When General Mills (GIS -0.77%) reported fiscal 2024 second-quarter earnings on Dec. 20, the news was mixed. While the company managed to grow adjusted earnings 14% year over year, the business still fell short of management's expectations in key areas. There were two notable takeaways from this, one about the company and one about the broader consumer environment.
General Mills' quarter wasn't bad, but it wasn't good
It's kind of hard to complain when a company increases earnings at a double-digit pace, so on some level, General Mills is doing OK. But when you look past that headline number, there were a few troubling trends.
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For example, organic revenue fell 2%, a reversal of the the 4% growth reported the previous quarter. To be fair, looking at the two-year annualized rate, organic sales were higher by 4%, but that includes outsized gains in the year-ago period driven by the price increases used to offset the impact of inflation. The clear takeaway is that organic sales are weakening.
The ability to grow earnings, meanwhile, was driven largely by General Mills' cost-cutting efforts. It is good news that the food maker was able to keep costs in check, bu a superior outcome would be improving sales and cost cuts working in tandem.
General Mills lowers guidance
Against this backdrop, General Mills lowered its full-year fiscal 2024 organic sales guidance from the previous range of 3% to 4% growth to a range of flat to down 1%. That suggests that there are more hard times ahead for this consumer staples giant. To be fair, earnings guidance remained roughly similar, but that's likely driven by the cost savings noted above.
There's a broader takeaway here. For starters, General Mills isn't the only company grappling with weakness among consumers. Discount retailers like Dollar Tree and banks like Bank of America are also highlighting the increasing stresses faced by their customers. Dollar Tree is seeing more wealthy customers trade down to its stores, for example, while Bank of America is increasing its reserves so it is better positioned to handle an increase in delinquencies. General Mills is just one more name to add to the list.
Be ready for a tough year in 2024
Although Wall Street rallied dramatically to end 2023, that may only increase the impact that a slowdown in consumer spending ends up having on investor sentiment. At this point, it seems like General Mills is bracing for a difficult stretch in the new year.
Expect increased competition for every consumer dollar and perhaps weaker earnings even as the company attempts to cut costs. But this story is bigger than General Mills with other companies echoing similar concerns. As this all plays out, last year's rally could prove to be just a temporary reprieve before a more dramatic downturn arrives. General Mills is just the latest company telling the market to be prepared.
