With the rollout of a vaccine sparking hope that the pandemic's end is coming, General Mills is preparing for a possibly long transition period back to normalcy during which demand for at-home food will remain high.
"I think a lot of people think it's like a light switch — like there's a pandemic on and then there's an off switch, and it's all of a sudden done," Jeff Harmening, chief executive of General Mills, said Thursday. "I think it's going to be a dimmer switch."
For the consumer packaged-goods industry, that will probably mean elevated levels of eating at home for another six months to a year, he said.
Harmening and other General Mills executives are breaking the recovery down into three distinct phases that are informing their projections and best guesses: pandemic, transition and post-pandemic. And they are looking to the recovery of their China business for clues about that intermediate phase.
The novel coronavirus that became a global pandemic first surfaced in Wuhan at this time a year ago, shutting down society in that country in January 2020. China has been in recovery mode for the last six months, but Harmening said demand for their grocery-store products there still outpace what demand was before the virus. And foot traffic at its Häagen-Dazs ice cream shops in China is returning, albeit sluggishly.
"Will the U.S. [recovery] play out exactly like China?" Harmening said. "I'm not sure ... but I think it will at least give us some hints beyond pure speculation about consumer behavior and how consumers respond."
The American population probably won't reach critical inoculation levels until spring or summer. Even then, many U.S. workers will continue working from home on at least a part-time basis.
As such, General Mills expects elevated demand for its retail products to remain higher once lockdowns end and the population is vaccinated.
"The consumer eating habits, while they may change from what they are now, that doesn't necessarily mean they are going to go all the way back to where they were before, or at a minimum, aren't going to go back as fast," he said.
The Golden Valley-based food maker announced a 19% boost to its profit this fall, a sunnier result than Wall Street analysts expected. But the company scrapped its guidance to investors for the next six months, noting the unpredictability of the "magnitude and duration of the elevated at-home food demand" created by the COVID-19 pandemic.
The company earned $688 million for the three months ended Nov. 29, the second quarter of its 2021 fiscal year. That translated to adjusted earnings per share of $1.06, which beat the consensus forecast of analysts of 97 cents per share.
Net sales of $4.7 billion also surpassed the revenue expectation of $4.65 billion.
The company's stock rose 1.4% on Thursday.
Sales for baking goods, such as Gold Medal flour, skyrocketed in the spring before settling to moderately elevated levels. Cold cereal, the company's hallmark product, has also sold at higher rates as schoolchildren eat breakfast at home and adults, burnt out on cooking, use it as a quick meal substitute. Both those categories, Harmening noted, are higher-margin foods.
Americans are still baking at higher levels as these sales trends continued for the most recent quarter. General Mills' meals and baking products, usually a steady-but-sleepy category for the company, tallied the largest year-over-year gains within its U.S. food market.
The pandemic has also led to an increase in pet adoptions and pet owners, creating demand in General Mills' Blue Buffalo brand, which posted double-digit gains.
General Mills is a part of the consumer-staples segment that tends to be countercyclical to the broader economy, thriving during recessions and crises when consumers focus on basic needs. With the boost in sales and profits it saw this year, General Mills paid down debt more quickly than anticipated.
Kristen Leigh Painter • 612-673-4767