In the equity market right now, no one knows anything. Market volatility is at its highest level since the early days of the coronavirus pandemic. News flow from the recent trade war launched by the Trump Administration is a key factor, but not the only one. Packaged foods companies like General Mills have faced undeniable challenges.
As we wrote at the time, immediately after “Liberation Day”, when global tariffs were first announced, investors were buying food stocks in response. Two weeks later, General Mills stock is threatening to hit a four-year low.
In that context, it’s worth revisiting General Mills’ fiscal third quarter earnings report, which came in March before the broader tariffs were announced. Even then, there’s some clear sign of caution for the industry as a whole.
That caution can be summed up in a sentence from CEO Jeffrey Harmening during the pre-recorded portion of the earnings call: “Stepping back, it’s been a challenging year in fiscal ‘25, with prolonged value-seeking consumer behaviors and volatility in the operating environment.” And it bears repeating: Harmening was talking up “volatility in the operating environment” before the launch of the trade war.
To be fair, General Mills isn’t significantly exposed, given that 95% of its sourcing comes from the U.S. But at a conference in February, Harmening did note that tariffs on Canadian goods and on steel (used in packaging of course) could be a risk. Indeed, at the time the company was uncertain enough that it didn’t reiterate guidance at that conference; instead, it lowered its outlook after a difficult third quarter, in which revenue declined a sharp 5% year-over-year. Forecasts for fiscal 2026 now to include pressure from tariffs on Canada and on steel.
The negative commentary coming out of Q3 focused in large part on a consumer that remains exceptionally cautious. Harmening noted in the Q&A portion of the earnings call that the environment simply didn’t improve in the way he expected, noting:
“Consumers are still seeking value as much or more than they had when our fiscal year began,” General Mills’ CEO said.
The broad-based nature of that trend can be seen in the company’s results, which were weak everywhere.
North America Retail revenue was down 6% excluding a small divestiture, with volume off 5%; snacks were a particular problem area. The pet business, centered on Blue Buffalo, saw volume drop 3%. Foodservice volume was down modestly, as well.
At the same time, General Mills claimed that it was holding or gaining market share in the quarter – which suggests broader category weakness, and similarly weak results from peers in the months ahead. And if the trade war pressures input costs and/or drives macroeconomic weakness, the desire by consumers to trade down from major labels is only going to increase.
In other words, General Mills’ earnings portend some potential weakness across the packaged foods space as 2025 rolls on. But both the results and the commentary also highlight just how much has changed for the packaged food industry over decades, not just months or years. On the call, Bernstein analyst Alexia Howard pointed to General Mills’s weakness in snacks as unusual, noting that in past downturns like the 2008-09 financial crisis, snacks did well as “a sort of feel-good treat.”
Harmening’s explanation was that consumers simply weren’t confident enough. He added that penetration of food at home now is elevated versus the pre-pandemic environment, at about 87% versus a prior 83%. And so General Mills isn’t getting the benefit of the recessionary trade down from eating out to eating at home; there’s simply less room to trade down than there was in 2008.
Whether or not that explanation is correct – and it’s likely not the whole story – it’s certainly a concern for General Mills. If there isn’t a tailwind coming for General Mills when the economy turns down, why, exactly, are investors supposed to own the stock?
General Mills stock has badly lagged the market rally on the way up: including dividends, shares have returned 41% over a decade, while on the same basis the S&P 500 has nearly tripled on.
But a key positive for the stock, in theory, is that it should outperform on the way down. Harmening’s explanation suggests that might not be the case.
To be fair, General Mills and other branded food players did outperform in 2022, when the broad market sold off. But that wasn’t a real recession, but rather a pivot away from growth stocks amid a bout of inflation.
And it is interesting to go back to the last real economic crisis. Sixteen years before its most recent earnings call, General Mills reported earnings for the third quarter of fiscal 2009. The global economy was in absolute turmoil; the S&P 500 had reached its crisis low less than two weeks previously. Yet commentary from the company was completely different.
Profit guidance for the year was raised. Strength was broad-based, with cereal, meals, and baking all growing nicely. (Perhaps supporting Harmening’s current argument, the CEO at the time, Ken Powell, attributed the strength in meals to “more people eating at home”.) Then-chief financial officer Don Mulligan closed his prepared remarks by noting (as is the case now) a “challenging environment,” but then insisted that “our businesses are performing well and we’re positioned for continued growth.”
The difference in tone sixteen years apart is absolutely striking. In 2009, amid turmoil, General Mills executives repeatedly exuded confidence in their brands and in their business. They saw a company that could manage through a difficult environment. In 2025, with a different (and increasing) kind of turmoil, their successors sound very different. They sound uncertain and nervous.
It’s not hard to think the problem is bigger than consumers eating at home more. It might be that the power of the brands owned by General Mills – and its peers – simply isn’t what it was a decade and a half ago. And if that’s the case, for packaged foods the next recession is likely to be very different from the last one.
About the author: Vince Martin is an analyst whose work has appeared on multiple financial industry websites for more than a decade; he’s currently the lead writer for Wall Street & Main. He has no positions in any securities mentioned.
The Food Institute Podcast
It’s tariff time, and companies the world over are working to better understand how their operations will be impacted. Jodi Ader from RSM US LLP joined The Food Institute Podcast to discuss which products and inputs are currently subject to tariffs, and how to best mitigate supply chain risks.
