General Mills (GIS, Financial) is nearing its 2024 lows after reducing its FY25 profitability guidance, despite achieving its largest earnings beat in over five years during Q2. The company now expects adjusted EPS to decrease by 1-3% year-over-year in FY25, a significant shift from its previous forecast of a 1% decline to a 1% improvement.

The lowered guidance is due to two main factors. First, General Mills plans to increase investments in the coming quarters, following significant market share gains in the first half of FY25, which will impact its bottom line. CEO Jeff Harmening stated that these investments aim to position the company for sustainable growth in FY26. Second, Q2 results were bolstered by timing-related items, contributing six points to EPS, which are expected to reverse in the second half of FY25.

Despite the reduced FY25 earnings outlook, several positive developments in Q2 suggest growing momentum as the company heads into 2025.

• Volumes increased by 3% year-over-year in Q2, marking the first positive change in ten quarters. This growth was driven by a 9% volume jump in the North America Pet segment, attributed to successful brand campaigns and product renovations.
• The North America Retail segment showed improvement, with volumes decreasing by only 1% in Q2 compared to a 3% drop in Q1 and a 6% decline in Q4. Investments in this segment, such as the cookie line expansion and marketing campaigns, supported these gains.
• Both North America Foodservice and International segments experienced a 5% volume increase in Q2. The Foodservice segment benefited from its strong presence in K-12 schools and its ability to adapt to changing nutrition standards. Internationally, categories are returning to pre-pandemic levels, aiding market share growth.
• Overall, General Mills returned to positive year-over-year net sales growth after four quarters of decline, with a 2.7% increase to $5.24 billion in Q2. Organic net sales rose by 1%, reversing previous declines, and the company reaffirmed its FY25 organic net sales growth forecast of flat to up 1%.

General Mills' Q2 results showcased a return to positive volumes and momentum across segments. However, the lowered FY25 earnings guidance has disappointed investors, especially given the strong bottom line performance in Q2. Despite the timing challenges, the company is leveraging its current momentum through strategic investments, making it a potential opportunity at current levels.