports Q1 FY2026 Results

General Mills (NYSE: GIS) reported its first-quarter results for fiscal year 2026, revealing declines in reported sales and organic revenues. The company's group reported sales decreased by 7%, while organic revenues fell by 3% to $4.5 billion compared to the same period in fiscal year 2025. Overall reported volumes across the group saw an eight percentage point decline in the quarter, with North America retail experiencing a significant 16-point reduction.

Financial Performance and Operational Details

Despite the top-line pressures, General Mills reported adjusted diluted EPS of $0.86, which surpassed analyst estimates of $0.84. This was partially attributed to favorable phasing of input cost inflation and timing benefits in International markets.

Operating profit increased 108% to $1.7 billion, primarily due to a $1.05 billion gain on the U.S. yogurt divestiture. However, adjusted operating profit declined by 18% in constant currency to $711 million, indicating pressure from increased investments and the impact of the divestiture.

The company's North America retail segment led the decline in volumes, while the international business also saw a two-point drop. Conversely, North America pet volumes increased by one point. Operating cash flow decreased to $397 million in Q1 FY2026 from $624 million in the prior-year period, influenced by lower net earnings and unfavorable changes in working capital. The U.S. yogurt divestiture generated $1.8 billion in gross proceeds, primarily used for debt reduction.

Strategic Investments and Market Positioning

General Mills is actively pursuing a strategy to restore volume growth and enhance market share through increased investment and innovation. The company has boosted its spending on new products from approximately 3.5% to 5% of net sales. These efforts include new advertising campaigns, stronger in-store events, and product innovation, such as the launch of Blue Buffalo into the fresh pet food category.

CEO Jeff Harmening articulated the company's vision: "Our primary goal in fiscal 2026 is to restore organic sales growth by investing in greater value, innovation, and product news for consumers." He noted that these investments are yielding expected returns, with General Mills growing or holding pound share in 8 of its top 10 U.S. categories.

The company is also adjusting price/value across roughly two-thirds of its portfolio to manage competitive gaps, with most of these adjustments completed in Q1 and the remainder scheduled for Q2. This strategy has contributed to household penetration growth in North America Retail for the first time since fiscal 2022. The forward P/E ratio of 13 for General Mills represents a discount compared to many peers in the packaged-food sector, suggesting a potential undervaluation given its long-term strategic initiatives.

Analyst Perspectives and Future Outlook

RBC Capital Markets analyst Nik Modi reiterated an Outperform rating on GIS with a price target of $63, suggesting confidence in the company's ability to navigate current challenges. Modi indicated that the FY26 EPS guidance likely provides sufficient cushion.

General Mills reaffirmed its full-year fiscal 2026 financial targets. The company expects organic net sales to range between a 1% decline and a 1% increase. Adjusted operating profit and adjusted diluted EPS are both projected to decline by 10% to 15% in constant currency for the full year.

CFO Kofi Bruce noted that profit results would remain pressured in Q2 due to the unwinding of Q1's favorable inflation phasing and trade expense timing, but anticipated "favorable comparisons in the second half of the year," particularly in Q4. The company anticipates a return to dollar growth after the initial phase of price investments, leading to stronger, more sustainable, and more profitable growth over the long term. The strategic rollout of approximately 5,000 coolers for the Blue Buffalo fresh pet food line by the end of Q2 FY2026 is a key initiative to watch.