What happened

Shares of General Mills (GIS -1.22%) were moving lower today after a decline in volume in its fiscal second-quarter earnings report seemed to spoil an otherwise strong round of results as the company beat estimates on the top and bottom lines and raised its guidance for the fiscal year.

As of 10:20 a.m. ET, the stock was down 4.5% on the news.

A person eating a bowl of cereal.

Image source: Getty Images.

So what

General Mills, which is best known for its cereals like Cheerios, also owns food brands like Yoplait yogurt, Häagen-Dazs ice cream, and Blue Buffalo pet food.

The company's revenue rose 4% to $5.22 billion, while organic sales -- which exclude divestitures, acquisitions, and currency exchange -- jumped 11%, benefiting from higher prices. That figure edged out estimates at $5.19 billion.   

Adjusted gross margin was up 100 basis points to 33.2% as the company was able to pass along higher prices, and adjusted operating margin rose 60 basis points to 16.9%. On the bottom line, the company finished the quarter with adjusted earnings per share (EPS) of $1.10, up 12% in constant currency and slightly better than the consensus at $1.06.

In spite of those results, organic volume sales were down 6 percentage points overall, falling 7% in its core North American retail segment and 11% in pet, showing that consumers may be trading down to lower-priced alternatives or are balking at the company's price hikes.

CEO Jeff Harmening said, "Amid ongoing volatility in the operating environment, we remain focused on driving our Accelerate strategy by investing in brand building and innovation, strengthening our capabilities, and continuing to reshape our portfolio."

Now what 

In its outlook, the company said that it expects performance to continue to be affected by inflation, consumer spending, and supply chain disruptions, but it raised its guidance, seeing improvements on both volume and price sales/mix. 

It now expects organic sales to increase 8% to 9%, compared with an earlier forecast of 6% to 7%. And it sees adjusted EPS up 4% to 6%, compared with its previous range of 2% to 5%.

Despite that guidance hike, investors seemed fearful of the inflation warning, as well as the decline in volume, as price hikes will only take the company so far. There also may be concerns that the valuation is stretched with the stock up 24% this year as investors seek safety in consumer staples stocks.