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A slowdown in snacking and strong-than-anticipated retailer inventory headwinds led to General Mills (GIS -1%) delivering an unappetizing Q3 (Feb) report, missing revenue expectations and registering a sharp pullback in consolidated volumes. The weakness endured during Q3 is also spilling over into the final quarter of the year, underpinning the consumer packaged goods giant's lowered FY25 (May) guidance after already reducing it in late January.

At the same time, tariff headwinds loom. GIS commented today that even though new U.S. tariffs on steel and aluminum and Chinese imports are not projected to be material to its FY25 results, it has not included any fallout from potential tariffs that are currently paused, keeping a layer of uncertainty around near-term results.

• In Q3, EPS came in at $1.00, translating to a minor beat, a reversal from the double-digit upside GIS registered last quarter. This was not overly surprising, given that GIS announced in December that it would accelerate its investments over the next couple of quarters to sustain its market share momentum and position the company for sustainable growth in FY26. Also, last quarter's big beat was largely attributed to timing, which was not expected to continue during the back half of FY25.
• More surprising was that every segment saw volumes contract yr/yr in Q3. North America Retail was the laggard, recording a 6% decline, while all other divisions fell by 1%. The result was a 5% decline in reported and organic revenue yr/yr to $4.84 bln, missing expectations for the second time in four quarters.
• Weakening snacking demand mostly fueled the decline in North America Retail volume. GIS cautioned last month that it noticed softness in snacking but was unsure of the magnitude. Peers also warned of the trend. PepsiCo (PEP), which owns the Frito-Lay banner, noted last month that after five years of rapid growth in snacking, it encountered a noticeable slowdown. Also, J.M. Smucker (SJM) commented last month that consumers bought fewer snacks in JanQ, reflecting more cautious and selective behavior.
  • On a side note, snacking peers reporting earnings next month could endure a similar material slowdown in the category, including Conagra (CAG), Hershey Foods (HSY), Kraft Heinz (KHC), Mondelez (MDLZ), and PEP.
• Additional headwinds weighed on GIS's other segments in Q3. In North America Pet, retailer inventory challenges suppressed growth. In North America Foodservice, GIS dealt with a material deceleration in demand in away-from-home channels. In International, robust market share in most regions was offset by headwinds from a less favorable consumer environment in China, GIS's largest market outside North America.
• For the remainder of FY25, GIS is not expecting improvement. The company sliced its organic net sales growth to down 1.5-2.0% from flat to up 1.0% and adjusted EPS growth in constant currency to fall by 7.0-8.0% versus its prior forecast of declining by 2.0-4.0%.

GIS's Q3 report reflects a challenging demand landscape ripe with stubborn headwinds and elevated tariff-related uncertainty. Inflationary pressures are eating into consumers' budgets while geopolitics are triggering a pullback in spending, both much more so than the increased use of GLP-1 weight loss drugs; GIS mentioned that it did not notice much change in snacking due to GLP-1 use but rather frail consumer confidence. As such, GIS may remain pressured until consumer confidence begins to recover, which would mean that tariff uncertainty and inflation must ease.