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General Mills Inc. said its supply chain is working “effectively” despite the surge in demand due to the coronavirus pandemic, and the food company’s guidance assumes that will continue.
“Importantly, our supply chain is operating effectively around the world, and we’ve been able to service the vast majority of customer demand to-date,” said Jeffrey Harmening, chief executive of General Mills, on the company’s fiscal third-quarter earnings call, according to a FactSet transcript.
General Mills’ GIS, -0.58% sales number missed expectations, but Harmening said on the call that sales for the week ending March 7 were up in the double digits, including in the pet category. And for the week ending March 14, the company expects sales to be “many times higher.”
General Mills brands include Cheerios cereal, Yoplait yogurt, Cascadian Farms and Annie’s organic foods.
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Nielsen notes that sales of dry beans increased 62.9% for the week ending March 7, sales of rice were up 57.5% and sales of powdered-milk products were up 126.3%. Nielsen notes that consumers were seeking out shelf-stable items as sales of fresh fruit and vegetables declined.
The company assumes that the “stock-up demand” will decline in the coming months, but at-home food demand will remain elevated into the fourth-quarter with the bulk of any deceleration happening in fiscal 2021.
Harmening left the door open for disruption should the pandemic worsen. But General Mills’ guidance assumes no further deterioration, though he said broad uncertainty drove the company to offer wider outlook range than usual.
“Our outlook assumes we continue to operate our supply chain with minimal disruption, but this could change if the virus situation worsens materially,” he said, adding that service levels are well over 90%.
“And so certainly, up until this point in time, the supply chains have been working very well, despite maybe you see pictures of store shelves being empty, I can tell you that food continues to flow,” Harmening said. “We continue to make it. Our retail partners continue to stock as quickly as they can, and that all is actually working pretty well.”
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General Mills expects organic net sales to increase 1% to 2% for fiscal 2020. The FactSet consensus is for sales of $17.28 billion, implying a 2.5% increase from 2019.
General Mills stock slumped 7.1% in Thursday trading, but has gained 10.7% over the past year. The S&P 500 index SPX, -4.34% has fallen 13.7% for the last 12 months.
General Mills says it’s working with retailers to adjust the supply chain, for instance reducing the number of individual items, or SKUs (stock-keeping units), to focus on major labels.
“Some sectors provide essential goods and services that would remain necessary even if outbreaks worsened,” wrote Moody’s analysts wrote in a report that provides a “Coronavirus Heat Map.”
“Grocery stores would likely remain open… supporting demand for products from sectors like food and beverage and natural products processors,” the report said.
Moody’s notes that grocery stores remain open even in places like New Rochelle, NY and Lombardy in Italy that are “heavily-restricted containment zones.”
UBS analysts maintained their neutral stock rating and raised their price target $1 to $56.
“The key debate for General Mills, and for the broader food group, is twofold: what is the duration of the food-at-home trade; and does baseline demand change as a result of social distancing and work-from-home,” analysts led by Steven Strycula wrote in a note to clients.
