General Mills F2Q25: Consumers Pinching the Dough

• GIS reported additional instances of value-seeking behavior from consumers in its F2Q25 characterized by more at-home meal prep and increased promotional investments. Reported F2Q25 results benefitted from favorable holiday timing, and GIS recorded a 2.0% YoY increase in net sales with modest YoY margin expansion.
• Management lowered its F2024 guidance due to expectations for more value-seeking behavior. GIS now forecasts F2025 organic sales down 1% vs prior expectations for a 0-1% decline, and F2025 adjusted operating income down 2-4% vs previous guidance for a 0-2% decline.
• Leverage metrics were relatively stable and management estimates PF net leverage in the low-3x area following recent deals to divest its North America yogurt business and an acquisition of several pet food brands. GIS expressed comfort with the current leverage profile, which is consistent with historical levels.

Relative Value

Given GIS’s recently announced acquisition of Whitebridge Pet Brands’ North American business ($1.45 bn), we anticipate a modest period of deleveraging at GIS (see General Mills: Adds Pet Foods Biz for $1.45 bn). Further, to the degree that GIS spreads offer any incremental pickup relative to comparable Mondelez notes, we would be comfortable with that trade. Overall, though, we still prefer SJM to both credits given the deleveraging outlook and the potential for modest spread compression towards mid-BBB comps in 2025.

On the subject of 2025 risks, GIS’s outlook points to some likely margin compression in the calendar year to come, given the need for increased promotional activity to improve volume alongside consumer resistance to higher prices. However, we do not expect this to offset the company’s ability to reduce leverage following its M&A activity, which management said will push pf net leverage into the low 3x area.